KEY POINTS
- Kenya is nearing a $1.5 billion loan deal with the UAE to address its budget deficit.
- The loan carries an 8.2 percent interest rate, providing critical financial relief.
- Kenya has faced fiscal challenges following protests and delays in IMF funding.
Kenya is close to securing a $1.5 billion loan from the United Arab Emirates (UAE) at an interest rate of 8.2 percent, aimed at addressing the country’s growing financing gap, according to a source familiar with the matter.
The loan deal, which the source described as “as good as done,” will provide much-needed budget support for the East African nation as it grapples with a widening fiscal deficit.
Kenya’s Finance Minister John Mbadi and other officials from the ministry were not immediately available for comment, while the UAE’s ministry of finance and central bank also declined to respond.
Financial relief amid growing challenges
The news of the potential loan deal boosted Kenya’s dollar bonds, with the 2048 maturity bond rising by as much as 1.89 cents to trade at 84.3 cents on the dollar, according to Tradeweb data.
Kenya has been actively seeking new sources of funding after public backlash and protests forced President William Ruto to abandon tax hikes that would have generated over 346 billion shillings ($2.7 billion) in revenue earlier this year.
According to Reuters, the delay in funding from the International Monetary Fund (IMF) has exacerbated Kenya’s financial challenges. The country now expects its budget deficit to widen to 4.3 percent of GDP for the current financial year, up from the original estimate of 3.3 percent, due to rising costs and the failure to implement key tax reforms.
High borrowing costs
Kenya has been forced to pay a premium for financial support in recent months. In February, the country issued a $1.5 billion Eurobond with a steep 10.375 percent yield, reflecting the difficulty Nairobi faces in securing affordable financing options.
Under President Ruto, who assumed office in September 2022, Kenya has strengthened its ties with the UAE. The Gulf nation has been a key partner in recent oil supply agreements, with the Emirates National Oil Company (ENOC) and Abu Dhabi National Oil Company (ADNOC) among the firms selected to supply oil to Kenya under more favorable credit terms.
The UAE has a history of providing budget support to African nations. In 2018, it extended a $1 billion loan to Ethiopia to help alleviate a severe hard currency shortage. Additionally, earlier this year, the UAE signed a $35 billion investment deal with Egypt to develop a prime section of its Mediterranean coast.
The potential UAE loan marks another step in Kenya’s efforts to diversify its financing sources and manage its growing economic pressures. However, the country will continue to face high borrowing costs as it seeks to navigate its fiscal challenges and meet budgetary obligations.
