Kenya is seeking help from the United Arab Emirates (UAE) to fill the country’s funding gap following a holdup in International Monetary Fund (IMF) funding as the royal emirate seeks broader influence in Africa. It relied on a $1.5 billion (Sh193.8 billion) bond to support it. .
The UAE’s move comes as Kenya expands the range of loans available after the withdrawal of the 2024 loan bill and delays in the disbursement of $600 million (Shs77.5 billion) from the IMF left Kenya cash-strapped. It will guarantee the bond.
Finance Minister John Mbadi said yesterday that the country is looking for trading advisors for UAE government bonds, which are expected to have interest rates below 8.2% and are seen as an alternative to Eurobonds.
The Treasury is walking a tightrope of funding after deadly protests forced President William Ruto’s government to abandon a tax package that was supposed to raise Sh346 billion this year.
The UAE cash could mark Kenya’s first Islamic-compliant bond, also known as a sukuk, as Kenya looks to deep-pocketed investors and wealth funds from the Middle East.
from the UAE as Abu Dhabi expands trade with Kenya as part of efforts to build influence on the continent through a series of bailouts to African countries, including $35 billion to Egypt earlier this year. The pursuit of cash has emerged.
Abu Dhabi offered Kenya a Sh2 billion gift to pay for the private plane that took President William Ruto to the US in May amid criticism of the extravagance as floods and landslides hit the country. Paid.
Abu Dhabi royal Tahnoun bin Zayed Al Nahyan, brother of the UAE president, has ties to a company that formed a consortium with Safaricom to roll out the controversial Universal Health Coverage (UHC) programme. be.
“We are exploring and diversifying borrowing options to support the budget,” Mbadi told Business Daily in a phone interview.
“This is a bond guaranteed by the UAE, not a loan. It will definitely be cheaper than a Eurobond. The interest rate is 8.2% and we are in talks to lower it,” Mbadi added. Details such as whether it was Sukuk were not disclosed.
Islamic finance caters to investors who want to follow Islamic rules of avoiding direct payments and interest-earning, which are considered usury and immoral under Islamic law.
Islamic bonds are structured to provide fixed income from tangible assets or services without charging interest, in accordance with Islamic financial principles.
UAE debt is below the Sh168.8 billion that the government aims to borrow on commercial terms this fiscal year, effectively acting as an alternative to Eurobond issuance.
It will trade below 8.2%, lower than the prevailing yield on Kenyan government bonds.
In seeking loan guarantees from the UAE, the government is primarily concerned with potential funding delays of up to $1.4 billion (Shs180.9 billion) from the IMF’s four-year $3.6 billion funding program. We are preparing for holes in budget funding.
The government had asked for an immediate withdrawal of $600 million (77.5 billion shillings) from the IMF.
The delay in spending, pending approval by the IMF’s executive board, was blamed on the rejection of the finance bill following deadly youth-led protests.
The IMF told Business Daily last week that discussions were underway to strengthen policies and reforms that could support completion of reviews under the funding program, and that a date for board deliberations had not yet been confirmed. added.
The funding delay has further worsened the Treasury’s already tight financial situation, given that the withdrawn Finance Bill was aimed at raising additional taxes by Sh346 billion.
As a result, Kenya could widen its budget deficit to 4.3% of gross domestic product (GDP) for the current fiscal year ending June, from an initial 3.3%, potentially exceeding the IMF program target.
The impact of revenue leakage was also reduced through budget cuts and additional borrowing of Sh171.6 billion in the supplementary budget, increasing the fiscal deficit from Sh597 billion to Sh768.8 billion.
To make up for the deficit, the government is targeting Sh413 billion in deductions from domestic financial institutions and Sh355.5 billion in external loans.
Kenya also needs to repay Sh330.7 billion in principal owed to external lenders by the end of June, making the Ministry of Finance urgently needed to secure new sources of financing from Kenya’s bilateral partners.
Speaking last month, Central Bank of Kenya (CBK) Governor Kamau Tuge said the government had achieved most of the review targets except for those related to revenue performance.
“The issue is on the revenue side. We missed the targets for December 2023 and June 2024…but the targets were very high,” Dr. Sage said. .
With the rejection of the Finance Bill, the IMF and the government returned to the table to seek agreement on new revenue targets, as the current situation makes it difficult to meet the targets.