Kenya is negotiating a $1.5 billion commercial loan from the UAE, featuring an interest rate of 8.25% and a seven-year tenor. This move aims to diversify financing sources following recent unrest and delays in IMF disbursements. Finance Minister John Mbadi highlighted the loan’s affordability compared to previous Eurobonds. Ongoing discussions with the IMF could influence the negotiations regarding the potential risks of an external dollar loan. The government’s borrowing target this year is set at 168 billion shillings, with the UAE loan possibly bringing in 195 billion shillings to reduce local borrowing.
The Republic of Kenya is currently engaged in discussions with the United Arab Emirates regarding a commercial loan amounting to $1.5 billion, which would carry an interest rate of 8.25% and a tenor of seven years, as stated by Finance Minister John Mbadi in a press conference on Wednesday. This initiative arises as a response to recent unrest that prompted the government to retract certain tax increases and has also delayed anticipated financial support from the International Monetary Fund (IMF). Minister Mbadi indicated that this loan is comparatively more cost-effective than the Eurobond previously acquired by the government at an interest rate of 10.7%. The loan will not only assist in financing various government endeavors but will also mitigate the need for higher local borrowing. Nigeria’s target for foreign borrowing this financial year has been set at 168 billion shillings ($1.31 billion), and the anticipated UAE loan would result in an influx of 195 billion shillings, thereby providing additional fiscal room. While the government pursues this avenue for funding, there are ongoing discussions with the IMF, which has expressed apprehensions regarding the external and dollar-denominated nature of the loan, potentially exposing the country to heightened financial risk. Minister Mbadi reassured that the government is currently weighing these factors as they seek a transaction adviser for the loan negotiations. Additionally, he remarked on the government’s efforts to facilitate a climate of lower lending rates to bolster economic activities. Recently, the central bank lowered its benchmark lending rate by 75 basis points to 12%, although further reductions are deemed necessary to stimulate growth. Under the administration of President William Ruto, who assumed office in September 2022, Kenya has been strengthening its economic relations with the UAE. This collaboration has seen significant decisions, such as appointing UAE oil firms to supply Kenya under favorable credit terms and establishing prior financial arrangements with Ethiopia.
The potential loan from the UAE is part of Kenya’s broader strategy to diversify its financing sources in light of recent social unrest and reduced financial support from international bodies like the IMF. The unrest in the country led to significant changes in fiscal policy, including the withdrawal of proposed tax hikes and subsequent loans from international financiers becoming a focus for the government. The UAE has a history of providing financial support to African nations, making it a key partner for Kenya as it navigates its fiscal challenges and attempts to balance external debt with internal economic pressures.
In summary, Kenya’s negotiations for a $1.5 billion loan from the UAE reflect the government’s strategic shift to enhance its financing methods amidst recent challenges. The proposal not only offers a more favorable interest rate than previous Eurobond issuances but also underscores Kenya’s efforts to stabilize its economy while addressing concerns from the IMF about potential risks associated with foreign loans. Strengthening ties with the UAE is critical for Kenya as it ventures into this financial undertaking, suggesting a pivotal moment in the country’s economic policy.
Original Source: www.zawya.com
