Moody's Downgrades Kenya's Sovereign Rating to Junk Status
Moody's has downgraded Kenya's sovereign rating to junk status, citing the country's reduced ability to implement a budget consolidation strategy to contain the debt burden. The rating agency has revised downward the country's long-term issuer ratings in local and foreign currency, as well as the senior unsecured debt ratings in foreign currency from "B3" to "Caa1".
In June, Kenyan President William Ruto withdrew planned tax hikes in response to mass protests that turned deadly, resulting in 24 deaths. The cancelled finance bill contained measures aimed at helping the government collect an additional $2.7 billion in taxes to reduce the budget deficit and state borrowing.
To compensate for the withdrawal of the finance bill, the government has turned to reducing expenditures. According to Moody's, this austerity policy is expected to reduce the budget deficit, but at a slower pace than previously anticipated, and therefore expects Kenya's debt-carrying capacity to remain weaker for longer. Furthermore, and in the face of increased social tensions, the government is unlikely to introduce significant tax collection measures in the foreseeable future, the rating agency stated. This is why the rating outlook is "negative". The budget deficit exceeds the borrowing capacity, and consequently, the country's liquidity risks are serious.
Moody's has grilled Kenya on the markets and with international financial institutions. Nevertheless, and despite the security context, the country remains better rated than Tunisia, which is on the path to recovery, in the process of external debt reduction, and has no security incidents. The importance of a rating should be analyzed rationally, although its impact is inevitable.