NAIROBI :Kenya is in discussions with the United Arab Emirates for a $1.5 billion commercial loan with an 8.25 per cent interest rate and a seven-year tenor, Finance Minister John Mbadi said on Wednesday.
The East African nation is seeking to diversify its sources of financing after deadly protests forced the government to abandon a slate of tax hikes and delayed disbursements from the International Monetary Fund (IMF). Reuters reported the prospective loan last month.
“This loan is cheaper than the Eurobond we borrowed at 10.7 per cent,” Mbadi told a news conference, referring to a $1.5 billion dollar-denominated bond issued in February to partially buy back a portion of a maturing $2 billion Eurobond.
The government, however, is in talks with the IMF after the lender raised some concerns about the potential commercial loan from the UAE, the minister said.
“There are issues to be discussed, including with the IMF, which had expressed some reservations, because we are talking about this being an external loan and is dollar denominated, it may expose us to additional risk,” he said.
The government has countered that the loan was cheaper than the other options, including Eurobonds, Mbadi said.
“Those are issues that we are discussing. We haven’t firmed them up. We are looking for the transaction adviser on the same,” he said.
The government has set the foreign borrowing target for this financial year at 168 billion shillings ($1.31 billion), while the UAE loan if finalised will bring in the equivalent of 195 billion shillings, helping the government to cut local borrowing.
President William Ruto’s government has prioritised lowering of elevated lending rates in the economy, Mbadi said, to support businesses and economic growth.
Policymakers cut the central bank’s benchmark lending rate by 75 basis points last week to 12 per cent, but that was still high as it should