Kenya is on the brink of securing a $1.5 billion budget support loan from the UAE, according to a source

A source familiar with the situation has informed Reuters that Kenya’s government is on the brink of agreeing to a $1.5 billion loan from the United Arab Emirates, which will assist in bridging the East African nation’s financing deficit. The loan features an interest rate of 8.2%.

According to the source, Kenya is in the process of diversifying its budgetary support sources, and the agreement is nearly finalized.

Upon receiving a request for comment, the UAE central bank and the UAE ministry of finance did not respond promptly.

Senior officials at the Kenyan Finance Ministry, including Finance Minister John Mbadi, were unavailable for immediate comment.

Tradeweb data indicated that the 2048 maturity of the country’s dollar bonds experienced a significant increase of up to 1.89 cents, trading at 84.3 cents per dollar, following the aforementioned news.

In June, President William Ruto was compelled to abandon his plans for tax hikes totaling over 346 billion shillings ($2.7 billion) due to deadly demonstrations. Subsequently, the government has been struggling to identify alternative sources of funding.

The situation has been further exacerbated by a delay in its funding from the International Monetary Fund.

This financial year, Kenya anticipates that its aggregate budget deficit will increase to 4.3% of GDP, as opposed to the 3.3% projected in the original, pre-protest budget.

Nairobi has had to pay a substantial price for the financial assistance it has recently received. To assist in managing maturities, Kenya issued a $1.5 billion Eurobond in February. However, the seven-year bond carried a high yield of 10.375%.

Bloomberg reported earlier on Wednesday that Kenya was in discussions regarding a loan agreement with Abu Dhabi.

Kenya’s relations with the United Arab Emirates have been significantly enhanced since President Ruto assumed office in September 2022.

In a departure from the open tender system, the UAE’s Abu Dhabi National Oil Company (ADNOC) and Emirates National Oil Company were among the three Gulf firms that Ruto’s government selected last year to supply Kenya with oil on extended credit terms..

The UAE provided Ethiopia with $1 billion in 2018 to assist with a severe cash shortage in hard currency. In July, the central banks of both countries disclosed a $817 million swap line.

In addition, the UAE and Egypt executed an agreement earlier this year to construct a strategic section of the latter’s Mediterranean coastline. This agreement was anticipated to generate $35 billion in investments for the Egyptian economy.

(128.5000 Kenyan shillings = $1)