NAIROBI, Kenya – Kenya’s economic landscape hangs in the balance as Standard and Poor’s (S&P) prepares to review the country’s B credit rating on August 23.
The international credit rating agency might downgrade Kenya’s credit score to B- or retain its negative outlook, a move that could further exacerbate the nation’s financial woes by making international credit more difficult and expensive to obtain.
The anticipated credit review comes in the wake of significant social and political unrest in Kenya.
Following widespread antigovernment protests aimed at ousting corrupt and incompetent leaders, President William Ruto’s administration has faced mounting pressure.
This turmoil led to the abandonment of proposed tax hikes and the dismissal of the entire cabinet, further destabilizing the country’s economic environment.
“We are waiting until the scheduled review date to decide whether to cut Kenya’s sovereign credit rating,” said Giulia Filocca, S&P’s lead analyst for Kenya. “The situation is rapidly evolving, and we need to analyze the implications of recent events, including the Appropriation Bill, the final budget, and the new cabinet.”
While S&P has taken a cautious approach, Moody’s recently downgraded Kenya’s debt status, painting a bleak picture of the country’s economic health.
Moody’s moved Kenya from a B3 rating, indicating speculative and high credit risk debt obligations, to a Caa1 rating, suggesting very high credit risk and poor debt obligations.
This downgrade was attributed to Kenya’s failure to implement fiscal consolidation measures necessary to reduce default risks.
The dual downgrades by leading credit rating agencies have plunged Kenya into a budgetary crisis.
President Ruto’s government had planned to generate Sh347 billion from tax measures outlined in the now-scrapped Finance Bill to fund the Sh4 trillion budget.
With these revenue streams cut off, the National Treasury’s goal of slashing overall borrowing by 50 percent to achieve a balanced debt by 2027 now seems untenable.
Addressing the nation on June 26, President Ruto announced austerity measures to mitigate the budget shortfall.
The planned budget for 2024/25 will be reduced by 1.9 percent, a move aimed at offsetting the lost revenue from the canceled tax hikes.
Despite these efforts, Ruto acknowledged that borrowing remains necessary to meet the country’s budgetary needs, given the current public debt of Sh11.3 trillion.
Economists warn that the downgrades present significant challenges for Kenya.
“These downgrades mean two things: no credit or high interest,” said Patrick Pkomu, an economist.
