July 8 (Reuters) – Moody’s cut Kenya’s sovereign rating deeper into junk territory on Monday, citing diminished capacity to implement a fiscal consolidation strategy to contain its debt burden.

The credit ratings agency downgraded the country’s local- and foreign-currency long-term issuer ratings and foreign-currency senior unsecured debt ratings to “Caa1” from “B3”.

In June, Kenyan President Willian Ruto withdrew planned tax hikes in response to mass protests that turned deadly, killing at least 24 people.

The scrapped finance bill contained measures intended to aid the government’s aim to raise $2.7 billion in additional taxes to reduce budget deficit and state borrowing.

In order to compensate for the withdrawn finance bill, Ruto’s administration has proposed cuts in spending.

Moody’s said that while the spending cuts should narrow fiscal deficit, it would be at a more gradual pace than previously assumed, and as a result expect Kenya’s debt affordability to remain weaker for longer.

“In the context of heightened social tensions, we do not expect the government to be able to introduce significant revenue-raising measures in the foreseeable future,” the ratings agency said.

Moody’s affirmed its ‘negative’ outlook for Kenya, stating that the larger fiscal deficits will push up borrowing requirements and subsequently increase government liquidity risks.

(Reporting by Raechel Thankam Job; Editing by Maju Samuel)