Kenya close to agreeing Sh193.2 billion budget support loan from UAE - source

Kenya's government is close to agreeing a $1.5 billion (Sh193.2 billion) loan from the United Arab Emirates with an interest rate of 8.2 per cent which will help bridge the East African nation's financing gap, a source familiar with the situation told Reuters.

"Kenya is diversifying its sources of budget support," said the source, adding the "deal is as good as done."

The UAE Ministry of Finance and the UAE Central Bank did not immediately respond to a request for comment.

Kenya's Finance Minister John Mbadi and other senior officials at the ministry were not immediately available for comment.

The country's dollar bonds rallied after the news, with the 2048 maturity rising by as much as 1.89 cents to trade at 84.3 cents on the dollar, Tradeweb data showed.

The government has been struggling to find new sources of financing after deadly protests forced President William Ruto to discard planned tax hikes worth more than Sh346 billion ($2.7 billion) in June.

A delay in funding from the International Monetary Fund has aggravated the situation.

Kenya is now expecting its overall budget deficit to widen to 4.3 per cent of GDP this financial year, compared with 3.3 per cent under the original, pre-protest budget.

Nairobi has had to pay a high price for the financial support it has received. In February Kenya issued a $1.5 billion Eurobond to help it manage maturities, but it paid a steep 10.375 per cent yield for the seven-year bond.

Bloomberg reported earlier on Wednesday that Kenya was in talks on a loan deal with Abu Dhabi.

Under President Ruto, who took over in September 2022, Kenya has forged closer ties with the UAE.

The UAE's Abu Dhabi National Oil Company (ADNOC) and Emirates National Oil Company were among three Gulf firms Ruto's government picked last year to supply Kenya with oil on longer credit terms, in a shift from an open tender system.

The UAE provided Ethiopia with $1 billion in 2018 to help with a severe hard currency cash crunch, and the central banks of both sides announced an $817 million swap line in July.

The UAE also signed a deal with Egypt earlier this year to develop a prime stretch of its Mediterranean coast that was expected to bring $35 billion of investments into the Egyptian economy.