Kenya is negotiating a $1.5 billion commercial loan from the UAE with an 8.25% interest rate and a seven-year term. Finance Minister John Mbadi noted the loan’s lower cost compared to a previous Eurobond. Discussions with the IMF continue due to concerns over risks associated with external dollar loans. The government aims to diversify funding sources after protests and is focused on reducing high lending rates to enhance economic growth.
The Government of Kenya is currently engaged in negotiations with the United Arab Emirates regarding a proposed commercial loan amounting to $1.5 billion, which is characterized by an interest rate of 8.25% and a term of seven years. This assertion was made by Finance Minister John Mbadi during a press conference held on Wednesday. Amidst the backdrop of recent civil unrest, which precipitated the suspension of planned tax increases and delayed funding from the International Monetary Fund, Kenya is actively seeking to broaden its financing sources. Minister Mbadi emphasized the financial advantages of this loan compared to the Eurobond previously issued at an interest rate of 10.7%. This Eurobond was utilized in February to facilitate the partial redemption of a maturing $2 billion Eurobond. Despite the appeal of the loan, discussions with the International Monetary Fund persist, as the IMF has raised various concerns about the implications of accessing a commercial loan sourced externally from the UAE. “We are talking about this being an external loan and is dollar denominated; it may expose us to additional risk,” he elucidated. Nevertheless, Mbadi acknowledged that the potential loan would still be more economically favorable when compared to other financing routes, including Eurobonds. The government has yet to finalize the agreement, indicating the necessity to engage a transaction adviser for further consultancy. For the current financial year, the Kenyan government has set a target for foreign borrowing at 168 billion shillings (approximately $1.31 billion). Should the loan from the UAE materialize, it is projected to yield an equivalent of 195 billion shillings, which would significantly assist in curtailing domestic borrowing levels. Furthermore, the administration under President William Ruto has been focused on reducing the exceedingly high lending rates within the economy to bolster business ventures and promote economic growth. Recently, lending rates were cut by 75 basis points, bringing the central bank’s benchmark rate to 12%. However, it remains elevated in comparison to the ideal level of 10% or lower, as per Minister Mbadi’s comments. Under President Ruto’s leadership, who assumed office in September 2022, Kenya has made strides in fostering stronger relations with the UAE, illustrated by previous agreements that have facilitated oil shipments on more favorable credit terms.
The discussions between Kenya and the UAE are taking place in a challenging economic landscape characterized by civil unrest, which has necessitated a reassessment of the government’s fiscal policies and funding sources. The protests led to the suspension of tax hikes and delayed funding from the IMF, influencing the government’s efforts to secure a more favorable loan arrangement. The current pursuit of a commercial loan from the UAE reflects Kenya’s strategic shift towards diversifying its financing options and minimizing dependence on traditional sources. The fiscal maneuvers are aimed at achieving economic stability and growth amidst rising national debt concerns. The government’s focus on reducing lending rates indicates a broader policy agenda that seeks to stimulate economic activity.
In summary, Kenya’s negotiation for a $1.5 billion commercial loan from the UAE is a strategic effort to diversify financial resources in response to recent economic challenges, including civil unrest and delayed international funding. The loan’s more favorable interest rate compared to the previously issued Eurobond enhances its appeal. However, concerns raised by the IMF regarding the potential risks associated with external dollar-denominated loans highlight the complexities of such financial arrangements. The Kenyan government’s emphasis on lowering lending rates further underscores its commitment to fostering an environment conducive to economic growth.
Original Source: www.zawya.com
