Kenya is close to finalizing a $1.5 billion loan from the UAE to address its budget deficit amid rising debt costs. Negotiations are advanced, with an expected interest rate of 8.2%. The loan comes as Kenya faces increasing domestic debt, social unrest, and risk to political stability, with projections of an expanded fiscal deficit.
Kenya is on the verge of finalizing a substantial agreement with the government of the United Arab Emirates (UAE) to secure a loan amounting to $1.5 billion. This financial infusion is intended to strengthen Kenya’s economic stability amidst escalating debt obligations. As the country grapples with a financial shortfall, discussions regarding a loan arrangement with UAE officials are reported to be in advanced stages. According to sources familiar with the negotiations, Kenya is expected to acquire this funding at an interest rate of 8.2%. One insider remarked that “[the] deal is as good as done.” Currently, the East African nation is contending with increasing domestic debt service costs alongside political volatility fueled by social unrest and potential tax increase protests. Fitch Ratings has projected that Kenya’s fiscal deficit will rise to 4.7% of its Gross Domestic Product (GDP) for the financial year concluding in June 2025, surpassing the revised deficit targets set by the government. This expanding gap is a consequence of the government’s withdrawal of planned revenue measures, escalating debt service liabilities, and rising social expenditure in response to civil pressures. In 2023, the ratio of Kenya’s government debt to GDP escalated to approximately 72%, an increase from 67% the previous year, with currency depreciation contributing significantly to this rise. It is anticipated that this ratio will only moderately decline to around 65.6% by 2026. Furthermore, external debt service payments are projected to reduce to $4.4 billion in FY25, down from $5.4 billion in FY24. The strengthening ties between Kenya and the UAE have been evident, particularly following the extension of an oil supply agreement which grants Kenyan firms more favorable credit terms on oil imports. Additionally, a memorandum of understanding was established earlier this year to enhance governance and institutional capabilities between the two nations.
The economic landscape of Kenya has become increasingly challenging, influenced by escalating debt, domestic unrest, and risk to political stability. The government faces a significant cash flow deficiency that necessitates external financial support. Repeated calls for tax reforms and measures to stabilize the economy have further compounded financial difficulties, prompting the government to pursue loans from international allies such as the UAE. The economic strategy is aimed at addressing the widening fiscal deficit and servicing a growing debt portfolio while attempting to maintain social and political order.
In summary, Kenya is nearing an agreement for a $1.5 billion loan with the UAE, which is crucial for addressing its financial challenges. The expected interest rate of 8.2% reflects the high cost of borrowing amid domestic debt pressures and political unrest. The implications of this loan are significant, given the projected widening of the fiscal deficit and cautious forecasts regarding debt-to-GDP ratios in the coming years. Enhanced cooperation with the UAE highlights Kenya’s strategic approach to securing financial support amidst a complex economic environment.
Original Source: www.zawya.com
