Kenya to borrow Sh53b from foreign banks

December 14, 2011

, NAIROBI, Kenya, Dec 14 – The government has disclosed that it plans to borrow Sh53.2billion ($600 million) from international banks early next year.

Finance Permanent Secretary Joseph Kinyua disclosed on Tuesday that they will soon invite tenders for the foreign banks that are capable of granting the loans to provide their terms and conditions.

“We intend to source for external resources in addition to what we get from bilateral and multilateral partners. We already have gone through the process of securing the necessary procurement approvals and soon there will be adverts for those international banks that can be able to give us their own terms,” Kinyua said.

The short term loan, which is expected to be given on competitive rates, will be used for infrastructure financing.

The decision to go for the foreign bank loans follows the government suspension of plans to float a sovereign bond through which it had intended to raise Sh26.7 billion ($300 million).

Plans to raise the funds from the foreign market started in October 2007 but they have been put off several times due to bad timing.

For instance, the events that followed the December 2007 general election saw the country’s credit ratings downgraded in the first quarter of 2008 which delayed the process.

In 2008, there was volatility in the international market which meant that Kenya’s debut in the international debt markets had to be shelved again.

This is despite the government insisting that the sovereign bond is an asset class whose returns do not depend on the happenings in the international financial arena.

Locally, the country is grappling with soaring interest rates, creeping inflation and a weak shilling all of which have served to pile pressure on the domestic debt markets.

Analysts contend that extensive domestic borrowing can have severe implications on the economy especially where domestic interest payments consume a significant part of government revenues.

However, by tapping into the international credit market, Kinyua said the government would help to reduce this pressure on domestic borrowing.

“We want to tap into the foreign savings and also because we want to ensure that with the tight monetary policy, the government does not also borrow beyond what it had programmed because it will put more pressure on the domestic market,” the PS added.

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