Kenya is nearing a $1.5 billion loan agreement with the UAE, which will assist in addressing its growing fiscal deficit and rising debt costs. The loan, expected to be secured at an interest rate of 8.2%, comes amid increasing domestic unrest and the need for economic reforms. Analysts project the nation’s fiscal deficit will reach 4.7% of GDP by 2025, with debt levels continuing to create financial pressures.
Kenya is on the verge of finalizing a significant loan agreement with the United Arab Emirates (UAE) government amounting to $1.5 billion. This financial maneuver aims to enhance Kenya’s fiscal position in light of escalating debt levels and a pressing fiscal deficit. Reports indicate that negotiations have progressed substantially, with Kenya expected to secure the funds at an interest rate of approximately 8.2%. A source familiar with the discussions has stated, “[The] deal is as good as done.” This financial arrangement comes as Kenya grapples with rising costs associated with domestic debt and increasing social unrest driven by proposed tax increases and the need for reforms. Additionally, projections suggest that Kenya’s fiscal deficit will widen to 4.7% of its Gross Domestic Product (GDP) by the close of the fiscal year in June 2025. The decision to borrow is influenced by a range of factors, including the cancellation of intended revenue measures and substantial debt servicing obligations, which have compounded financial pressures, particularly amid prevailing civil unrest. In 2023, Kenya’s debt-to-GDP ratio escalated to nearly 72%, up from 67% the previous year, primarily due to the depreciation of the Kenyan shilling. Although there are anticipations of a slight reduction in this ratio to 65.6% by 2026, external debt servicing is expected to decrease to $4.4 billion in FY25 from $5.4 billion in FY24. In recent years, Kenya has strengthened its relations with the UAE, as demonstrated by an oil supply agreement established in the previous year, which permits state firms Abu Dhabi National Oil Company and Emirates National Oil Company to supply oil to Kenya on extended credit terms, deviating from the previously adopted open tender system. Furthermore, earlier in the year, both nations entered a memorandum of understanding aimed at enhancing governance and institutional capacities.
The context of this financial development lies in Kenya’s ongoing economic struggles, characterized by an increasing debt burden that has raised concerns among international financial analysts and ratings agencies. With the lingering repercussions of economic challenges and civil strife linked to proposed tax reforms, Kenya has sought external financial support to mitigate its revenue shortfall. The country has been working to establish stronger connections with the UAE, which has provided an opportunity for securing favorable loan terms amidst a backdrop of declining domestic economic health.
In summary, Kenya’s impending $1.5 billion loan agreement with the UAE symbolizes a critical step towards addressing its fiscal challenges. As the government navigates a widening fiscal deficit and increasing debt service obligations, securing this financing will alleviate some immediate pressures. Nonetheless, the rising debt levels and socio-political unrest call for ongoing reforms and sustainable fiscal strategies to ensure long-term economic stability.
Original Source: www.zawya.com
