Kenya Delays $1.5 Billion UAE Loan to Align With Budget Strategies

Kenya will delay accessing a $1.5 billion loan from the UAE to fit it into its budget, as confirmed by Finance Minister John Mbadi. This is part of efforts to manage the country’s rising debt service costs and align with fiscal strategies while negotiating a new program with the IMF. The government recently raised $1.5 billion through a new bond for upcoming repayments.

Kenya has decided to postpone the drawdown of a $1.5 billion loan from the United Arab Emirates, as stated by Finance Minister John Mbadi. This decision is aimed at aligning the loan with the government’s financial strategies for the current fiscal year. The country is attempting to stabilize its finances after experiencing a rise in debt service costs from extensive borrowing in recent years, while also negotiating a new lending program with the International Monetary Fund (IMF) to replace the existing one set to end in April.

In a recent conversation with Reuters, Minister Mbadi explained the importance of fitting the UAE funds within Kenya’s fiscal framework. Additionally, Kenya raised $1.5 billion by issuing a new 10-year dollar bond earlier this week to manage upcoming debt repayments. By June’s end, the government anticipates receiving over $950 million from various external sources, including the World Bank and the African Development Bank.

“We are still holding out to see exactly how much budget gap we will still have from the external finances before we draw the (UAE) money,” he noted, emphasizing the careful management of the nation’s budget. The fiscal year in Kenya runs from July 1 to June 30. This borrowing initiative marks a new funding stream for Kenya, particularly as China has reduced its lending to Africa and Eurobond yields have surged, complicating access for frontier issuers.

Since his assumption of the presidency in October 2022, President William Ruto has been focused on strengthening trade relations with the UAE. The loan from the UAE, which was agreed upon last year, carries an interest rate of 8.25% and it is scheduled to be repaid in three installments of $500 million in 2032, 2034, and 2036. Minister Mbadi mentioned that the funds could be utilized for either liability management or budgetary support.

Furthermore, he indicated that $900 million of the freshly obtained $1.5 billion will be allocated to repurchase a Eurobond maturing in 2027, with the remaining funds earmarked to settle syndicated loans due later this year.

In conclusion, Kenya’s decision to defer the drawdown of the UAE loan illustrates a strategic approach to financial management amidst rising debt concerns. The government aims to align external funding with its fiscal framework while seeking alternative sources of financing. As Kenya continues negotiations with the IMF and bolsters trade ties with the UAE, it is clear that careful financial planning remains a priority to ensure economic stability moving forward.

Original Source: www.marketscreener.com