Kenya’s Finance Minister John Mbadi announced that the country will postpone accessing a $1.5 billion loan from the UAE to align it with fiscal plans. The government aims to stabilize its financial position amid increasing debt service costs, while also raising funds through a new bond. The loan, with an 8.25% interest rate, will support budgetary needs and liability management.
Kenya has decided to delay the utilization of a $1.5 billion loan from the United Arab Emirates in order to align it with its fiscal budget plans for the current financial year, as stated by Finance Minister John Mbadi. The nation is experiencing rising debt service costs due to a history of extensive borrowing and aims to establish a more stable financial footing while negotiating a new lending program with the International Monetary Fund (IMF) before the current program ends in April.
In a recent communication with Reuters, Minister Mbadi explained, “The reason why we have not done it is that we have to do it within our fiscal framework,” regarding the potential drawdown from the UAE loan. To manage upcoming debt maturities, Kenya has recently issued a new $1.5 billion ten-year dollar bond.
By the close of June, the Kenyan government anticipates receiving over $950 million in external funding from various sources, including the World Bank, the African Development Bank, and financial assistance from Italy and Germany. Mbadi remarked on the need to assess the budget deficit before accessing the UAE funds, indicating that Kenya’s fiscal year spans from July 1 until June 30.
Kenya’s approach to borrowing from the UAE signifies a departure from traditional lenders; notably, Chinese financing has decreased, and rising Eurobond yields have complicated borrowing for frontier issuers. Since assuming the presidency in October 2022, President William Ruto has sought to enhance economic ties with the UAE.
The loan agreement with the UAE was established last year, featuring an interest rate of 8.25%, with repayment scheduled in three $500 million installments over the years 2032, 2034, and 2036. Minister Mbadi expressed versatility regarding the loan’s use, stating, “We can use it partly for liability management, partly for budgetary support, or exclusively for budgetary support.” Furthermore, he noted that a significant portion of the recent bond issuance, $900 million, will be allocated to redeeming a Eurobond maturing in 2027, with remaining funds designated for settling due syndicated loans within the year.
In summary, Kenya is strategically delaying the disbursement of a $1.5 billion loan from the UAE to ensure it fits within the country’s fiscal structure. The government is also supplementing its budget through other external funding sources and preparing for debt management as it strengthens economic relations with the UAE. This approach aims to stabilize Kenya’s financial situation amidst rising debt pressures and evolving lender dynamics.
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