Kenya is postponing accessing a $1.5 billion UAE loan to integrate it into its budget for the fiscal year. This decision is part of a broader strategy to stabilize rising debt service costs while negotiating a new program with the IMF. The nation has recently raised funds via a 10-year dollar bond and anticipates additional support from international institutions.
The government of Kenya, led by Finance Minister John Mbadi, intends to postpone the withdrawal of funds from a $1.5 billion bond sourced from the United Arab Emirates until it aligns with its budgetary framework for the financial year. Amid rising debt service costs resulting from previous borrowing, Kenya is prioritizing fiscal stability while negotiating a new lending program with the International Monetary Fund as their current agreement is set to conclude in April.
Minister Mbadi stated that the delay in accessing the UAE funds is due to the need for fiscal coherence. This week, Kenya successfully issued a new 10-year dollar bond for another $1.5 billion, aimed at managing imminent debt maturities. Additionally, by June’s end, the government anticipates acquiring over $950 million from various external partners, including the World Bank and the African Development Bank.
As part of their strategic borrowing plan, Kenya’s exploration of financial support from the UAE follows a recent slowdown in Chinese lending and increasing Eurobond yields affecting frontier markets. The UAE loan, established last year, features an interest rate of 8.25% with repayments scheduled in $500 million tranches for 2032, 2034, and 2036. President William Ruto has also been nurturing trade relations with the UAE since assuming office in October 2022.
The funds from the UAE loan can facilitate both budgetary support and liability management, as noted by Mbadi. Notably, Kenya will allocate $900 million from this week’s bond issuance to repurchase a Eurobond maturing in 2027 and will utilize the remaining sum to resolve syndicated loans due later in the year.
In summary, Kenya’s government is strategically delaying the drawdown of a $1.5 billion UAE loan to fit within its fiscal framework as it seeks stability in its rapidly increasing debt service costs. With additional financial support expected from international institutions and recent bond issuances, the Kenyan administration is actively managing its debt profile while expanding innovative funding sources. This financial strategy underscores the importance of prudent fiscal planning amid global economic shifts.
Original Source: www.marketscreener.com
