Kenya Delays Accessing $1.5 Billion UAE Loan for Fiscal Alignment

Kenya will wait to draw down $1.5 billion from a UAE loan to better align it with its financial budget. This decision, made by Finance Minister John Mbadi, comes amid ongoing IMF negotiations and rising debt service costs. The country expects $950 million from other sources while also managing liabilities with a new $1.5 billion bond issuance.

Kenya has announced that it will delay accessing $1.5 billion from a privately placed bond in the United Arab Emirates, aiming to align this funding with its budgetary needs for the current financial year. Finance Minister John Mbadi stated that the decision stems from efforts to maintain a cohesive fiscal framework as the country grapples with rising debt service costs due to previous borrowing actions.

As negotiations with the International Monetary Fund (IMF) for a new lending program are ongoing, Mbadi elaborated that the government plans to wait until it fully assesses its budget gap from external financing before proceeding with the UAE loan. He indicated expectations of receiving over $950 million from various sources, including the World Bank and the African Development Bank, by the end of June.

Kenya’s borrowing from the UAE signifies a shift in funding sources in light of decreased lending from China and increased Eurobond yields affecting frontier markets. President William Ruto has prioritized strengthening trade relations with the UAE since he assumed office in October 2022. Mbadi detailed that the UAE loan, negotiated last year, carries an interest rate of 8.25%, with repayments scheduled in $500 million installments due in 2032, 2034, and 2036.

The funds from the latest $1.5 billion bond issuance will be allocated towards repurchasing a Eurobond maturing in 2027, in addition to servicing other loans due later this year. The strategy aims to manage liabilities effectively while securing budgetary support as needed.

In summary, Kenya will postpone drawing on a $1.5 billion loan from the UAE as part of a strategic approach to stabilize its financial framework amidst rising debt challenges. The government is looking to assess external financing adequately before making this decision, while also exploring new funding avenues. This approach reflects broader economic adjustments, including dealings with international financial institutions and enhanced bilateral relations with the UAE.

Original Source: www.tradingview.com