S&P downgrades Kenya credit rating citing tax hike U-turn

Kenyan rap duo Wadagliz members, Allan “Manazz” Mojo (R) and Tony “Kantel” Otieno pose during an interview at their music studio in Nairobi, on August 15, 2024. – With its upbeat rhythm and catchy chorus, “Anguka Nayo” — literally “fall with it” in Swahili, but better understood by Kenyans as “roll with it” — does not sound like a protest rallying cry. But when youth-led anti-government rallies broke out across the country in June, the tune written by the 22-year-olds was suddenly everywhere acompanied by the pair’s online dance challenge. (Photo by SIMON MAINA / AFP)

Nairobi, Kenya — The US ratings agency S&P has downgraded Kenya’s credit rating, citing President William Ruto’s decision to scrap a controversial finance bill after deadly protests.

“S&P Global Ratings lowered its long-term sovereign credit rating on Kenya to B- from B,” the ratings agency said Friday.

“The downgrade reflects our view that Kenya’s medium-term fiscal and debt outlook will deteriorate following the government’s decision to rescind all tax measures proposed under the 2024/2025 Finance Bill,” a statement said.

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The outlook was “stable” the agency said, citing expected “strong economic growth and continued access to concessional external financing”.

However, it added, “Kenya’s structurally large external imbalances remain a key vulnerability.”

Ruto cancelled the unpopular tax hikes after the initially peaceful and youth-led nationwide rallies turned violent, leaving more than 60 people dead according to Kenyan rights groups.

The demonstrations prompted the worst crisis of his presidency, forcing Ruto to promise government spending cuts and then sack almost his entire cabinet.

Although physical protests have mostly stopped, many young Kenyans continue to call online for his resignation.

And Ruto’s administration is still grappling with the country’s $78 billion debt, with the finance minister indicating earlier this month the government planned to raise about $1.2 billion by reinstating some unpopular taxes contained in the abandoned 2024 finance bill.

The S&P announcement follows the decision by US-based agency Fitch earlier this month to also downgrade Kenya’s credit rating. Moody’s also downgraded the country’s debt rating in July, pushing it further into junk territory.