(Nairobi) – The International Monetary Fund (IMF) has urged Kenya to carefully evaluate the potential repercussions of a proposed $1.5 billion (KSh 200 billion) loan from the United Arab Emirates (UAE) on the country’s debt position and currency stability.
The IMF’s warning comes amid rising concerns about Kenya’s financial sustainability. Julie Kozack, IMF’s director of communications, noted during a recent press briefing that Kenya remains at a high risk of debt distress. Kozack stressed that any new borrowing should align with a fiscal strategy aimed at reducing debt vulnerabilities while addressing emerging economic challenges.
The proposed loan, which exceeds Kenya’s Sh168 billion ($1.3 billion) ceiling for commercial borrowing, also raises concerns over foreign exchange risks. The Kenyan shilling has been under pressure, and news of the planned borrowing caused a slight depreciation against the US dollar in late October. The currency, which had shown modest gains, weakened but later stabilized, closing Wednesday at 129.61 per dollar.
Kozack declined to delve into further specifics, citing ongoing discussions and a commitment to share more information later.
Kenya’s National Treasury has confirmed its intention to proceed with the loan. Principal Secretary Chris Kiptoo explained that the loan would be disbursed in phases to ensure compliance with IMF borrowing limits. The initial tranche of Sh90 billion ($670 million) is expected in January 2024, with subsequent disbursements following later.
National Treasury Cabinet Secretary John Mbadi defended the loan, emphasizing its relative affordability. The facility offers a seven-year repayment period with an interest rate of 8.25%, compared to the 10.7% interest rate attached to a $1.5 billion Eurobond issued earlier this year. “This loan is cheaper than the Eurobond we borrowed at 10.7%,” Mbadi stated during a news conference, highlighting its role in managing Kenya’s maturing $2 billion (Sh258 billion) Eurobond obligations.
IMF Deputy Managing Director Nigel Clarke is scheduled to visit Nairobi on December 9–10 as part of ongoing discussions with Kenyan authorities, with the proposed UAE loan likely to feature prominently on the agenda.
Kenya’s growing debt burden continues to draw scrutiny, as fiscal challenges mount in a high-risk economic environment.
UAE Loan Sparks Debate Over Kenya’s Economic Future
| Loan Details | Amount | Interest Rate | Tenure |
|---|---|---|---|
| Proposed UAE Loan | $1.5 billion (KSh 200 billion) | 8.25% | 7 years |
| February 2023 Eurobond | $1.5 billion (KSh 258 billion) | 10.7% | Varied |
| Key Dates | Event |
|---|---|
| Late October 2023 | Shilling weakens on news of UAE loan |
| January 2024 | First tranche of UAE loan expected |
| December 9–10, 2023 | IMF Deputy Director visit to Kenya |