Fitch has downgraded Kenya's credit rating to negative due to deteriorating macroeconomic conditions.    

It revised the Outlook on Kenya's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at 'B', it said in a statement on Thursday.

The downgrade was due to increased external financing constraints amid high funding requirements -- including a $2 billion Eurobond maturity in 2024 -- weakening international reserves, rising financing costs, and uncertainty over the fiscal trajectory over new tax hikes that have led to social unrest, Fitch said.    

Kenya's opposition supporters have called for three days of nationwide protests from Wednesday to Friday this week to force President William Ruto to revoke the Finance Act he has championed that imposes the new taxes and levies. 

The Act raises VAT on petroleum products from 8% to 16% among a raft of other taxes.    

Fitch said the rating affirmation balances Kenya's relatively high government debt and external indebtedness and its narrow revenue base against the authorities' commitment to fiscal consolidation anchored by the IMF programme and strong medium-term growth prospects.    

The ratings agency said the East African nation's sovereign external debt service will rise sharply to $4.3 billion in the 2023/2024 fiscal year -- including the $2 billion Eurobond repayment due in June 2024 -- up from $2.8 billion in the 2022/2023 fiscal year.

"Our expectation that the global tightening cycle could maintain unfavourable market conditions into 2024 is a significant headwind for the authorities who plan to refinance the Eurobond in external markets," Fitch said.

Fitch assumes that the government will meet its financing obligations in fiscal year 2023/2024 through a combination of official lending, syndicated loans and a drawdown in reserves.     

Expected external financing in fiscal year 2023/2024 includes around $1.0 billion in IMF disbursements, $1.9 billion in project loans from official creditors and continued use of syndicated loans.

Fitch estimates that the government debt to gross domestic product ratio rose to 71.0% in the last fiscal year, up from 67.3% in the previous fiscal year, reflecting the shilling's 16% depreciation against the dollar.     

"Kenya's government debt is exposed to currency risk, as half is foreign-currency denominated," Fitch said.

(Editing by Seban Scaria seban.scaria@lseg.com )