A USD 1.05 billion loan agreement between Kenya and the UAE government is almost finalised, allowing the African nation to strengthen its financial position in the face of mounting debt.
The cash-strapped East African country is now negotiating a loan agreement with the UAE capital to close the budget-financing gap, according to a Bloomberg report that cited people with knowledge of the situation.
The agreement is almost complete, and according to the report, Kenya will probably get additional funding at an interest rate of 8.2%.
The African country has been dealing with substantial domestic debt burdens and violent social upheavals, coupled with an increased vulnerability to political instability, largely stemming from planned tax hikes and advocacy for reforms.
According to Fitch, the nation’s fiscal deficit is predicted to increase to 4% of GDP in the fiscal year that ends in June 2025, which is more than the government’s new deficit plan.
Fitch also noted that the larger fiscal deficit is a result of the cancellation of scheduled revenue-raising measures, increased debt servicing, and rising social spending expenses due to civil pressures.
Kenya’s government debt to GDP increased to approximately 72% in 2023 from 67% in the previous year. This resulted in part from the Kenyan currency depreciating.
It is predicted that the ratio will only slightly decrease to 65.6% by 2026, and that the amount paid towards external debt will decrease to USD 4.04 billion in FY25 from USD 5.04 billion in FY24.
Kenya and the UAE government have developed stronger ties. The nation renewed an oil supply agreement in 2023 that permits domestic companies, Emirates National Oil Company (Enoc) and Abu Dhabi National Oil Company (ADOC), in addition to Saudi Aramco, to ship oil supplies to Kenya on longer credit terms.
This replaces the previous open tender system. Kenya and the UAE inked a memorandum of understanding (MoU) to strengthen institutional capacities and governance between the two nations at the beginning of 2024.