Kenya is in advanced negotiations with the UAE government to secure a $1.5 billion loan at an interest rate of 8.2%. This financial assistance is aimed at addressing Kenya’s fiscal deficit, which is projected to widen to 4.7% of GDP by mid-2025. The country’s debt-to-GDP ratio has climbed to 72%, necessitating international partnerships to stabilize its economy.
Kenya is nearing finalization of a $1.5 billion loan agreement with the government of the United Arab Emirates (UAE), aiming to enhance its financial stability amid escalating debt pressures. According to reports from Bloomberg earlier this week, negotiations are advanced, with Kenya poised to secure this funding at an interest rate of 8.2%. A source indicated, “[The] deal is as good as done.” The East African nation is grappling with substantial domestic debt, characterized by increasing costs and rising public unrest, largely due to pending tax increases and demands for reforms. Projections by Fitch suggest that Kenya’s fiscal deficit may expand to 4.7% of its Gross Domestic Product (GDP) by the fiscal year concluding in June 2025, surpassing the government’s initial deficit targets. This widening deficit is attributed to the abandonment of revenue measures alongside mounting debt servicing obligations, in addition to increased social expenditures due to civil discontent. In the current year, Kenya’s debt-to-GDP ratio surged to approximately 72%, up from 67% the previous year, impacted significantly by the depreciation of the Kenyan shilling. Forecasts predict a minor decline to 65.6% by 2026. The external debt servicing expense is expected to decrease to $4.4 billion in fiscal year 2025, down from $5.4 billion in fiscal year 2024. Kenya’s relationship with the UAE has strengthened over recent years, highlighted by the extension of an oil supply agreement, which has allowed local companies to procure oil from UAE firms on extended credit terms, deviating from a previously competitive tendering process. Earlier this year, both nations signed a memorandum of understanding to enhance governance and institutional capabilities.
Kenya’s current financial predicament is underscored by rising debt costs, prompting the government to seek external financing to bridge its budget deficit. As fiscal pressures mount due to high domestic debt and increasing social tensions, the potential loan from the UAE represents a critical measure to stabilize the economy. This development occurs against a backdrop of heightened debt-to-GDP ratios and a challenging fiscal environment, where continuous budgetary deficits have necessitated structured financial agreements with foreign governments. Familiarity with the UAE government through previous economic cooperation, including oil agreements, exemplifies Kenya’s strategy to secure essential financial resources from external partners.
In summary, Kenya is on the cusp of securing a significant loan from the UAE, valued at $1.5 billion, which is anticipated to alleviate some financial strain. As the country navigates increasing fiscal deficits coupled with a rising debt-to-GDP ratio, this agreement could serve as an essential lifeline. Strengthening relations with the UAE through such agreements, coupled with a focus on fiscal management, will be crucial for Kenya’s economic recovery and stability in the coming years.
Original Source: www.zawya.com
