Finance Minister Njeru Githae said the loan will go towards financing infrastructure projects as well as programs in implementing the
Constitution under the 2012/2013 budget.
“The amount will be utilised to complete our ongoing roads projects, energy projects and water and irrigation. We want to use half of it for this current budget and some for the next budget,” he said.
With an interest rate for the loan pegged at 4.75 percent per annum over the London InterBank Offered Rate (Libor), Githae added that the loan is competitively priced compared to other African debt financings.
The two-year loan will be rolled out by Citi Bank, London, Standard Chartered Bank, London and Standard Bank, South Africa.
The signing of the loan has now freed up the Treasury to focus on the Eurobond for the 2013/14 fiscal year, aimed at retiring the expensive domestic debt.
“Now we have time to negotiate our sovereign bond at better rates,” Githae said.
He further allayed doubts over whether the country would be able to service such a huge debt in the future after taking on the loan.
“The amount borrowed in absolute numbers appears high but the correct way is to consider debt burden is in terms of the size of the economy and the capacity to repay,” he said.
Citing a debt sustainability report published by the World Bank and International Monetary Fund last year, Githae said the debt is sustainable adding that there is low risk of debt distress.
The current level of outstanding public debt is at Sh1.51 trillion comprising Sh686 billion in external debt and Sh830 billion in domestic debt.
In the next week the government should receive an additional Sh1 billion grant from the World Bank to boost the Cash Transfer Programme for Orphans and Vulnerable Children under the Ministry of Gender, Children and Social Development.