(Reuters) - Global credit ratings agency S&P downgraded Kenya's rating on Friday to "B-" from "B," citing the recent repeal of the East African country's 2024/2025 Finance Bill, which it said will slow its fiscal consolidation.
President William Ruto discarded the government's finance bill for the year, which contained tax hikes worth 346 billion shillings ($2.69 billion), following the protests that resulted in more than 50 people being killed.
"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," S&P said in a statement.
The government has since revised its budget for the 2024/25 financial year (July-June) to cut some spending and has increased the local borrowing target to cover the wider fiscal deficit.
The abandoned tax increases were part of an International Monetary Fund-supported programme.
The IMF board is expected to convene next month to approve a $600 million disbursement under Kenya's $3.6 billion lending programme, which expires next year.
"Although immediate external liquidity pressures have receded slightly, Kenya's structurally large external imbalances remain a key vulnerability," S&P added.
Despite the downgrade, the agency maintained Kenya's outlook as stable as it expects strong economic growth and continued access to concessional external financing to offset challenges from high interest costs, slow fiscal consolidation, and structural imbalances.
Moody's (NYSE:MCO) downgraded Kenya's credit rating further into junk status in July, while Fitch downgraded Kenya's sovereign rating to "B-" from "B" earlier this month, sending its dollar bonds lower.