By James Anyanzwa

The Government has finally signed a loan agreement amounting to Sh50 billion ($600 million) with a consortium of international banks.

The amount will cover part of the revenue shortfall in last year’s (2011/2012) budget. Finance Minister Robinson Githae Tuesday signed the loan agreement with three foreign banks — Citibank (London Branch), Standard Chartered Bank (London) and Standard Bank of South Africa.

Githae said the loan would finance infrastructure projects in the roads, energy, and water and irrigation sectors, as well as financing some of the programmes in the implementation of the new Constitution.

“These programmes are ongoing and will continue in the next financial year of 2012/2013,” Githae told reporters at the Treasury.

He said the funds will help ease pressure on the domestic interest rates and boost the international reserves of the Central Bank in order to stabilise the shilling exchange rate.

“The signing of this syndicated loan marks an important stage in the entry of Kenya into the global capital markets and we look forward to successful syndication,” said Githae.

Kenya’s public debt stands at Sh1.51 trillion comprising of Sh686 billion in external debt and Sh830 billion in domestic debt.

The Government hopes to retire the syndicated loan before its term of two years through issuance of a sovereign bond. The loan is mainly designed to substitute part of what the Government planned to borrow from the domestic market this fiscal year.

Treasury had planned to borrow Sh119.5 billion from the domestic market but high interest and exchange volatility scared investors causing them to demand higher yields to compensate for risk.

With many of them shying away, Treasury found it hard to push through its borrowing plan.

By December 2011, only Sh14 billion had come in, implying Sh105.5 billion was to be borrowed before the closure of the 2011/12 fiscal year.

Treasury expected to borrow a total of Sh119.5 billion through issuance of treasury bills and bonds to finance part of the overall budgetary deficit amounting to Sh236.2 billion (7.4 per cent of the GDP) during the 2011/12 fiscal year.

The amount is part of the Government’s overall Sh1.06 trillion budget for the 2011/12 fiscal year.