Kenya has turned to $1.5 billion (Sh193.8 billion) in UAE-backed bonds in the wake of faltering IMF financing to plug the country’s financing shortfall as UAE royals seek wider influence in Africa. .
The UAE will guarantee the bonds while Kenya expands the scope of financing available after the withdrawal of the 2024 financing bill and delays in the disbursement of $600 million (Sh77.5 billion) from the International Monetary Fund left the country in dire need of funds.
Treasury Secretary John Mbadi said yesterday that the country was looking for advisers for transactions related to UAE debt that is expected to carry an interest rate of less than 8.2 percent and is seen as an alternative to eurobonds.
The Treasury is walking a funding tightrope after deadly protests forced President William Ruto’s administration to abandon tax measures that would have raised Sh346 billion this year.
The UAE funds could represent Kenya’s first Sharia-compliant bonds, also known as sukuks, as the country looks to wealthy investors and wealth funds from the Middle East.
The quest for money from the UAE appears at a time when Abu Dhabi is increasing its dealings with Kenya as part of its efforts to build its influence on the continent through a series of bailouts to African countries – including $35 billion to Egypt earlier this year.
Abu Dhabi offered Kenya a gift worth Sh2 billion after floods and landslides hit Kenya and paid for the private plane that took President William Ruto to the United States in May amid criticism of extravagance.
Tahnoon bin Zayed Al Nahyan, brother of the UAE President, has teamed up with a company that has formed a consortium with Safaricom to launch the controversial Universal Health Coverage (UHC) programme.
“We are exploring and diversifying borrowing options to support the budget,” Mbadi said. Daily chores In a phone interview.
“It is a bond that the UAE will guarantee, not a loan. It will certainly be cheaper than eurobonds. “We have an interest rate of 8.2 percent and we are discussing lowering it,” Mbadi added, without revealing further details, including whether the bonds Instruments.
Islamic finance caters to investors who want to follow Islamic rules on avoiding direct payments or earning interest, which is considered usury or unethical under Islamic law.
Islamic bonds are designed to achieve a fixed return on tangible assets or services, without charging interest, in accordance with Islamic financial principles.
The UAE bonds are worth less than Sh168.8 billion, from which the government aims to borrow on commercial terms in the current fiscal year, effectively serving as an alternative to issuing Eurobonds.
At less than 8.2 percent, it will trade below prevailing yields on Kenyan sovereign bonds.
In seeking a loan guarantee from the UAE, the government is essentially taking shelter from a potential financing gap in the budget should the delay in the rollout of up to $1.4 billion (Shs180.9 billion) of the IMF’s $3.6 billion financing program continue. For four years.
The government was looking to immediately withdraw $600 million (Sh77.5 billion) from the International Monetary Fund.
The delay in the disbursement – which is awaiting approval by the International Monetary Fund’s Executive Board – is attributed to the collapse of the finance bill following the deadly youth-led protests.
The International Monetary Fund said Daily chores Last week, discussions were continuing to strengthen policies and reforms that could support the completion of reviews under the funding programme, adding that no date had been confirmed for Council deliberations.
The funding delay has exacerbated the Treasury’s already strained financial situation, given that the withdrawn Finance Bill was intended to collect an additional Sh346 billion in taxes.
As a result, Kenya has widened its budget deficit to 4.3% of GDP for the current fiscal year through June, from 3.3% initially, which may violate IMF program targets.
The effects of forgone revenue have also been narrowed by budget cuts and additional borrowing worth Sh171.6 billion via a supplementary budget, with the budget deficit rising to Sh768.8 billion from the original Sh597 billion.
To cover the deficit, the government is targeting a net Sh413 billion from domestic lenders and Sh355.5 billion from external loans.
Kenya also needs to repay Sh330.7 billion in principal amounts owed to external lenders before the end of June, hence the Treasury’s urgency to open new loan sources from Kenya’s bilateral partners.
Speaking last month, Central Bank of Kenya Governor Kamau Thogi revealed that the government had achieved most of the audit objectives, except those relating to revenue performance.
“The issue that was problematic was on the revenue side. We missed targets in December 2023 and June 2024… However, the targets were too high,” Dr. Thug said.
The difficulty of achieving the targets under the current circumstances has led the IMF and the government to return to the table to seek consensus on new revenue targets due to the collapse of the Finance Bill.