Kenya seeks Sh194.1 billion loan from UAE to bridge financing gap
By Lucy Mumbi |
A source familiar with the discussions informed Reuters that the Kenyan government was nearing an agreement on this commercial loan.
Kenya is negotiating a Sh194.1 billion loan with the United Arab Emirates, with an interest rate of 8.25 per cent and a repayment period of seven years.
According to Treasury Cabinet Secretary John Mbadi, the loan is more affordable compared to the 10.7 per cent interest rate attached to a Eurobond issued by Kenya in February.
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“This loan is cheaper than the Eurobond we borrowed at 10.7 per cent,” Mbadi said, referencing a dollar-denominated bond worth Sh193.86 billion ($1.5 billion) that was used to partially repurchase a Sh258.48 billion ($2 billion) Eurobond settled in June.
In a briefing on Wednesday, he emphasised that the new loan aims to bridge Kenya's financing gap, highlighting its significance in the current economic landscape.
In late September, a source familiar with the discussions informed Reuters that the Kenyan government was nearing an agreement on this commercial loan.
The economies of Kenya and the United Arab Emirates have been increasingly intertwined in recent years. In 2023, non-oil trade between the two nations reached Sh387.72 billion ($3 billion), marking a 26 per cent increase from the previous year.
In February 2024, the two countries finalised negotiations on a comprehensive economic partnership agreement, which is expected to boost investments in sectors such as logistics, healthcare, travel and tourism, infrastructure, and information and communication technology (ICT).
Additionally, the Abu Dhabi sovereign wealth fund, ADQ, signed a finance framework agreement with Kenya to facilitate investments in priority sectors of the Kenyan economy. In May 2024, a further agreement was established to enhance cooperation in mining and technology.
Under this agreement, the UAE’s investment ministry and Kenya’s finance ministry will collaborate on mineral exploration, processing, marketing, and mine development.
Despite being the largest economy in East Africa, Kenya faces challenges in managing its debt. Kenya's total public debt was at Sh10.1 trillion ($70.75 billion) as of June 2024.
Although the country's external debt decreased by over 15 per cent between December 2023 and June 2024, Kenya’s debt service-to-revenue ratio remained high at 69 per cent as of June 2024.
According to the International Monetary Fund, commercial debt—including Eurobonds, loans, and export credits—constituted approximately 25 per cent of Kenya’s external public debt, with Eurobonds alone accounting for 75 per cent of this commercial debt, totalling around $7 billion (Sh904.68 billion).
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