Moody’s downgrades Kenya’s ratings to CAA1

Kenya is facing economic challenges following President William Ruto's decision to decline the Finance Bill 2024, leading to nationwide protests and outcry. Moody's recent downgrade of Kenya's credit rating sustainability to CAA1 has raised concerns about the country's financial stability. Churchill Ogutu, an Economist from IC Asset Managers, discussed the implications and next steps for the country in an interview with CNBC Africa. The downgrade marks the second in 14 months for Kenya, with Moody's citing risks to the government's liquidity. The repeal of the Finance Bill, which aimed to raise 364 billion shillings in the current financial year, has forced the government to focus on reducing expenditure by 177 billion shillings. This move has put pressure on revenue-raising strategies and highlights the challenges faced by the authorities in managing the country's finances. As Kenya grapples with the impact of the downgrade, the Ministry of Finance is considering a mix of expenditure cuts and increased financing to address the financial gap created by the shelving of the Finance Bill. The National Treasury has announced cuts of 177 billion shillings, with plans for a supplementary budget and revisions to allocations for counties. Additionally, the country will rely more on domestic borrowing to meet its financial obligations as external borrowing limits have been reached for the year. While the government is making efforts to implement reforms and reassure the markets, the pace of these initiatives will be crucial in rebuilding investor confidence. With Parliament set to reconvene, the focus will be on how quickly the proposed measures can be put into action. The uncertainty surrounding the IMF tranche approval adds another layer of complexity to the situation, with investors closely monitoring the developments. The negative outlook by Moody's has raised concerns about Kenya's Eurobonds, especially compared to countries like Nigeria and Egypt, which have positive outlooks despite similar credit ratings. The success of Kenya's economic reforms will be a key factor in determining investor appetite for its bonds. Looking ahead, Kenya faces a challenging road ahead as it navigates the legislative processes, awaits further ratings from agencies like S&P, and seeks progress on the IMF front. The next few weeks will be critical in determining the country's economic trajectory and its ability to regain market confidence.