Moody’s pushes Kenya’s rating deeper into junk after tax plan collapse
TLDR
- Moody's downgraded Kenya's sovereign rating to "Caa1" from "B3" due to challenges in fiscal consolidation and debt management.
- The downgrade came after President William Ruto withdrew planned tax hikes following mass protests, leading to at least 24 deaths.
- Ruto's administration now suggests implementing spending cuts to address the budget deficit caused by the scrapped finance bill.
Moody’s downgraded Kenya’s sovereign rating further into junk territory on Monday, citing the country's diminished capacity to implement a fiscal consolidation strategy to manage its debt burden.
The credit ratings agency lowered Kenya’s local- and foreign-currency long-term issuer ratings and foreign-currency senior unsecured debt ratings to “Caa1” from “B3”. This downgrade follows Kenyan President William Ruto’s withdrawal of planned tax hikes in June, in response to mass protests that resulted in at least 24 deaths.
The scrapped finance bill had included measures to help the government raise $2.7 billion in additional taxes to reduce the budget deficit and state borrowing. To compensate for the withdrawn finance bill, Ruto’s administration has proposed spending cuts.
Key Takeaways
Moody’s does not expect Kenya to introduce new revenue-raising measures following the recent protests on June 25, which resulted in at least 41 deaths. The scrapped 2024 Finance Bill had aimed to generate an additional $2.7 billion to help manage the country's growing debt and fund development programs. Although the spending cuts announced by President Ruto are expected to improve Kenya’s liquidity, Moody’s maintains that the fiscal deficit will decrease more gradually than previously projected. The credit rating agency also anticipates that East Africa’s largest economy will experience prolonged weakness in debt affordability.
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