According to The Business Daily, Treasury has concluded negotiations for a $600 million dollar, Kshs. 50 billion loan from a group of international banks. The paper reported that Mr. Joseph Kinyua the Finance PS said that Citibank and Standard Bank are among the financiers. The funds will be used to finance growth-spurring infrastructure projects including ongoing road projects, energy and irrigation.

As a nation, we could actually have adopted austerity measures, cut down on our excess expenses, scaled down infrastructure projects and completely shelved others making the need for a loan null and void. In fact, we could do that and completely reduce our budget deficit, that extra that the government has to borrow to meet its budgetary needs. I mean, hundreds of thousands of people could be fired and who needs good roads right? Wrong. We need infrastructure, the government is the employer of millions, this is election season, teachers, doctors, nurses, KBC staff and everybody else wants more pay. And the truth is, even you and I find it hard to cut our spending when things get tough. So because we do not want to stop ongoing projects like construction of power plants and fixing the crater-like potholes on some of our roads, the government opted for a syndicated loan after shelving plans to issue a $500 million Euro-bond because of doubts as to whether or not it would be successful. This makes a lot of sense because Europe is not the safest bet. The European economies are battling with some major crises: the sovereign debt crisis in Greece where the government was literally unable to pay its obligations (bonds and the like) and the subsequent bailout of $ 172 billion (Kshs. 14.28 trillion), the Irish bailout ($ 113 billion, Kshs. 9.4 trillion) and the very real fears of the crises spreading to Portugal and Spain. All this with the hangover of the global financial crisis with global production only beginning to pick up.

While the details of the syndicated loan (syndicated because it is provided by a coalition of lenders but is structured and administered by one or several commercial or investment banks) are scanty, the decision to opt for a loan from international financiers is a prudent one. Borrowing from the local market would be too costly. Interest rates on bonds are upwards of 16% while seeking the funds from local financial institutions may have inflationary pressures which is precisely what Kenyans are up in arms about. From afar, it looks that the syndicated loan is a wise move.