Kenya seeks $600m foreign loan

NAIROBI - The Kenyan government is seeking a short term foreign loan amounting to $600 million for the 2011/2012 financial year, the country's finance ministry said.

The Ministry of Finance Permanent Secretary Joseph Kinyua told journalists that the government will seek the loan instead of the planned Eurobond which will take a longer period to materialize.

"By mid January 2012, we should have identified the banks to loan the treasury the 600 million dollars for a maximum repayment period of 10 years," Kinyua said. He added that funds should be received by the government by the end of February 2012.

Kinyua said the country decided to go for foreign loans instead of domestic funds in order to reduce the pressure on Kenya's financial sector which is currently plagued by high interest rates. "Any additional government borrowing internally could affect the country macroeconomic stability," he said.

"We are hoping that the interest rate on the loans will be cheaper than the rates available domestically," he added.

"Once we receive the loan we will have to postpone the issuance of the Eurobond for some time in order to maintain the public debt to Gross Domestic Product ratio at sustainable levels," he said.

He added that a debt survey showed that the level of Kenya shilling denominated debt has gone up.  

According to the ministry of finance, the country wants to maintain the country public debt mix to include more concessional loans which are cheaper to service.

Meanwhile, the finance permanent secretary also said the government has adopted austerity measures that will see the government cut up to 168 million U.S. dollars from budgeted expenditure in the current financial year in order to accommodate expenditure for non budgeted items.

"The parliamentary committee on finance helped us cut 112 million dollars and the treasury has identified a further 56 million dollars of non priority expenditure," Kinyua said.

"These measures are informed by the challenges the government is facing brought about by this year's drought and current military incursion into Somalia," he said.

The PS said that expenditure on productive sectors such as roads, energy and irrigation will not be affected as they could affect economic growth.

"The cuts will target recurrent expenditure on consumption items such as travel, seminars and furniture which will not affect overall growth agenda," he said.