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IMF Warns Kenya About UAE Loan
IMF Cautions Kenya on UAE Loan Amid Debt Concerns
The International Monetary Fund (IMF) has expressed reservations regarding Kenya's decision to pursue a significant loan from the United Arab Emirates (UAE), citing potential financial risks.
Julie Kozack, the IMF's Communications Director, advised against Kenya's plan to secure a $1.5 billion (Sh200 billion) loan, warning that it could increase the country's exposure to foreign exchange risks. She noted that the proposed loan surpasses Kenya's commercial borrowing cap of$1.3 billion (Sh168 billion).
“We assess Kenya to have a high risk of debt distress. Any new borrowing should be part of a comprehensive fiscal strategy aimed at reducing debt vulnerabilities while addressing existing and emerging fiscal challenges,” Kozack stated.
The cautionary remarks follow Kenya's announcement to acquire the UAE loan in phases. National Treasury Cabinet Secretary John Mbadi revealed in October that discussions are underway for a seven-year loan with an 8.25% interest rate. Mbadi emphasized the favorable terms compared to Kenya's earlier Eurobond borrowing, which carried a 10.7% interest rate.
Kenya's National Treasury Principal Secretary, Chris Kiptoo, detailed plans to split the loan into tranches to stay within the IMF’s borrowing limits. The first tranche of Sh90 billion is expected in January, with the remaining amount disbursed later.
This development comes as Kenya and the UAE strengthen their bilateral ties. In February, the two nations signed a Comprehensive Economic Partnership Agreement (CEPA) to enhance Kenya's access to Asian and Middle Eastern markets. Kenya also initiated discussions on bilateral trade agreements with the UAE in 2022, aiming to expand its oil market and other economic opportunities.
However, the loan announcement has had an impact on Kenya's currency. The Kenyan Shilling, which had been gaining value against the US dollar, experienced a slight decline in late October, stabilizing at the 129 mark for the past two months.
Kenya's mounting debt remains a pressing concern. With an IMF credit balance of over $3 billion (3,022,009,900), Kenya ranks third among African countries with the highest debts to the IMF.
As the country navigates its economic challenges, balancing debt obligations and securing affordable financing will be crucial to its fiscal stability.
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