GLOBAL credit ratings agency S&P downgraded Kenya’s credit rating on Friday from ‘B’ to ‘B-,’ citing concerns over the country’s fiscal outlook following the recent repeal of the 2024/2025 Finance Bill. The downgrade comes after President William Ruto decided to abandon the government’s finance bill, which included tax hikes worth KSh346bn ($2.69bn). The bill was scrapped after widespread protests that resulted in over 50 deaths.
S&P highlighted that this decision will slow down Kenya’s efforts toward fiscal consolidation, which had been part of an IMF-supported programme. The agency stated that the downgrade ‘reflects our view that Kenya’s medium-term fiscal and debt outlook will deteriorate’ due to the government’s move to cancel the proposed tax measures.
In response to the downgrade, the Kenyan government revised its 2024/25 financial year budget, cutting some spending and increasing the local borrowing target to address the wider fiscal deficit. Despite these adjustments, S&P expressed concerns about Kenya’s large external imbalances, which remain a significant vulnerability.
However, the agency maintained a stable outlook for Kenya, citing expectations of strong economic growth and continued access to concessional external financing. These factors are anticipated to offset the challenges posed by high interest costs, slow fiscal consolidation, and structural imbalances.
This downgrade follows similar actions by other credit rating agencies, including Moody’s, which downgraded Kenya further into junk status in July, and Fitch, which also downgraded Kenya’s sovereign rating to ‘B-‘ earlier this month. The series of downgrades has contributed to a decline in Kenya’s dollar bonds.
As Kenya navigates these financial challenges, the IMF board is expected to meet next month to approve a $600 million disbursement as part of Kenya’s $3.6bn lending programme, which is set to expire next year.
