Moody’s Credit Rating Agency Downgrades Kenya's Ability to Access External Loans, Faults Ruto's Austerity Measures

by Timothy Cerullo on Tuesday, 9 July 2024 - 9:43 am

President William Ruto leading Kenya Kwanza delegation during a meeting IMF managing director Kristalina Georgieva, on Tuesday, November 8, 2022.

PCS

Moody's, a global credit rating agency, on Monday downgraded Kenya's ability to access external loans, citing the government's inability to deal with bulging debt.

According to Moody's, the government's decision to withdraw the Finance Bill and instead rely on budget cuts to reduce the fiscal deficit could cause implications for Kenya's financing needs.

The credit rating agency stated it did not expect the government to introduce significant revenue-raising measures soon following the withdrawal of the Finance Bill 2024.

Moody's downgraded the country's credit ratings to "Caa1" from "B3" and projected Kenya's debt affordability to remain weaker for longer.

Former Treasury Cabinet Secretary Njuguna Ndung'u (left) and Treasury Principal Secretary Chris Kiptoo (centre) preparing to submit the proposed budget to the National Assembly

Photo

National Treasury and Economic Planning

"The negative outlook reflects downside risks related to government liquidity," read part of a statement by the credit rating agency.

"Slower fiscal consolidation would risk constraining external funding options even more, including diminishing support from multilateral creditors which have been the largest source of external financing," the statement added.

Ruto's decision to drop the Finance Bill was also projected to complicate the existing International Momentary Fund (IMF) programs. According to Moody’s, there could potentially be a delay in IMF disbursement.

The IMF programs were expected to provide Ksh124 billion ($976 million) in external funding in fiscal 2025 or about one-third of the government's budgeted net external financing.

The withdrawal of the Finance Bill will also negatively impact investor sentiment and the government's ability to access alternative sources of external financing at moderate costs.

According to the agency, Kenya will also likely face an increase in borrowing costs that will worsen the country's interest burden, necessitating a larger fiscal adjustment to stabilize the debt.

On June 25, President Ruto announced the withdrawal of the contentious Finance Bill 2024 which proposed the introduction of a raft of tax measures.

Ruto's response came following the nationwide protests that were witnessed in various parts of the country and that led to the death of over 41 people.

However, despite withdrawing the Finance Bill, the Head of State proposed budget cuts as part of the austerity measures to deal with the impact caused by the defunct tax bill.