American credit rating agency, Fitch Rating, has warned Kenya to brace for three consequences should the Finance Act, challenged in court by Busia Senator Okiya Omtatah, drag on.
Fitch Rating issued the warning after downgrading Kenya's credit score from a B to a B - (minus), setting the country on a path towards broader economic implications such as reduced investment.
The agency compounded Kenya's economic crisis by predicting that prolonged uncertainties around the Finance Act saga could undermine the government's fiscal consolidation strategy.
Kenya may face a cash crunch, forcing the government to seek more loans to finance development projects outlined for the 2023/24 financial year.
President William Ruto had hoped to raise money through the Finance Act 2023, which introduced new tax avenues such as the Housing Fund and the Digital Asset Tax.
"The Finance Bill 2023, which seeks to enhance revenue mobilisation, was signed into law in end-June and could bring about 1.5 per cent of GDP in additional revenue.
"High Court has suspended its implementation, and further delays could undermine the government's fiscal consolidation strategy, increase financing needs, and negatively impact domestic financing conditions," read the statement by
Omtatah challenged the Finance Act in court following the introduction of new tax measures, which he indicated were unreasonable owing to the current taxation and deductions.
Consequently, High Court Judge Mugure Thande, on Friday, June 30, suspended the Act's implementation until the matter was heard and determined.
Notably, the Finance Act has been a major contributor to the ongoing demonstrations, which Fitch Rating explained would also derail the economy.
"Kenya has a low World Bank Governance Indicators (WBGI) ranking at 31.6, reflecting a recent track record of difficult political transitions, weak institutional capacity, uneven application of the rule of law and a high level of corruption," Fitch stated.
Economic Outlook
The agency forecasts GDP growth of 5.2 per cent in 2023 owing to bumper harvests expected in the coming months. This follows the rainfall witnessed since March 2023.
However, it indicated that inflation could continue to rise in the year.
"Our expectation that the global tightening cycle could maintain unfavourable market conditions into 2024 is a significant headwind for the authorities who plan to refinance the Eurobond in external markets," read the report in part.
