Kenya has decided to fully settle a Sh55.6 billion loan from the Eastern and Southern African Trade and Development Bank (TDB) instead of refinancing it, following concerns over its high interest rate and short repayment period.
The move signals the government’s effort to ease pressure from expensive commercial debts that have heavily weighed on the national budget.
Treasury Cabinet Secretary John Mbadi confirmed that the $430.55 million syndicated loan was too costly to renew, noting that even though the government explored the option of refinancing, the terms offered were not favourable.“It was very expensive. It was, I think, over 10 percent. We had the option of refinancing, but we thought this was an expensive loan. We must retire it,” Mbadi told financial journalists on Tuesday.
According to Treasury records, as of June 2024, Kenya owed TDB about $418 million (Sh54 billion) in syndicated loans scheduled to mature between September and early October 2025.
The largest portion, about $314.2 million (Sh40.6 billion) was due on September 19, while the remaining $116.3 million (Sh15 billion) was to be settled by October 6.
Mbadi had earlier said the State would refinance the TDB loan if it received more flexible terms, but would instead repay it from its own resources if refinancing proved too expensive.
The decision comes as part of the government’s wider strategy to reduce dependence on high-interest, short-term commercial loans that have heightened Kenya’s debt vulnerabilities.
Syndicated loans are typically arranged by a group of lenders to distribute risk and are often negotiated privately, making them quicker to secure. However, they are usually short-term and carry higher interest rates compared to concessional or multilateral loans.
TDB, Kenya’s largest syndicated lender, has disbursed about $2.53 billion (Sh327 billion) to Nairobi in various facilities over the past eight years. Economist Churchill Ogutu from Mauritius-based IC Group observed that the Treasury is likely using the surplus from the recently issued Eurobond to clear these syndicated debts.
“They don’t want to refinance the syndicated loans, they just want to retire them,” said Ogutu.
Earlier this year, Kenya raised $1.5 billion (Sh193.7 billion) through a 10-year Eurobond to repurchase another $1 billion (Sh129.1 billion) bond maturing in 2028.
The TDB loans were initially acquired in 2017 and 2022 during periods when the government heavily relied on commercial borrowing to bridge budget gaps and fund infrastructure projects.
Kenya’s shift away from such loans follows recommendations from the International Monetary Fund and the World Bank, which have consistently warned that excessive reliance on expensive commercial debt exposes the country to higher repayment risks.
Over the years, Kenya has sourced syndicated facilities from lenders such as Standard Bank, Standard Chartered, Citi, HSBC, and Qatar National Bank.
In 2019, TDB and South Africa’s Standard Bank Group jointly arranged $1.25 billion (Sh161.59 billion) in medium-term syndicated loans to help the government retire maturing short-term obligations.
The move to retire the TDB loan also reflects the government’s ongoing efforts to streamline external borrowing. Since 2014, successive administrations have turned to commercial loans to finance major projects including roads, bridges, and power plants, with the expectation that economic growth would offset repayment pressures.
However, slower growth and early loan maturities have strained public finances.
Kenya is also in talks with China to restructure its dollar-denominated loans for the Standard Gauge Railway project, while continuing to issue new Eurobonds to manage maturing obligations.
Earlier this year, the Treasury floated two Eurobonds worth a combined Sh374.7 billion ($2.9 billion) to refinance existing notes due in 2024 and 2027.