Kenya has secured a syndicated loan of Sh70.4 billion ($500 million) from a consortium of international lenders, including Citi Group, Standard Chartered Bank, Afrexim Bank, Standard Bank, and Rand Merchant Bank. The loan will effectively roll over external debt repayments due this month, relieving the Central Bank of Kenya from using its forex reserves. The funds will be used to finance development projects approved in the 2022/2023 budget. The specific allocation to each tranche and the interest terms of the loan were not disclosed.
This loan is crucial as the proceeds from external loans are usually sold to the Central Bank of Kenya in exchange for shillings, providing forex for the economy. By securing this loan, the forex reserves will not be significantly depleted, and the country can maintain the required four months of import cover. In contrast, the Treasury faces external debt service payments of Sh63.5 billion ($451.3 million) this month, including repayments for the standard gauge railway loans from China and the semi-annual interest repayment on the Eurobond.
Access to dollar loans has become challenging for Kenya due to high-interest rates globally, making it difficult to roll over maturing debt. The syndicated loan has been in the works since March, indicating the government’s efforts to secure external financing. Although the initial target of $600 million was not met, the loan will provide much-needed funds for the Treasury. The government aims to raise a net Sh199 billion from the external debt market in the current fiscal year.
Overall, the syndicated loan helps Kenya manage its external debt obligations and maintain forex reserves while financing development projects and addressing outstanding bills. It highlights the challenges of accessing dollar loans and the importance of securing external financing to meet the country’s financial needs.