Kenya will delay drawing from a $1.5 billion UAE loan to align with its fiscal plans, amid rising debt service costs and ongoing talks with the IMF. Finance Minister Mbadi emphasized the need for a structured approach to borrowing as the country seeks to manage its finances more effectively. The government also issued a $1.5 billion dollar bond to cover debt maturities while expecting additional funding from various sources.
Kenyan Finance Minister John Mbadi stated that the country will postpone accessing a $1.5 billion bond from the United Arab Emirates until it can incorporate the funds into its fiscal plans for the current financial year. This decision comes as Kenya faces escalating debt servicing costs and strives to solidify its financial framework amidst ongoing discussions with the International Monetary Fund about a future lending program after the current agreement concludes in April.
Mbadi explained to Reuters, “The reason why we have not done it is that we have to do it within our fiscal framework,” referring to the timing of the UAE loan’s utilization. Recently, Kenya also issued a $1.5 billion dollar bond with a ten-year maturity, aimed at managing upcoming debt repayments.
The government anticipates receiving over $950 million from various external sources, including the World Bank and the African Development Bank, by the end of June. “We are still holding out to see exactly how much budget gap we will still have from the external finances before we draw the (UAE) money,” Mbadi elaborated in a phone interview from Nairobi.
The current fiscal year in Kenya runs from July 1 to June 30. The decision to secure funds from the UAE represents a shift in financing sources, particularly as Chinese lending to Africa has diminished and rising Eurobond yields have made it challenging for frontier economies to secure funds.
Since taking office in October 2022, Kenyan President William Ruto has actively sought to strengthen economic ties with the UAE. The UAE loan, negotiated last year, carries an interest rate of 8.25% and will be repaid in three installments of $500 million due in 2032, 2034, and 2036, according to Minister Mbadi. He noted, “We can use it partly for liability management, partly for budgetary support, or exclusively for budgetary support.”
From the recently issued bond, the government plans to allocate $900 million to repurchase a Eurobond maturing in 2027 while using the remainder to settle upcoming syndicated loans due later this year.
In conclusion, Kenya is strategically timing its access to a $1.5 billion UAE loan to ensure alignment with its fiscal framework. As the country faces escalating debt service costs, it seeks to solidify its financial management amidst new borrowing strategies while maintaining close ties with international lending partners. Future fiscal stability hinges on the successful integration of these funds into the national budget.
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