The Kenyan President William Ruto is seeking a $600 million loan from International Banks to help plug the budget deficit for the 2022/23 financial year. The loan is expected to hit Central Bank of Kenya’s accounts “in the coming weeks”, according to sources familiar with the transaction.
According to a local newspaper, the central bank of Kenya (CBK) is expected to receive a credit facility from several leading banks in order to bolster its foreign currency reserves. CitiGroup, Rand Merchant Bank, Standard Chartered Bank, and Standard Bank are said to be the transaction advisors for the loan. This move comes as CBK’s foreign currency reserves have been dwindling in recent months.
The credit facility is expected to provide a much-needed boost to CBK’s reserves, helping to shore up the Kenyan economy and maintain stability in the region. The banks involved in the transaction are among the largest and most experienced in the world, so it is hoped that the loan will be processed smoothly and quickly.
According to sources, the Kenyan government is planning to raise the amount owed in two tranches – one maturing in three years and the other payable in five years. This move would help to ease the burden on the government’s finances, as well as provide a much-needed boost to the economy. The government is currently in talks with potential investors, and it is hoped that an agreement can be reached soon.
A syndicated loan is usually the most viable option for both the government of Kenya and the creditors. In this type of loan, a group of lenders make a contribution to meet the debtor’s borrowing needs. This is often a better option than having one lender provide the entire loan amount. This is because it allows for a more diversified risk and gives the lender more security.
President Ruto has repeatedly cited public debt as the biggest challenge facing his new administration. Ruto has been critical of his predecessor Uhuru Kenyatta for borrowing expensive, commercial loans from external lenders, saying that the new administration will be saddled with a large debt burden. Ruto has pledged to reduce the country’s debt-to-GDP ratio and increase fiscal discipline in order to put the country on a more sustainable fiscal path.
Kenya has been dependent on borrowing to finance its deficit in recent years, and the last syndicated loan the country borrowed was for $300 million. This loan was raised just before the August 2022 General Election, and was arranged by the Trade Development Bank.
President Ruto has spoken out against continuing to borrow from other countries, stating that doing so is not sustainable in the long term. Instead, he proposes borrowing from within Kenya so that interest can be paid to Kenyan savers.
The National Treasury, through the supplementary budget for the 2022/23 financial year, has proposed to recalibrate borrowing with a bias for more externally-sourced financing. This would effectively mean abandoning the country’s Sh10 trillion debt ceiling in favour of a floating target of 55 percent of Gross Domestic Product.
The move has been approved by the Cabinet in its latest meeting, and is seen as a way to ease the pressure on domestic borrowing, which has been constrained by the debt ceiling. It is also hoped that this will help to attract more foreign investment into the country.
In an effort to rectify this situation, the government has announced plans to significantly reduce domestic borrowing for the current financial year. This will be achieved by decreasing the amount of money borrowed from Sh581.7 billion to Sh415.5 billion. External borrowing, on the other hand, will be increased from Sh280.7 billion to Sh 378.9 billion.
It is hoped that this shift in borrowing priorities will help to reduce the overall burden of debt, while also ensuring that the country’s debt portfolio is more evenly balanced between domestic and external sources.
Unknown interests
According to reports, the Treasury is looking to cut down on planned borrowing for the current financial year by around Sh68 billion. This comes as the government looks to raise money through a syndicated loan, which is expected to be composed of two tranches.
While the transaction advisors for the loan say that it remains unclear what kind of interest rates the loan will carry, they believe that the average cost will only be known once the loan has been fully syndicated. With yields being relatively high at the moment, the advisors say that it will be challenging to get favourable pricing on the loan without extending its tenor.
On February 13th 2023, President Ruto was in Nakuru to launch an affordable housing project. In his public address, he hinted that the Kenyan government was in the process of negotiating a syndicated loan facility with an interest rate between 7.0% and 8.0%.
“We had been told that there was no investor confidence to lend syndicated loans to Kenya any more… Today the confidence in Kenya has come back and we are being offered interest at between 7.0% and 8.0%,” President Ruto said.
The IMF financing
The Kenyan government is in talks with international banks for financing to the tune of $900 million, Sh115.0 billion at the present exchange rate, from international banks for medium-term external commercial financing due before June 30, 2023. This was revealed in the December 2022 fourth review of the $2.41 billion programme with Kenya by the International Monetary Fund (IMF).
This financing would bridge the gap between the government’s current expenditure and revenue, and help to ensure that Kenya meets its obligations in the coming months. It is hoped that this financing will be secured soon so that the country can continue to meet its commitments and avoid any disruptions.
This year’s external commercial borrowing target is $200 million less than what was projected in the last financial year. The $1.1 billion that was projected did not materialise due to unfavourable market conditions. The global risk-off attitude toward frontier issuers is the main reason for the reduced target.
Kenya is eyeing $750 million in low-cost loan financing from the World Bank before June 30. The loan would be used to finance the country’s budget and help Kenya’s economy recover from the coronavirus pandemic. Kenya has already received $1.5 billion in emergency funding from the International Monetary Fund (IMF) and is in talks with the World Bank for additional financing.
President Ruto’s administration in January released its Budget Policy Statement that showed a proposed Sh251 billion increase in the National Budget to Sh3.64 trillion. The proposed budget is an increase of 7.6 percent from the previous year’s budget, and it includes a number of new initiatives aimed at improving the lives of Kenyans.
The proposed budget includes new funds for infrastructure development, agriculture, and health care. It also includes a significant increase in the amount of money that will be spent on education. The proposed budget is a positive step forward for Kenya, and it is hoped that it will help to improve the lives of all Kenyans.
Nation.Africa contributed to this report
