The National Treasury has secured Ksh60 billion ($464 million) in bridge financing from a consortium of banks to clear outstanding payments owed to road contractors.
The loan, facilitated by Trade and Development Bank, will be repaid using proceeds from a securitized road levy.
With contractors and landowners still owed Ksh175 billion, the government plans to issue a medium-term bond by the end of June to raise a similar amount.
Moreover, part of this will be used to refinance the short-term loan.
“We urgently need to restart stalled road projects across the country,” Treasury Cabinet Secretary John Mbadi said during an interview with Bloomberg.
Also Read: Ruto’s Headache as World Bank and UAE Threaten to Withhold Ksh297 Billion Funding
Treasury Asks Contractors to Forfeit Interests
At the same, although CS Mbadi indicated that the government is committed to paying contractors their full principal amounts, he said that it is negotiating with them.
The government is asking the contractors who are owed billions to waive up to 50% of the accrued interest.
According to him, the savings will help fund completed road projects in the current and upcoming financial year.
“We are asking them to take a haircut of 50% on the interest,” Mbadi added.
The delays in payments have forced many contractors to stop work, slowing down demand for key construction materials like cement, bitumen, iron, and steel.
Moreover, the Central Bank of Kenya (CBK) noted that the construction industry has been on a downward trend for eight straight months.
The move comes following delays in Ksh109 billion ($850 million) IMF disbursements under a Ksh465 billion ($3.6 billion) program that was signed in 2021.
IMF noted that the government failed to meet key benchmarks, including reducing its fiscal deficit and implementing revenue-raising measures.
Consequently, the national treasury is at risk to lose Ksh297 billion ($2.3 billion) in funding from the World Bank and the United Arab Emirates (UAE).
Moreover, S&P Global Ratings warned on March 25 that IMF funding often serves as a catalyst for other financial inflows.
Also Read: Kenyan Banks Set New Maximum Withdrawal Limit
Govt Abandons IMF Program Review
On Wednesday, March 26, CS Mbadi announced that the government had opted out of the 9th review of its ongoing IMF program, which is set to lapse on April 1, 2025.
According to Mbadi, the remaining timeframe is insufficient to complete the review forcing the government to seek a fresh program with the IMF.
Furthermore, he acknowledged the strain of the loans to the Kenyan economy noting that it was unrealistic to balance the budget.
Treasury’s medium-term debt strategy aims to source 25% of gross borrowing externally and 75% domestically to manage costs and risks.
Despite concerns from the CBK, Mbadi noted that borrowing remains important to sustain public services, as tax compliance is unlikely without tangible government service delivery.
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