Treasury closer to securing Sh50 billion syndicated loan

By James Anyanzwa

Plans by the Government to borrow $600 million (Sh50 billion) from international banks to finance revenue shortfall in last year’s (2011/2012) budget have succeeded.

Finance Minister Robinson Githae is expected to sign loan agreements with Citibank, Standard Chartered Bank (UK), and Standard Bank of South Africa next week.

John Murugu, a director, debt management department at the ministry of finance said the final

Finance Minister Robinson Githae could sign the loan to finance revenue in a week’s time boosting foreign exchange reserves and sealing budget deficit. [Photo: File/Standard]

loan documents would be submitted to the Attorney General’s office for approval before the end of this week.

Complex issues

"Some of the things especially to do with commercial banks are very complex. Otherwise we are now almost there. Most of the agreements have been negotiated," Murugu told The Standard yesterday.

"Our lawyers will present the final contract document to the Attorney General this week for approval. After that, we should be able to sign the contract by latest next week."

The syndicated loan is mainly designed to substitute part of what the Government planned to borrow from the domestic market this fiscal year.

The Treasury had planned to borrow Sh119.5 billion from the local market, but high interest and exchange volatility made investors jittery causing them to demand higher yields to compensate for risk.

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

By December last year, only Sh14 billion had come in, implying a further Sh105.5 billion was to be borrowed before the closure of the 2011/2012 fiscal year.

The International Monetary Fund Country Report dated April 2012, says the Government’s contracting of a two-year $600 million syndicated loan with foreign banks at London Interbank Offered Rate plus 475 basis points will help reduce domestic financing requirements.

Proceeds from the syndicated loan will also boost CBK’s foreign exchange reserves and increase liquidity as foreign exchange is converted into local currency and spent by the government

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 2011/2012 fiscal year.

The amount is part of the Government’s overall Sh1.06 trillion budget for the 2011/2012 fiscal year.

Kenya Revenue Authority is staring at a six per cent deficit in tax collection targets for the 2011/12 financial year due to tax interventions by the Government to cushion the poor against rising cost of living in 2011.