S&P Downgrades Kenya Due to Weaker Fiscal and Debt Outlook, Reports Reuters

Global credit ratings agency S&P has lowered Kenya’s rating from “B” to “B-,” attributing the downgrade to the recent repeal of the country’s 2024/2025 Finance Bill, which it believes will hinder fiscal consolidation efforts.

President William Ruto decided to discard the government’s finance bill, which included tax increases totaling 346 billion shillings (approximately $2.69 billion), in response to protests that resulted in the deaths of over 50 individuals.

S&P stated, “The downgrade reflects our view that Kenya’s medium-term fiscal and debt outlook will deteriorate following the government’s decision to rescind all tax measures proposed under the 2024/2025 Finance Bill.”

In light of this situation, the government has revised its budget for the 2024/25 financial year (running from July to June), implementing spending cuts and raising its local borrowing target to address the increased fiscal deficit. The proposed tax hikes were part of a program supported by the International Monetary Fund (IMF).

The IMF board is set to meet next month to consider a $600 million disbursement as part of Kenya’s $3.6 billion lending program, which is scheduled to conclude next year. Although Kenya has experienced a slight reprieve from immediate external liquidity pressures, S&P emphasized that the country’s significant external imbalances remain a critical vulnerability.

Despite the downgrade, S&P has maintained a stable outlook for Kenya, projecting robust economic growth and ongoing access to concessional external financing, which will help mitigate challenges posed by high interest rates, slow fiscal consolidation, and structural imbalances.

In contrast, Moody’s downgraded Kenya’s credit rating further into junk status in July, while Fitch recently lowered Kenya’s sovereign rating from “B” to “B-,” leading to a decline in the value of its dollar bonds.