Moody’s further downgraded Kenya’s debt rating to junk territory and warned the outlook was negative after a wave of protests led the government to abandon proposed tax hikes.
President William Ruto, facing the most serious crisis of his nearly two-year presidency, last month rejected a budget bill aimed at replenishing state coffers and reducing his massive debt.
The move came after widespread protests led by young Gen-Z Kenyans against tax hikes that threatened to add to the economic hardship of people already affected by the cost of living crisis.
The US-based rating agency said in a statement on Monday that it is downgrading Kenya’s sovereign debt ratings by one level to Caa1 — deemed to have “very high credit risk”.
The new rating, and Moody’s negative outlook for the country, are likely to further increase borrowing costs for the cash-strapped government.
Moody’s further cuts Kenya’s debt rating to junk
“in debt”
Moody’s said the downgrade reflected the “significantly reduced ability” of one of East Africa’s largest economies to raise taxes and reduce debt.
“Specifically, the government’s decision not to pursue planned tax increases and to rely on spending cuts to reduce the fiscal deficit represents a major policy shift with significant implications for Kenya’s fiscal trajectory and financing needs,” it said.
“Amid heightened social tensions, we do not expect the government to be able to introduce significant revenue-raising measures in the near future.”
On Tuesday, Ruto defended the government’s financial strategy, saying it was designed to “remove the country from the risk of debt and put us on a path of economic transformation”.
His government is under pressure from the International Monetary Fund, which has called for fiscal reforms in order to access critical financing.
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But Ruto announced on June 26 that he was withdrawing the finance bill aimed at raising an extra $2.7 billion after largely peaceful protests over the tax hikes turned deadly.
At least 39 people have been killed since the protests began on June 18, according to the national rights commission.
While the rallies have eased, protest action has broadened into a campaign against perceived state excess and corruption, alongside calls for Ruto to go.
Last Friday, the president said his government needed to compensate for a lack of additional tax revenue by announcing budget cuts of 177 billion shillings ($1.4 billion) and additional borrowing of about 169 billion shillings.
He said on Tuesday that the country must tackle priority issues such as the debt mountain, public spending and anti-corruption measures.
Kenya’s public debt already stands at about 10 trillion shillings, about 70 percent of gross domestic product.
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The Kenya Revenue Authority on Monday said it collected 2.4 trillion shillings in the financial year ended June 30, an increase of more than 11 percent from the previous year but 4.5 percent below the target.
Despite the turmoil, the Kenyan shilling has remained largely stable, hovering around 128 to the dollar, after falling to a record low of more than 160 in January.
In another move aimed at placating his critics, Ruto also announced on Tuesday an agreement to set up a committee to appoint members of the Independent Electoral and Boundaries Commission.
The body has been at the center of a bitter row over the outcome of the 2022 election that brought Ruto to power when some of his commissioners rejected the results.
Source: AFP