Kenya is negotiating a $1.5 billion commercial loan from the United Arab Emirates (UAE) with a seven-year term and an interest rate of 8.25%, Finance Minister John Mbadi announced on Wednesday. The East African nation is exploring alternative financing sources after domestic unrest led to the suspension of tax hikes and delays in disbursements from the International Monetary Fund (IMF).
“This loan is more favorable than the Eurobond we secured at 10.7%,” Mbadi said during a press conference, referring to a $1.5 billion bond issued in February to manage part of Kenya’s maturing $2 billion Eurobond.
Despite IMF concerns over the loan, particularly regarding Kenya’s exposure to external debt risks due to the dollar-denominated loan, Mbadi emphasized that the UAE loan offers more favorable terms than other borrowing options. He noted ongoing discussions with the IMF, which had expressed reservations about the potential risks associated with the loan.
“We are addressing these concerns, and we will meet with the IMF in Washington next week to resolve the remaining issues,” Mbadi added, expressing optimism that the IMF would resume disbursements after the meetings. He also hinted that Kenya would seek a new lending program with the IMF when the current arrangement ends next year.
The Kenyan government, which set its foreign borrowing target at 168 billion shillings ($1.31 billion) for this fiscal year, expects the UAE loan to help reduce local borrowing pressures, amounting to roughly 195 billion shillings.
In a broader strategy to stabilize the economy, President William Ruto’s administration is working to reduce high lending rates, with the Central Bank recently cutting its benchmark rate by 75 basis points to 12%. Mbadi, however, argued that the rate should drop further to 10% or below to stimulate business growth.
Kenya’s strengthening ties with the UAE were underscored by a recent oil supply agreement, which saw the UAE’s Abu Dhabi National Oil Company and Emirates National Oil Company selected to supply Kenya with oil under more favorable credit terms.
