Kenya in talks over World Bank loan to cut its commercial debt

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KENYA is in advanced talks with the World Bank for ‘a fairly priced’ loan of up to $991.57 million, nearly half its required external funding this fiscal year, a senior Kenyan treasury official said on Friday.

The country wants to cut debt from overseas capital markets, after a borrowing binge in recent years, including Eurobond offerings, a package of Chinese loans, and syndicated commercial loans.

The World Bank, which has multiple development funding programmes with Kenya worth billions of dollars, is seen as one of the viable alternatives to commercial debt.

The Washington DC-based bank lent money straight to the Kenyan ministry of finance for the first time last year, changing past practice where it channelled cash straight to the projects, bypassing the treasury.

The size of the loan from the World Bank will be determined by how much its own funders can put together, said Julius Muia, the principal secretary in the ministry of finance. ‘We are thinking something between 50-billion to 100-billion [shillings] ($495 million to $900 million) depending on what kind of interest there will be,’  he told Reuters.

The loan will be cheaper than commercial debt, the official said, in line with the government’s policy of cutting its funding costs.

‘It is very competitive, it is fairly priced,’ Muia said, adding it was likely to be just above the bank’s concessional rate of 200 basis points in interest.

Kenya became a middle-income country in 2014 after it rebased the economy, meaning it cannot secure funds from the World Bank at the concessional rates offered to low-income states.

The finance ministry has set a budget deficit of 6.3 percent of GDP for this financial year to the end of June and Muia said about 213 billion shillings is expected from external sources.

The balance of the funds will be raised through Kenya’s first sovereign green bond, he said, with the country taking advantage of next week’s UK-Africa investment summit in London to gauge investor demand for the potential issue. ‘It is taking shape as we go,’ Muia said.

The Treasury projects that the budget deficit will shrink to 5.7 percent of GDP in 2020/2021. The gap, which peaked at 9.1 percent of GDP in 2016/2017 financial year, is expected to narrow further to the desired level of 3.3 percent in 2023/2024.

Muia said he is confident that this year’s deficit will be fully covered through affordable loans. ‘We are very clear in our minds that we want to keep the cost of debt down.’

Reuters

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