Kenya is negotiating a $1.5 billion commercial loan with the United Arab Emirates (UAE), according to Finance Minister John Mbadi. The loan, with an 8.25% interest rate and a seven-year tenor, aims to diversify Kenya’s funding sources following recent economic challenges.
The East African nation has faced disruptions in its IMF lending program due to protests and the abandonment of tax hikes. Mbadi stated that Kenya has successfully addressed the IMF’s concerns regarding the program and is set to resume disbursements.
The IMF’s executive board is scheduled to meet on October 30 to review Kenya’s program, according to Bloomberg. While the IMF confirmed that a date has not yet been set, they assured that the information will be communicated in due course.
Kenya plans to seek a new IMF program next year but calls for more realistic fiscal targets. Mbadi acknowledged that some of the previously set targets were unrealistic, citing the goal of reducing the fiscal deficit to 3.8%.
The UAE loan has raised concerns from the IMF due to its external nature and dollar denomination. However, Kenya argues that the loan is cheaper than other options, including Eurobonds.
The government has set a foreign borrowing target of 168 billion shillings ($1.31 billion) for this financial year. The UAE loan, if finalized, could help reduce local borrowing and support economic growth.
President William Ruto’s government has prioritized lowering lending rates in the economy. The central bank recently cut the benchmark lending rate by 75 basis points to 12%, but Mbadi believes it should be at 10% or lower.
Kenya has strengthened ties with the UAE under Ruto’s leadership. The UAE has provided financial support to Ethiopia and Egypt in the past, demonstrating its growing influence in the region.