How Afrexim Bank plans to price its Sh405 billion loan
By Herald Aloo, May 3, 2023
The cost of a $3 billion (Sh405 billion) loan that Kenya has tapped at the Africa Export and Import Bank (Afrexim Bank) will sway depending on the purpose of every withdrawn portion during the three-years that the facility will be active.
The interest rate will, therefore, fluctuate depending on whether the amount tapped will go to a concessional loan or trade finance, offering some temporary reprieve to the country facing a deep financial crisis.
Commercial debts
Concessional loans, which Kenya often uses for budgetary support, usually attract lower interest rates compared to commercial debts. This new move signals a change in borrowing tact where the government is negotiating different loan terms and pricing formulas under a single facility, in what seems to be an attempt to avoid having flat interest rates that only change based on the currency value. It also eases pressure on piling more debt. The trade financing will support the importation of essential products, infrastructure projects, and industrial parks through Public-Private Partnerships (PPP) to avert the high cost of living, meaning the government will not have direct access.
While Kenya and Afrexim have not stated the exact range of the interest rate due to non-disclosure agreements, the trade financings are expected to be significantly cheaper than the concessional loan withdrawals since the bank will only factor in the commissions for every project supported.
“Debt will be coming at low cost than what is existing today. We are testing a new line of supply without distorting the market. The bank (Afrexim) is helping to confirm these LCs which for us is not a debt,” Cabinet Secretary for National Treasury Njuguna Ndungu said yesterday after entering an agreement with Afrexim to start disbursing the loan.
Failure to withdraw the money within three years could, however, see Kenya slapped with commitment charges by the lender.