This archive report was first published on 7 August 2019.
Kenya's government is in the midst of a severe cash crunch, with major revenue shortfalls and a lack of concessional external financing forcing it to consider a new syndicated loan worth around Sh150 billion.
According to a draft term sheet circulated by the National Treasury, the loan will be worth US$1.5 billion, with a maturity date of 2026 and an interest rate of Libor+645 basis points, equivalent to around 9% per annum.
The loan is intended to fund development projects, but critics argue that the government should first address its existing debt and introduce more transparency around its borrowing practices.
As the government struggles to manage its finances, it has also issued a circular asking commercial parastatals to surrender excess cash held in their bank accounts, a move that has been met with skepticism by experts.
With the government's budget facing significant challenges, including a disproportionate share of resources going towards salaries, pensions, and debt service, critics argue that the only practical option is to either engage in more domestic borrowing or implement huge cuts in development.
However, the government's approach to borrowing has been criticized for lacking transparency, with critics arguing that the law of the land prohibits borrowing to service debt or pay salaries.
As the government navigates this complex financial landscape, it is clear that a more transparent and accountable approach to borrowing is needed to avoid the pitfalls of the infamous Tuna Bond Scandal in Mozambique.
