The communications director of the International Monetary Fund (IMF), Julie Kozack, has cautioned against Kenya’s attempt to obtain a Sh200 billion ($1.5 billion) loan from the UAE, highlighting that this could put the East African nation at risk of foreign exchange risks. She also emphasised that the proposed amount surpasses the commercial borrowing limit of Sh168 billion ($1.3 billion).
“We assess Kenya to have a high risk of debt distress, any new borrowing should be considered within the context of a comprehensive fiscal strategy to reduce debt vulnerabilities, while also addressing the recent and emerging fiscal challenges,’’ Julie stated.
This evaluation is taking place several days after Kenya pledged to obtain the UAE loan in stages. The National Treasury Cabinet Secretary John Mbadi revealed in October that discussions are ongoing with the United Arab Emirates for a $1.5 billion commercial loan with a seven-year duration and an interest rate of 8.25%. “This loan is cheaper than the Eurobond we borrowed at 10.7%,” Mbadi told a news conference.
He was talking about a bond worth $1.5 billion that was issued in February to help buy back part of a maturing $2 billion Eurobond (Sh258 billion). Kenya’s National Treasury Principal Secretary Chris Kiptoo informed reporters that the government plans to distribute the funds in tranches to stay within the IMF’s borrowing limits, with the initial Sh90 billion expected to be released in January and the rest to follow in Kenyan accounts afterwards.
Currently, Kenya and the UAE are developing a growing bilateral relationship. In February, both nations signed a comprehensive economic partnership agreement (Cepa) intended to assist Kenya in exporting its goods to the Asian market, including the Middle East.
Furthermore, Kenya was one of the first African nations to start discussions on bilateral trade agreements with the United Arab Emirates in 2022, with the goal of enhancing its oil market. Following the announcement of the potential debt, the Kenyan currency (shilling), which had been rising in value against the US dollar, saw a slight decline in late October before settling at around the 129 mark, where it has remained for over two months. According to the Star, the Shilling closed at 129.61 on Wednesday.
Kenya currently holds one of the largest debts to the IMF in Africa, with an outstanding total credit of 3,022,009,900. The East African economic powerhouse occupies the 3rd position among African nations with the highest debts owed to the International Monetary Fund.
