Treasury draws first tranche from Sh51bn syndicated loan

The Treasury has accessed Sh20 billion ($240 million) of the Sh51 billion ($600 million) syndicated loan borrowed from international banks, helping to ease pressure on the shilling by closing the national budget deficit and boosting foreign currency reserves.

Permanent secretary in the Ministry of Finance, Joseph Kinyua, said the second and final tranche of Sh31 billion ($360 million) would be accessed next month.

“The government will use the loan proceeds to finance on-going infrastructure projects programmed under the 2011-12 budget, including road construction and rehabilitation, port dredging, irrigation programmes, and energy projects,” said Mr Kinyua in the statement.

“The dollars will go towards enhancing the foreign exchange reserves of the Central Bank of Kenya (CBK),” he said.

The shilling, which has weakened in the past two weeks, traded at 85.75/95 units to the dollar Tuesday compared with Monday’s close of 85.90/86.10.

READ: Kenyan shilling weakens past 87 against dollar

Data from the CBK indicates that towards the end of last month the usable official foreign exchange reserves held by the bank declined to $4.425 billion or 3.75 import cover from $4.549 billion or 3.86 months of import cover between May 24 and May 31.

There was mixed reaction on the effect of accessing the $240 million syndicated loan with dealers and analysts saying that the decision to reduce or increase the central bank rate (CBR) rates would have a bigger influence on the market.

Currency dealers said that the draw down did not have an effect on the market since the $600 million had already been factored in.

“Everyone was expecting the money to come so it was not a shock event,” said Duncan Kinuthia, a dealer at Commercial Bank of Africa.

Francis Mwangi, a research analyst at Standard Investment Bank, said the money would have a positive effect on the shilling helping it to recoup recent losses during which it touched a new low for the year.

Mr Mwangi said that while the rate of inflation was edging down, credit expansion was still growing and this makes the case for maintaining the central base rate (CBR) at 18 per cent.

The $600 million loan was arranged by a consortium of international banks comprising Citibank, Standard Chartered Bank, and Standard Bank of South Africa.

READ: Treasury finalises Sh50bn loan deal with global banks

Mr Kinyua said the cost of the loan is “competitive” and linked to the three-month, US Dollar London Interbank Offer Rate (LIBOR).

“After taking into account the above foreign currency borrowing the debt to GDP ratio is estimated to be at the level of 46 per cent at the end of June,” Mr Kinyua said.