Finance

Kenya in loan talks with UAE to reduce debt

October 16, 2024, 5:34 PM

Pedestrians share the road with traffic in Nairobi; Kenya has been struggling to manage its debt load — Pedestrians negotiate the traffic in Nairobi. Kenya has been struggling to manage its debt load

Loan over seven years
Cheaper than Eurobond
UAE-Kenya trade up 26%

Kenya and the UAE are discussing a commercial loan worth $1.5 billion, according to the Kenyan minister of finance.

The loan would have an 8.25 percent interest rate and a seven-year tenor, John Mbadi told a press conference on Wednesday.

“This loan is cheaper than the Eurobond we borrowed at 10.7 percent,” Mbadi told the briefing, referring to a $1.5 billion dollar-denominated bond issued in February to partially buy back a portion of a $2 billion Eurobond that was settled in June.

The Kenyan and Emirati economies have been drawing steadily closer in recent years. Non-oil trade between the UAE and Kenya reached $3 billion in 2023, up 26 percent year on year.

In February 2024, the two countries completed negotiations on a comprehensive economic partnership agreement.

It is hoped the deal will help accelerate investment into areas including logistics, healthcare, travel and tourism, infrastructure and ICT.

The Abu Dhabi sovereign wealth fund ADQ has also signed a finance framework agreement with Kenya to enable investments in priority sectors of its economy.

In May 2024, the two countries signed an additional deal, covering cooperation in the mining and technology fields.

As part of the agreement, the UAE’s investment ministry and the Republic of Kenya’s finance ministry will work together on mineral exploration, processing, marketing, and mine development.

Kenya is the largest economy in East Africa, but the country has been struggling to manage its debt load.

While Kenya’s external debt dropped by more than 15 percent between December 2023 and June 2024, as of June 2024, Kenya’s debt service to revenue ratio was still 69 percent.

According to the International Monetary Fund, commercial debt (mainly Eurobonds, loans, and export credits) accounted for about 25 percent of Kenya’s external public debt. Eurobonds accounted for 75 percent of commercial debt ($7 billion).