Kenya Delays Access to $1.5 Billion UAE Loan to Align with Budget Needs

Kenya will delay utilizing a $1.5 billion UAE loan to better fit its budget framework as it grapples with rising debt service costs. Finance Minister John Mbadi highlighted a need for fiscal prudence while Kenya secures additional funding from external sources. The strategy includes managing existing debts with a recent $1.5 billion bond issuance aimed at meeting upcoming financial obligations.

Kenya plans to postpone accessing a $1.5 billion loan from the United Arab Emirates (UAE) as it aligns its budget for the financial year, according to Finance Minister John Mbadi. The nation faces increasing debt service costs due to extensive borrowing and is aiming to stabilize its financing ahead of discussions with the International Monetary Fund (IMF) for a new lending program that will commence post-April.

Minister Mbadi emphasized the importance of maintaining fiscal discipline, stating, “The reason why we have not done it is that we have to do it within our fiscal framework.” During this week, Kenya also issued a new 10-year, $1.5 billion dollar bond to address upcoming debt maturities. By June’s end, the government anticipates receiving over $950 million from external sources, which include the World Bank and the African Development Bank.

Mbadi further articulated, “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.” Kenya’s fiscal year spans from July 1 to June 30. The UAE loan is intended to diversify the country’s funding sources, particularly as Chinese loans have diminished and Eurobond yields have surged, complicating borrowing conditions for frontier markets.

Since his inauguration in October 2022, President William Ruto has actively worked to enhance trade relations with the UAE. The terms of the UAE loan include an 8.25% interest rate, with repayments structured in $500 million installments due in 2032, 2034, and 2036, according to Mbadi’s statements. He noted that the funds could be utilized for debt liability management or as budgetary support.

Of the $1.5 billion raised from the new bond, Kenya plans to allocate $900 million for the buyback of a Eurobond maturing in 2027, while the remaining proceeds will be directed toward settling various syndicated loans that are due later in the year.

In conclusion, Kenya is strategically delaying the withdrawal of its $1.5 billion UAE loan to ensure alignment with its fiscal framework while monitoring external funding contributions. The country’s efforts to stabilize its finances are coupled with initiatives to strengthen international trade relations. Moreover, the government’s new bond issuance aims to address both immediate debt obligations and future financial planning.

Original Source: www.tradingview.com