Kenya Turns to UAE For Loans Again Despite IMF warnings

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Emmanuel Eze

Kenya has turned to the UAE to secure financing to complete a regional railway after China cut infrastructure funding to the project despite earlier IMF warnings on Kenya’s dealings with the UAE.

The railway project connecting Mombasa with its landlocked neighbours was started as part of China’s Belt and Road Initiative, but construction ended in the Rift Valley in 2019, 468 kilometers (290 miles) short of the border with Uganda, after the Chinese government withdrew support for the project.

UAE to The Rescue

Following the withdrawal of chinese funding, the Kenyan government has once again turned to the UAE to move the project forward.

“We are exploring a partnership agreement with the United Arab Emirates to extend the Standard Gauge Railway to connect Kenya, Uganda, and South Sudan.

Both sides will carry out a feasibility study on the extension of the railway, he said, “due to its capacity to foster regional integration and promote trade”.

Kenyan President William Ruto said on X late on Tuesday, after meeting UAE officials in Abu Dhabi.

Kenya-UAE Ties

The latest agreement is the latest landmark in the burgeoning Kenya-UAE ties. In October 2024, Kenya entered into negotiations with the United Arab Emirates (UAE) for a $1.5 billion commercial loan for budget support.

The proposed loan carries an interest rate of 8.25% over a seven-year term. Kenya’s Finance Minister, John Mbadi, indicated that this financing aims to diversify the country’s funding sources following domestic challenges that impeded planned tax hikes and delayed International Monetary Fund (IMF) disbursements.

Kenya and the UAE also signed a comprehensive economic partnership agreement on Tuesday, aiming to boost trade volumes by removing barriers, simplifying customs processes and promoting investments.

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The UAE is currently the sixth biggest export market for Kenyan goods, and its second biggest source of imports. The value of Kenyan-UAE trade stood at 445 billion shillings ($3.44 billion) in 2023, with the UAE buying agricultural products, while Kenya gets petroleum products, machinery and chemicals.

IMF Disagreement

The IMF has expressed concerns regarding the external and dollar-denominated nature of the loan, citing potential financial risks for Kenya. The IMF stated the loan could exacerbate Kenya’s debt vulnerabilities and expose the nation to foreign exchange risks.

Emmanuel Eze

Emmanuel Eze is an early career journalist with an interest in reporting economic and business related issues