The Treasury has received $240 million (Sh20.6 billion), the first tranche of a $600 million syndicated loan expected to boost the Central Bank's foreign exchange reserves and reduce pressure on interest rates.
Treasury permanent secretary Joseph Kinyua, said in a statement the remaining $360 million (Sh30 billion) will be received after one month.
The money will be used to fund ongoing work including road construction, port dredging, irrigation and energy projects, as part of a plan to invest heavily in infrastructure to cut the costs of doing business. The loan will be repaid at interest rate of 4.75 percent above the London Interbank Offer Rate. "The dollars will go towards enhancing the foreign exchange reserves of the Central Bank of Kenya," Kinyua said.
The loan was an option taken to avoid increased domestic borrowing after the government shelved an Eurobond idea and decided to borrow funds from international creditors. This was after yields on the short-end of the curve shot to above 20 per cent on the back of an ultra-tight monetary stance aimed at fighting inflation and weak shilling being battered by the dollar.
Yields have since edged down in recent weeks, as inflation dropped for the sixth straight month to 12.2 per cent in May, and investors rushed into auctions in search of yields. "The debt to GDP ratio is estimated to be at the level of 46 per cent at the end of June, which is within the benchmark of our debt sustainability strategy," Kinyua said. Kenya's debt-to-GDP ratio declined to 46.8 per cent in February from 54.2 percent in June 2011, a monthly statement from the Central Bank showed.