Nairobi, Kenya – Kenya’s creditworthiness took a hit on Monday as Moody’s, a credit ratings agency, downgraded the country’s sovereign rating further into “junk” territory. This move reflects concerns about Kenya’s ability to manage its growing debt burden.
Moody’s cited the government’s struggle to implement a fiscal consolidation plan – a strategy to reduce budget deficits and control debt – as the primary reason for the downgrade. The agency lowered Kenya’s local and foreign currency issuer ratings, as well as its foreign currency debt ratings, to a deeper level of risk.
This decision comes after Kenyan President William Ruto scrapped a planned tax increase in June following deadly protests. The scrapped tax measures were intended to raise an additional $2.7 billion to help narrow the budget deficit and reduce reliance on borrowing.
While the government has proposed spending cuts to compensate for the lost revenue, Moody’s believes these measures will only have a gradual impact. The ratings agency predicts that Kenya’s debt affordability will remain a challenge for an extended period. Further, Moody’s expressed doubts about the government’s ability to introduce new revenue-raising measures in the near future, citing heightened social tensions.
The negative outlook assigned by Moody’s indicates a possibility of further downgrades in the future if Kenya fails to address its fiscal challenges. Higher deficits are expected to increase borrowing needs, potentially leading to liquidity issues for the government.
