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.
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Moody’s said the downgrade reflected Kenya’s “significantly reduced ability” 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.”
Ruto announced on June 26 that he was withdrawing the finance bill aimed at raising an extra $2.7 billion after peaceful protests over tax hikes turned deadly.
At least 39 people have been killed since the protests began on June 18, according to the national rights commission, as anger over the tax hikes escalated into an ongoing campaign against Ruto and his government.
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Last Friday, Ruto said the government needed to make up for the lack of additional tax revenue by announcing budget cuts of 177 billion shillings ($1.4 billion) and additional borrowing of about 169 billion shillings.
Kenya’s public debt already stands at about 10 trillion shillings, about 70 percent of gross domestic product.
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.
The Kenya Revenue Authority said on Monday it collected 2.4 trillion shillings in the financial year ended June 30, an increase of more than 11 percent, but 4.5 percent below the target.
Source: AFP