(Bloomberg) -- Kenya’s debt fell deeper into junk territory after Fitch Ratings cut its credit rating for the country, citing fiscal risks after President Ruto responded to protests by withdrawing a bill that would raise taxes.
The credit assessor downgraded the nation’s foreign-currency ratings to B-, six levels below investment grade, from B. Nigeria, Egypt, Angola and Iraq’s debt is also rated at B- by the agency. The outlook was changed to stable.
The move reflects “heightened risks to Kenya’s public finances after the government backtracked on revenue measures in the Finance Bill 2024 in response to violent social protests, the increased risk to political stability, and rising domestic debt costs, even as the authorities embark on expenditure cuts,” Fitch said in a statement Friday.
Kenya is at high risk of debt distress, according to the International Monetary Fund, and is currently on a $3.6 billion program with the lender to help address its vulnerabilities.
The nation spends more than half of its tax income on debt servicing, leaving it with little room for spending on development projects and needs about $26 billion over the next decade to pay off existing foreign loans.
Attempts to shore up its finances by introducing levies on everything from bread to diapers – meant to raise more than $2 billion and reduce the budget deficit – were abandoned in July after deadly protests. The anti-government demonstrations also led President William Ruto to dissolve his cabinet and reconstitute it with members of the opposition.
The government has since said it will make up the revenue shortfall by paring back its budget and increasing its planned borrowing.
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In a supplementary budget, the National Treasury widened the fiscal deficit to 4.2% of gross domestic product in the year through June 2025 from 3.3% that was anticipated in its initial spending plans presented with the tax changes. Still, that’s lower than an estimated gap of 5.6% in the prior fiscal year.
The nation’s finances may face further strain after an appellate court on Wednesday quashed a raft of taxes introduced in 2023 including doubling value added tax on fuel to 16%, saying the measures were unconstitutional.
Moody’s Ratings has also reduced Kenya’s rating. In July it lowered it to Caa1 from B3 and maintained a negative outlook on the country’s debt, highlighting the nation’s dwindling capacity to raise revenue after it scrapped the tax plans.
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