IMF Cautions Kenya Over $1.5 Billion Loan Deal with UAE

The International Monetary Fund (IMF) has raised concerns over Kenya’s recent $1.5 billion loan deal with the United Arab Emirates (UAE).

During his recent media briefing, IMF’s Director for Africa, Abebe Selassie, pointed out on Kenya’s cost of borrowing, urging Kenya to maintain its cost of borrowing to a rate, below 8%.

Further, the IMF officer detailed the implication a country is likely to face, if its borrowing costs skyrockets a rate ranging to 8% to 9%, or even 10%. According to him, soaring borrowing cost can outpace the economic growth rates of a country which can plunge a country to a debt crisis, and in this case, damaging Kenya’s financial stability in the long run due to the risen aggregate cost of her debt.

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He, however, lured Kenya to focus consider concessional financing, which offers lower interest rates, normally helping needy regions to meet their development goals without incurring unsustainable debt.

Despite cautioning Kenya concerning the heavy borrowing cost, Kenya’s National Treasury through Cabinet Secretary, John Mbadi, argues that the loan will have an interest rate of 8.25 % given back within a duration of 7-years.

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This multi-billion loan negotiation between Kenya and UAE, according to Central Bank of Kenya (CBK) Governor Kamau Thugge, aims to increase Kenya’s economic growth by 5.5% by 2025.

In a different session, on Tuesday 22, at IMF/WBG meeting where Kenya was showcasing its economic resilience and fiscal reforms, Governor Thugge outlined measures taken by the CBK to stabilize inflation and exchange rate pressures. He noted that in early 2024, the Monetary Policy Committee (MPC) raised the Central Bank Rate (CBR) to 13.0% to curb inflation, before adjusting to 12.75% in August as inflationary pressures eased, and that by September 2024, inflation dropped to 3.6% down from 6.8% a year earlier.