Moody’s cuts Kenya ratings after deadly protests wreck tax plans
Moody’s Ratings cut its rating of Kenya’s credit deeper into junk after deadly protests forced the government to scrap a plan to raise more than $2 billion in new taxes. The East African nation’s dollar bonds weakened.
The credit assessor reduced Kenya’s rating one level to Caa1 from B3 and maintained its negative outlook on the country’s debt, Moody’s said in a statement on Monday. The company doesn’t expect the government to introduce significant revenue-raising measures in the foreseeable future, given heightened social tensions.
“The downgrade of Kenya’s rating reflects significantly diminished capacity to implement revenue-based fiscal consolidation that would improve debt affordability and place debt on a downward trend,” Moody’s said.
Kenya’s dollar bonds fell, with the 2031, 2032 and 2048 notes among the 20 worst performers in emerging markets. The 2031 notes dropped 0.6 cents on the dollar to 96.78 cents. The yield on the bond rose for the first day in six, rising 11 basis points to 10.52% by 10:53 a.m. in the capital Nairobi, according to data compiled by Bloomberg.
President William Ruto last month withdrew a plan to improve state finances and access more International Monetary Fund financing after anti-government protests that killed at least 41 people. While the fiscal reform plans had cheered markets, they triggered demonstrations by residents struggling with rising food prices and a youth unemployment rate that the Federation of Kenya Employers puts at as high as 67%.
Kenya’s National Treasury said it will slash expenditure and increase borrowings.
The government had planned to introduce new taxes to help raise an additional 346 billion shillings ($2.7 billion) in the fiscal year that began on July 1. Instead, the Treasury will reduce expenditure by 177 billion shillings and borrow the balance.
Kenya’s outlook remains negative, reflecting downside risks related to government liquidity, according to Moody’s. Updated forecasts continue to assume a narrowing of the fiscal deficit through spending cuts, but at a more gradual pace than previously assumed, it said.
“As a result, we now expect the fiscal deficit to narrow more slowly, with Kenya’s debt affordability remaining weaker for longer,” according to the Moody’s statement.
