Kenya Delays Drawdown of $1.5 Billion UAE Loan, Focuses on Fiscal Alignment
Kenya’s Finance Minister John Mbadi announced plans to delay cash withdrawals from a $1.5 billion UAE bond until they fit the country’s budget framework for the current fiscal year. Rising debt service costs have prompted the government to secure additional funding, including a recently raised $1.5 billion dollar bond, to address financial obligations while awaiting further support from international sources.
Kenya intends to postpone the drawdown of a $1.5 billion bond issued in the United Arab Emirates until it aligns with the fiscal budget requirements for the current financial year, as articulated by Finance Minister John Mbadi. The nation faces rising debt service costs, resulting from previous borrowing activities, and is actively working to stabilize its financial framework while negotiating a new program with the International Monetary Fund (IMF) before the current program concludes in April.
Mbadi noted that the delay relates to ensuring the utilization of the UAE funds adheres to the country’s fiscal constraints. Recently, Kenya successfully raised an additional $1.5 billion through a 10-year dollar bond to manage forthcoming debt obligations. It is anticipated that by the end of June, the government will secure over $950 million from various international sources, including the World Bank and the African Development Bank.
The financial year for the Kenyan government spans from July 1 to June 30. The approach towards securing funding from the UAE marks a significant shift, especially as China’s lending to Africa diminishes, and rising Eurobond yields impose challenges on emerging market issuers. Since taking office in October 2022, President William Ruto has sought to enhance economic relations with the UAE.
The UAE loan, which features an interest rate of 8.25%, is structured for repayment in $500 million installments due in 2032, 2034, and 2036. Minister Mbadi stated, “We can use it partly for liability management, partly for budgetary support, or exclusively for budgetary support.” Of the recent bond issuance, $900 million will be allocated to repurchase a Eurobond maturing in 2027, with remaining funds aimed at settling upcoming syndicated loans.
In conclusion, Kenya’s prudent approach towards managing its debt highlights the importance of aligning financial strategies with fiscal frameworks. The government’s decision to await favorable budgetary conditions before tapping into the UAE loan, alongside recent bond issuance efforts, demonstrates a commitment to sound financial governance. Strengthening partnerships with international financial institutions will be crucial as Kenya navigates its fiscal landscape in the coming months.
Original Source: www.marketscreener.com
