IMF warns Kenya over UAE KSh 193b loan: ‘It will lead to debt problems’

• Kenya has entered into negotiations with the United Arab Emirates (UAE) for a KSh193 billion commercial loan to finance its budget.
• The Middle Eastern country offered a loan with an interest rate of 8.25% and a repayment period of up to seven years.
• However, the International Monetary Fund (IMF) says such loans have high repayment costs.

TUKO.co.ke journalist Wycliffe Musalia has more than five years of experience in financial, businessand technology reports, and offers in-depth insight into Kenyan and global economic trends.

President William Ruto’s administration could face debt problems after turning to funding from the United Arab Emirates (UAE).

The International Monetary Fund (IMF) has warned that the UAE loan may prove expensive and costly to taxpayers.

According to Business Daily, the IMF says the loan from the Middle East will hurt Kenya’s debt repayments.

What are the loan terms in the UAE?

In September 2024, the Ruto administration initiated negotiations with the United Arab Emirates (UAE) on provide over 193.5 billion Kenyan shillings for the 2024/25 financial year.

Abu Dhabi offered a seven-year loan repayment period at an interest rate of 8.25% per annum.

IMF Africa Director Abebe Selassie noted during the World Bank-IMF annual meeting that countries must ensure healthy weighted average costs of credit or face a debt crisis.

“If countries borrow at 8%, 9% or 10.05% on the entire amount of their debt, you will very soon run into debt problems because they will typically be much higher than the growth rate the country has,” Selassie said as quoted by Business Daily.

Selassie argued that preferential financing from lenders such as World The Bank and the IMF are lowering the weighted cost of debt repayments that countries must use.

Why Kenya went for a UAE loan

A source familiar with the situation said Kenya’s deal with the UAE is “almost complete” as the country seeks to diversify its revenues to support the budget.

Kenya sought to borrow over Ksh 500 billion in the 2024/25 financial year, including KSh333.8 billion and KSh263.2 billion from external and domestic lenders respectively.

In June 2024, the Treasury presented a KSh3.9 trillion budget statement to Parliament, which aimed to raise KSh3.343 trillion from general revenue collections, including relief appropriations.

However, the withdrawal of the 2024 Finance Bill resulted in an increase in the budget deficit by KSh200 billion.

The deal was accelerated after payment delays from the International Monetary Fund (IMF) in June 2024.

Source: TUKO.co.ke