Kenya haggles with banks over Sh50b loan

April 3, 2012
Kenya haggles with banks over Sh50b loan/FILE

, NAIROBI, Kenya, Apr 2 – Kenya’s plans to borrow $600 million (Sh50 billion) from international banks have been frustrated by the reluctance of the financiers to offer the loan at lower interest rates as applied for by the government.

Finance Minister Njeru Githae disclosed that the government is pushing to have the foreign banks further discount their interest rates on the syndicated loan by a margin of one or two points before the deal can be finalised.

“When I assumed this portfolio, I told the people negotiating that they must reduce the interest rates and I told them that they should not fear and that they should do it,” he stressed.

“I’m still trying to see whether we can get….even if its 0.1 percent. Because of the huge amount, it would still make a lot of difference,” the minister maintained.

Although he could not divulge how much the banks were offering, he admitted that they were adamant that they would not quote a rate that is lower than what they have already put on the table.

“They (negotiators) are telling me that they do not think that we will be able to get any further discount….they are almost on the verge of telling me that ‘we do not think we can get lower rates,” he disclosed.

The government announced its intention to source for external resources in December 2011 for infrastructure financing at which time it expressed optimism that the money would released within a short time.

By tapping into the international credit market, Treasury had hoped that the government would help to reduce the pressure that domestic borrowing was having on the local debt markets

But even if the syndicated loan does not go through, the government still has the three-year Extended Credit Facility (ECF) arrangement with the International Monetary Fund (IMF) to fall back on.

An IMF mission was in the country in mid March to review the progress that Kenya has made in economic growth and pledged to disburse the third tranche of the ECF loan amounting to $110 million (Sh9.1 billion) by mid April 2012.

This will bring the total amount released under the arrangement to $440 million (Sh36.5 billion most of which has been used to build up the country’s foreign exchange reserves and subsequently assisted in stabilising the shilling and the inflationary pressures.

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