Kenya has opted out of fully drawing a Sh193.8 billion ($1.5 billion) loan facility from the United Arab Emirates (UAE) due to its high pricing.
An official from the Treasury has indicated that the financing facility is now out of the picture, due to high costs as the country sees the scope for cheaper funds from institutions such as the World Bank.
Kenya already drew Sh64.6 billion ($500 million) from the facility in the last financial year but will now sit out of unlocking the Sh129.2 billion ($1 billion) balance.
The country reached an agreement with the UAE for the seven-year facility which is priced at an 8.25 percent interest rate and accessed a part of the funds in April 2025, amid prevailing high interest rates in international capital markets and the lack of concessional financing.
‘The $1 billion Abu Dhabi financing is out of the picture because of high pricing,’ the Treasury source told the Business Daily.
The UAE facility was previously seen as a lifeline for Kenya especially after the cancellation of the International Monetary Fund (IMF) multi-year programme in March 2025 and delays to fresh disbursements from the World Bank Development Policy Operations (DPO).
The loan arrangement was also reached at a point when international investors were demanding a steeper return to buy/hold Kenya’s debt at the pronouncement of US tariffs which caused jitters around the world.
Market access has since improved for Kenya including the international capital markets with Eurobonds yields sitting in the single digits’ territory.
Yields on the 10-year Eurobond maturing in 2028, the six-year 2031 Eurobond and the 12-year 2034 Eurobond closed last week below the 8.25 percent coupon rate for the UAE loan at 7.32 percent, 8.11 percent and 8.12 percent respectively as of Thursday April 16.
The UAE loan was the first commercial financing arrangement from the Gulf, with the government having previously relied on Eurobonds and syndicated loans, mostly from Western lenders, for commercial debt.
The UAE has had a growing influence in Kenya under the Kenya Kwanza administration, mainly through State-level business ties.
In March 2023, Kenya entered into a direct petroleum importation agreement with the UAE and Saudi Arabia, dubbed the government-to-government oil deal, at the height of a dollar crisis in the country.
The UAE also provided a private jet used by President William Ruto during his four-day State visit to the US in May 2024.
In May of the same year, the Gulf State pledged Sh245.4 billion ($1.9 billion in aid to Kenya to manage the effects of widespread flooding.
Previously, Treasury Cabinet Secretary John Mbadi said that Kenya was under no obligation to take up the balance of the UAE loan despite closer ties, insisting that the country would take up cheaper loan options if available.
‘We are not tied to one specific financing because of an arrangement. We will only take it if it makes economic sense,’ he said.
‘If the World Bank DPO is available, it would be at concessional rates. If we can also get debt for development swaps or Samurai bonds, these would also be better options.’
Kenya estimates its net external financing requirement for the fiscal year to June 30, 2026, at Sh225.8 billion or an estimated 1.2 percent of gross domestic product (GDP).
Net domestic financing is expected to fill the bulk of the 6.4 percent fiscal deficit at Sh998.6 billion or 5.3 percent of GDP.
The World Bank DPO financing is expected to play a significant role by providing the cheapest external financing option while also slightly putting checks on the relatively costlier domestic borrowing sources.