Kenya will delay drawing from a $1.5 billion UAE loan to align with its budget framework, as stated by Finance Minister John Mbadi. The decision comes amid rising debt service costs and ongoing negotiations with the IMF for future funding. Kenya recently issued a separate $1.5 billion bond to manage upcoming maturities, highlighting a comprehensive approach to addressing its financial needs.
CAPE TOWN (Reuters) – The Kenyan government has decided to delay accessing a $1.5 billion loan from the United Arab Emirates, as stated by Finance Minister John Mbadi on Friday. This decision aims to ensure that the funds align with the country’s budgetary framework for the current financial year. Kenya is currently facing increased debt service costs due to previous borrowing and is working to stabilize its financing situation while negotiating a new program with the International Monetary Fund (IMF) after the current one ends in April.
Minister Mbadi explained, “The reason why we have not done it is that we have to do it within our fiscal framework,” highlighting the importance of strategic financial planning. In addition to the UAE loan, Kenya issued a new 10-year dollar bond worth $1.5 billion this week to cover upcoming obligations. By the end of June, the government anticipates over $950 million from external sources, including the World Bank and the African Development Bank.
Regarding the UAE loan, the minister noted that discussions are ongoing to clearly assess the budget gap before tapping into those funds. Kenya’s fiscal year extends from July 1 to June 30, which informs their financial timing decisions. This loan represents a new avenue for financing, particularly as China’s lending to Africa diminishes and Eurobond yield fluctuations pose challenges for emerging market issuers.
President William Ruto is actively working to enhance trade relations with the UAE since his inauguration in October 2022. The UAE loan, finalized last year, carries an interest rate of 8.25% and will be repaid in three installments of $500 million each in 2032, 2034, and 2036. Minister Mbadi elaborated that the funds could support either liability management, budget support, or a combination of both.
Of the recently issued $1.5 billion bond, $900 million is earmarked for repurchasing a Eurobond maturing in 2027, with the remaining funds designated for retiring existing syndicated loans due this year.
In summary, Kenya will postpone the drawdown of a $1.5 billion UAE loan to fit its budget strategy, amid rising debt service challenges. The nation continues to bolster its financial management through strategic borrowing and negotiations with the IMF while exploring other funding avenues. The government’s careful assessment of its fiscal framework is pivotal as it navigates upcoming debt obligations and seeks enhanced financial stability.
Original Source: www.marketscreener.com
