The American credit rating company Moody’s has downgraded Kenya to the lowest level of debt repayment.
According to Moody’s, Kenya has been Demoted to Caa1 (Rated as poor quality and very high credit risk) from B3 (Judged as being speculative and a high credit risk). The outlook remains negative.
This means that Kenya will pay its debt with the highest interest rate.
Moody’s has warned that the situation is not good for the country following the wave of protests that led the government to discard the proposed tax increase.
President William Ruto, facing the biggest crisis in his almost two-year presidency, last month rejected a Finance Bill (2024) aimed at filling the government’s coffers and helping reduce its huge debt burden.
The move was taken after a massive protest led by Kenyan youth known as Gen-Z against the tax increase which threatened to increase the economic hardship of people who are already facing high cost of living.
This new estimate by Moody’s organization, and its negative view on Kenya, may further increase the cost of borrowing for the government facing financial problems.
Moody’s said the downgrade reflects Kenya’s “diminished ability” to raise taxes and reduce its debt.
“In particular, the government’s decision not to pursue planned tax increases and instead rely on spending cuts to reduce the fiscal deficit represents a major policy shift with material implications for Kenya’s fiscal direction and fiscal needs. In the context of great social tension, we do not expect the government to be able to introduce the necessary measures to increase revenue in the future.” Reads part of the report
President Ruto announced on June 26 that he was withdrawing the finance bill which aimed to raise more than $2.7 billion after peaceful protests against the tax hike turned into chaos.
According to the National Human Rights Commission, at least 39 people have been killed since the protests began on June 18, as anger over the tax hike turned its pressure into an ongoing campaign against Ruto and his government.
Last Friday, Ruto said the government had to make up for the lack of additional tax revenue, announcing budget cuts of 177 billion shillings ($1.4 billion) and additional borrowing of around 169 billion shillings.
Kenya’s national debt already reaches about 10 trillion shillings, about 70 percent of the nation’s gross domestic product.
Despite the upheaval, the Kenyan shilling has largely remained strong at the moment with one dollar being exchanged at 128 shillings, after falling to 160 shillings to one US dollar in January.
The Kenya Revenue Authority, KRA, announced that it had 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.
