The World Bank will lend the Kenyan Government $1 billion (Ksh106 billio) to support its budget. According to Treasury Secretary Ukur Yatani, this is the biggest financing package ever from the World Bank to Kenya.
“The fact that the World Bank does not provide budget support to countries with weak macro framework is a testimony of the confidence levels of the bank in our new policy reforms,” Yatani tweeted.
The World Bank’s country representative, Carlos Felipe Jaramilo told reporters in Nairobi that of the $1 billion, $750 million credit will come from the International Development Association at an interest rate of 1.35 percent with a 30 year repayment period and a five year grace period; $250 million will come from the International Bank for Reconstruction and Development at slightly over 2 percent.
According to Jaramilo, The Development Policy Operation (DPO) has been in discussion for about two years, and follows a $750 million approved in 2019. The Kenyan government will spend the money on affordable housing, subsidized Agricultural input and improving transparency in the management of public funds.
Earlier this month, Kenya received $739 million loan from the International Monetary Fund and $50 million in World Bank support for Kenya’s Health system following the Coronavirus pandemic, with confirmed cases currently at 963.
Although the World Bank is uncertain about Kenya’s debt sustainability, the coronavirus pandemic allows for a suspension for any economic consolidation plans to allow the government mitigate the blows to the economy that have come with the pandemic.
“We would worry about fiscal consolidation at a later time,” Jaramilo said. “In the short run, we are happy to be able to provide a safety net through a loan like this one.”
The Kenyan government has indicated plans to spend Sh 53.7 billion in the year beginning July 1st on a stimulus package that will support businesses that have been affected by the coronavirus pandemic. According to the treasury, this should not affect its budget deficit. The financing gap is projected to narrow down to 7.3 percent of gross domestic products in 2020-21 from approximately 8.2 percent in the year through June.
Jaramilo said that the World Bank is still concerned about Kenya’s additional debts, although it has seen a shift towards concessional borrowing by the state. The national treasury said that about 35 percent of $28.4 billion in domestic debt will mature this year, giving way for a high refinancing risk.
“Our biggest concern is that the money we provide is spent transparently and is well accounted for.” Jaramilo said.