(Bloomberg) -- Kenya is suffering a fresh crisis of investor confidence after deadly protests forced the government to scrap plans for more taxes, casting doubt on the outlook for its public finances.

Credit-default swaps, used to insure against non-payment, have risen by the most worldwide after Argentina in the past month, coinciding with opposition to the tax plan that exploded into violence last week in which at least 39 people died.

The cost to insure the country’s debt against default is around 551 basis points, the highest since Feb. 13 and up from around 387 basis points a month ago. That’s reversing progress since the East African nation refinanced a eurobond that many feared would force it to default.

“Kenya’s mass protests and the climb down on new taxes may be a demonstration of a vibrant democracy,” said Hasnain Malik, emerging market equity strategist at Tellimer, in Dubai. “But they risk de-railing the macroeconomic policy course correction under the Ruto-led government, which has been so applauded by investors.”

President William Ruto withdrew the measures to raise $2.3 billion through extra taxes that sparked the protests, with the government saying they will meet the shortfall through spending cuts. The proposed taxes were in line with fiscal reforms agreed with the International Monetary Fund.

Yields on Kenya’s eurobond due 2031 have risen to around 10.7% from about 9.7% at the start of last month.

The deterioration in sentiment is a set back for the $104 billion economy. It was starting to find its footing after the partial repurchase of $2 billion of securities that matured last month, and had received funding from multilateral institutions to boost its foreign-exchange reserves.

Kenya’s debt ballooned after a rapid period of economic expansion in the early 2000s to pay for infrastructure projects, including roads and railways. Its debt problems were compounded by demands placed on its budget by the coronavirus pandemic, higher food and energy prices due to the war in Ukraine, rising global interest rates, droughts and then floods. 

©2024 Bloomberg L.P.