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Kenya to take first 65 billion UAE loan
National Treasury and Economic Planning Cabinet Secretary John Mbadi addressing journalists outside the National Treasury Building in Nairobi on February 13, 2025.
Kenya will next week draw down the first tranche of $500 million (Sh64.8 billion) from the $1.5 billion (Sh194.3 billion) United Arab Emirates (UAE)- backed commercial loan as it races to close the external budget financing target before the end of June.
Treasury Cabinet Secretary John Mbadi said that the government has the option of drawing down a maximum of $1 billion (Sh129.5 billion) from the facility before the end of June, but it has opted for half of this amount, pushing the remaining drawdown of $1 billion into the next fiscal year.
“For the UAE, $500 million should be hitting our accounts by the latest next week. Basically, we have finished all the procedures required… the facility has been negotiated and signed but the drawdown doesn’t have to be a bullet,” he said.
Mr Mbadi told the Business Daily on Wednesday on the sidelines of the annual IMF and World Bank spring meetings in Washington DC in the United States.
“The maximum we may take this financial year is $1 billion but we are starting with $500 million. If there’s still pressure in meeting all our external financing, we can go for the $1 billion” he added.
The seven-year UAE loan was negotiated last year at a rate of 8.25 percent, as the government sought to widen its external financing options as the end of the four-year International Monetary Fund (IMF) programme loomed.
Widespread protests against new taxes in June last year also dented the government’s ability to grow its ordinary revenue, forcing an increase in the debt-funded component of the national budget.
The drawdown of the UAE bond will bring the total expected inflows from new external loans by the end of the fiscal year to $1.37 billion (Sh177.5 billion).
On April 16, Mr Mbadi told MPs that the government would be taking up $865 million (Sh112 billion) in new loans from the World Bank and the African Development Bank (AfDB) before the end of June.
He said he expected to receive $265 million (Sh34.3 billion) from the AfDB within a week, while the latest loan tranche of $600 million (Sh77.7 billion) from the World Bank is expected before the end of June.
Budget deficit
These loans are expected to augment the borrowing from the domestic market to fill the government’s budget deficit of Sh887.2 billion for the fiscal year ending June.
The deficit is to be funded through net domestic borrowing of Sh605.7 billion and external borrowing of Sh281.5 billion, as per the revised numbers contained in the second supplementary budget of the 2024/2025 fiscal year.
The Treasury also went to the market last February for a $1.5 billion (Sh194.7 billion) Eurobond. However, the proceeds of this loan were directed towards refinancing existing debt rather than budget financing.
Out of the amount, $579.6 million (Sh75 billion) was used to make a partial buyback on another Eurobond that was due to mature in 2027.
The balance of $880 million (Sh114 billion) was earmarked to refinance syndicated loans that fall due in September and October.
The decision to use the February Eurobond surplus for refinancing syndicated loans, rather than budget support, was partly informed by the fact that the government retained the option of drawing down the UAE-backed loan.
This facility also marks the first time Kenya is tapping commercial financing from the Gulf, having previously relied on Eurobonds and syndicated loans from banks for commercial debt, bilateral project loans, and concessional loans from the World Bank and the IMF.
On its part, the UAE’s decision to guarantee the commercial loan continues a trend of its growing influence in Kenya under the Kenya Kwanza administration, mainly through State-level business ties.
In March 2023, Kenya entered into a direct petroleum importation agreement with the UAE and Saudi Arabia—dubbed the government-to-government oil deal— during the height of a dollar crisis in the country.
Emirates National Oil Company Limited (Enoc), which is wholly owned by the Government of Dubai, and Abu Dhabi National Oil Company (Adnoc), the national oil company of the UAE, represented the UAE in the deal, with the Saudis participating through their national oil firm Saudi Aramco.
The UAE also provided a private jet used by President William Ruto during his four-day state visit to the US in May 2024, with the government contributing about Sh10 million towards the charter that was reported to have cost up to Sh200 million.
Still, in May 2024, the UAE pledged $15 million (Sh1.94 billion) in aid to Kenya to manage the effects of widespread flooding in the country.
Further links emerged via a consortium awarded a Sh104.8 billion contract to provide the technology system for the Universal Health Coverage plan.
Abu Dhabi firm Apeiro Limited is the largest shareholder in the consortium at 55.99 percent, followed by Safaricom at 22.56 percent and Konvergenz Network Solutions Limited at 17.89 percent.
The closer Kenya ties are in line with the UAE’s growing influence in Africa, where it has established itself as a top four investor alongside the US, China, and the European Union as it diversifies its economy beyond oil while growing its clout on the global economic stage.
