International investors have lowered Kenya’s risk of default on medium-term debts on fading anti-government protests which had raised economic uncertainties, hitting private sector activity.
Investors late last week bought the country’s Eurobond trading on the London Stock Exchange at levels last seen mid-July, signifying a lower credit risk rating.
Investors last Wednesday asked for a return of 9.935 percent on average to buy Kenya’s seven-year Eurobond maturing in 2027, the first single-digit rate since July 16 when the rate was 9.917 percent.
Investment analysts have, nonetheless, warned that reintroducing some of the contentious taxes in the collapsed Finance Bill through changes in primary legislations such as Excise Duty and VAT Act risks reigniting social unrest.
“Dollar bond spreads have narrowed amidst fading protests but are still wide as worries about sovereign default persist,” David Omojomolo, Africa economist for UK-based Capital Economics, wrote in a note.
“Kenya’s protests risk reigniting after officials noted they would bring back some measures from the 2024 tax bill.”
Treasury Cabinet Secretary John Mbadi has signaled that his team was working on reintroducing some of the “progressive” proposals in the collapsed law for debate and approval in the National Assembly.
Unrelenting youth-led demonstrations against International Monetary Fund-backed new tax raises, elevated living costs, bad governance, and corruption prompted President William Ruto to withdraw Finance Bill 2024.
The fall of the tax bill has slowed down the country’s fiscal consolidation which relies more on new and higher taxes than expenditure cuts, causing jitters amongst investors about the country’s financial health.
Three major global credit rating firms — Moody’s, Fitch, and S&P — have downgraded the country’s credit rating as a result of a freeze to raise new and higher taxes this fiscal year ending June 2025.
The collapse of the Finance Bill has forced the Treasury to cut tax collections targets by about Sh270.15 billion to Sh2.48 trillion.
The Treasury has additionally raised the target for borrowing by Sh172.19 billion to Sh1 trillion and cut the budget by Sh145 billion in a bid to fill the estimated Sh344.3 billion hole left after the tax bill fell.
