The Treasury has narrowed down to four international banks CitiGroup, Rand Merchant Bank, Standard Chartered Bank and Standard Bank to lead transactions as advisors for a Sh76.8 billion syndicated loan to plug the 2022/23 budget deficit which indicate that the government is considering to raise the amount in two tranches, one maturing in three years and another payable in five years.
The loan amounting to $600 million is expected to hit Central Bank of Kenya’s accounts “in the coming weeks” as it is also expected to shore up Central Bank of Kenya’s deteriorating foreign currency reserves.
The Short- to medium-term offerings are seen as the most viable options for both the government of Kenya and the creditors.
Syndicated loan refers to a credit facility that is extended to a borrower by a group of lenders, with each making a contribution to meet the debtor’s borrowing needs.
The National Treasury Cabinet Secretary, Prof Njuguna Ndung’u during the launch of the 2023 – 2028 Country Partnership Framework between the government and World Bank on December 7, last year revealed that Kenya requested the World Bank for a $750 million (Sh92.1 billion) concessional loan budget support to help the government in funding needs for the current financial year.
Barely two weeks into office after being sworn as the Head of State, President William Ruto reprimanded his predecessor Uhuru Kenyatta for borrowing expensive, commercial loans from external lenders quoting public debt as the main challenge facing the newly enacted administration.
“we cannot continue to borrow from others…. If we must borrow, let us borrow from our own savings so that we can pay interest to our own savers…. As we speak today, 65 percent of all the taxes we collect, we use to pay debt,” President Ruto stated.
Kenya last borrowed syndicated loan in an arrangement led by the Trade Development Bank worth $300 million facility amounting to around Sh38.4 billion raised ahead of the August 2022 General Election.
The National Treasury Cabinet Secretary Njuguna Ndung’u, through Supplementary Budget I 2022/23, proposed to recalibrate borrowing in the current financial year with a bias for more externally-sourced financing over internal lenders it approved a decision to abandon the country’s Sh10 trillion debt ceiling in favour of a floating target of 55 percent of Gross Domestic Product as revealed in its latest meeting held this week.
The treasury plans to slash domestic borrowing for the current financial year from Sh581.7 billion to Sh415.5 billion and increase external borrowing from Sh280.7 billion to Sh378.9 billion with the current statistics in favour of domestic borrowing.
External loans represented 49.8 per cent of total debt at the end of October 2022, while the proportion of domestic debt made up 50.2 per cent, a five-year high even though the Treasury sought to cut down the planned borrowing for the current financial year by Sh68 billion on net basis.
