Afrexim Bank gives $3 billion economic support loan to Kenya

The Kenya National Treasury located in Nairobi. Afrexim Bank will Mat 2, 2023 start the disbursement of a $3 billion (Ksh408 billion) economic support loan for Kenya, handing some temporary relief to the country facing deep financial headwinds.PHOTO | DENNIS ONSONGO | NMG

By NATION AFRICA

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The Africa Export and Import Bank (Afrexim Bank) will Tuesday start the

disbursement of a $3 billion (Ksh408 billion) economic support loan for Kenya, handing some temporary relief to the country facing deep financial headwinds.

Sources told The Nation the commencement of the disbursement of the mega loan follows approval by the Board of Directors of Afrexim Bank.

“The amount will go to various sectors of the economy to enable the government of Kenya to manage the economic headwinds induced by global factors,” a source said ahead of a signing ceremony between the bank and the national treasury in Nairobi today.

Read: Debt, inflation weigh down on Kenya economy

“The financing will also support the importation of essential commodities aimed at taming the high cost of living and supporting the country’s post-Covid recovery infrastructure projects and boosting industrialisation,” the source added.

Cabinet approvals

The Kenya National Trading Corporation (KNTC) was in November last year given cabinet approval to spearhead the government’s initiatives to stabilise the cost of essential goods amid a biting drought that had curtailed local food production.

The agency was handed approval to import 150,000 tonnes of rice, 125,000 tonnes of cooking oil, 2,000,000 tonnes of sugar, 25,000 tonnes of wheat and 80,000 tonnes of beans duty-free.

The cabinet also approved the importation of a further 25,000 tonnes of wheat donated by Ukraine. The approval is effective for one year from January 20, 2023, to January 19 next year.

Kenya also entered a government-to-government deal for the importation of petroleum products from the Middle East.

The Afrexim Bank loan will also go into manufacturing and agro-processing export development such as setting up industrial parks and promotion of intra-Africa trade under the African Continental Free Trade Area (AfCFTA)—an initiative of the African Union.

The commencement of the disbursements comes five-and-a-half months after the funding was revealed during a meeting between President William Ruto and Prof Benedict Okey Oramah, President and Chairman of the Board of Directors of Afrexim Bank, in Nairobi on November 17, 2022.

“This will allow us to expand our engagement with Afrexim Bank on several investment areas such as infrastructure, agriculture, commercial irrigation, housing, the creative industry, and the MSME (micro small, and medium enterprises) ecosystem,” Dr Ruto said during the November meeting.

Latest signatories

The disbursements also come as Kenya, DRC and Chad became the latest signatories to the Establishment Agreement of the Fund for Export Development in Africa (Feda), the development impact-oriented subsidiary of Afrexim Bank.

Read: Africa's debt burden tops US meeting

“These successive accessions provide positive momentum for Feda and demonstrate a shared commitment from Afreximbank member countries to support the organisation’s impact investing objectives. It creates a powerful catalyst to increase equity and equity-like funding for African companies that promote industrialisation, Intra-Africa trade, and value-added export development,” Afreximbank revealed in an official communication.

Sources at Treasury told TheNation that the Ksh408 billion facility from Afrexim will provide much relief from the budgetary pressure facing the country.

 “We are glad this will bring some relief to the economy. It is uplifting because for programmes of this magnitude, it is moving in record time,” a source said.

Kenya hard-pressed

Kenya is hard-pressed for finances amid debt maturity pressure amid highly ballooned debt-servicing costs in recent years and is considering a raft of interventions including going for another Eurobond to help deal with the situation.

Read: Debt headache as Kenya seeks new Eurobond

Kenya targets to issue a new Eurobond to manage next year's maturity of a Ksh271.99 billion ($2 billion) 10-year bond.

“The government of Kenya through its National Treasury is considering accessing the international capital markets before the end of the fiscal year 2023/24 (July 1, 2023, to June 30, 2024) to issue a sovereign bond,” the treasury said in a tender call for lead arrangers to express interest in the new Eurobond plans.

The issuance of the Eurobond comes during Ruto’s first Budget of Ksh3.663 trillion ($27 billion) in 2023/24, which has a financing deficit of Ksh720.1 billion ($5.3 billion). This deficit will be plugged through a mix of Ksh198.6 billion ($1.46 billion) in net external financing and net domestic borrowing of Ksh521.5 billion ($3.83 billion).

Separately, Kenya last week received the first tranche of a slashed $500 million (Ksh68 billion) dual currency from a syndicate of banks, down from the $600 million (Ksh81.6 billion) initially targeted, as part of the planned $900 million (Ksh122.4 billion) commercial borrowing for the current financial year.