World Bank, IMF become Kenya’s lifeline as commercial loans dry up

The World Bank and the International Monetary Fund (IMF) have become Kenya’s key credit lifeline as the availability of commercial loans dry up.

Tightening financial conditions including rising interest rates have seen Kenya starved off external commercial loans, pushing the country back to concessional funding sources.

For instance, Kenya was unable to tap Ksh.124.3 billion last month from a Eurobond as authorities shunned higher interest rates while the issuance of an estimated Ksh.118.2 billion ($1 billion) from a syndicated loan has also faced delays.

According to data from the National Treasury, Kenya did not contract any commercial loans between January and April this year, with the entire sum of Ksh.137.9 billion in new loans contracted in the period representing credit lines from bilateral and multilateral lenders.

During the same period, Kenya contacted Ksh.88.7 billion ($750 million) from the World Bank Development Policy Operations (DPO).

Moreover, Kenya expects disbursements of Ksh.29 billion ($244 million) from the International Monetary Fund (IMF) next week under what is a three-year loan backed program that began in February last year.

IMF previously wired Kenya Ksh.30.5 billion ($258.1 million) in December last year under the fiscal support program which will see a total of Ksh.276.6 billion ($2.34 billion) disbursed by the end of 2025.

According to analysts at ICEA Lion asset managers, Kenya could be forced to stay close to the multilateral lender as the economy suffers the fallout of a trifecta of inflation, war and rising interest rate which has spiked the cost of external borrowing.

As the scope for borrowing commercially in international commercial and fixed income markets thin, ICEA Lion CEO Einstein Kihanda says Kenya should deepen its access to concessional lending to fill its external borrowing needs.

“Possibly, there is a need to revisit our prior model in terms of looking for concessional loans from multilateral partners as it has happened before,” he said.

Interest rates charged on the concessional loans are usually comparatively cheaper to yields paid off commercial loans.

Nevertheless, Mr Kihanda admits loans from the World Bank IMF usually require long-term engagements and discussions with the parties making disbursements from concessional lending less timely.

“Of course it comes with significantly more engagement with these partners in terms of economic policy,” he added.

At the same time, concessional loans are attached to more stringent conditions relative to commercial loans.

Kenya will be under pressure to meet its external financing framework for the new 2022-2023 financial year with an estimated Ksh.105.6 billion worth of commercial loans planned out in the year to June 2023.

Moreover Kenya could be forced to take the expensive commercial loans over the longer-term as maturities on issued commercial debts including a Eurobond redemption in 2024 edges closer.