THE World Bank has granted approval for a $1bn loan to Kenya in an effort to support the country’s budget amidst the challenges of high debts and a weakening currency. The loan will be provided through a Development Policy Operations (DPO) instrument, with the condition that Kenya implements reforms focused on creating fiscal space, enhancing agricultural competitiveness, and improving governance.
Aghassi Mkrtchyan, Senior Economist for the World Bank in Kenya, highlighted the importance of the government’s reforms supported by the DPO loan. He stated, ‘The government’s reforms, supported by the DPO, will help to achieve fiscal consolidation, which is essential for reducing the debt burden and related risks, in an equitable and sustainable manner.’
President William Ruto, who assumed office last year, has expressed a commitment to restoring fiscal discipline following a surge in public debt during his predecessor’s tenure. However, Ruto’s proposal to increase taxes across various economic activities as part of the upcoming finance bill has faced opposition from civil servants and political opponents.
Kenya qualified for financing under the DPO instrument in 2019 and has already received four such loans, with the most recent disbursement occurring in March. As per the latest agreement, the country will undertake reforms that include the elimination of administrative price-setting for publicly procured cereals and the streamlining of the state’s exit from commercial investments, according to the World Bank.
Kenya’s financial situation has been strained by rising debt repayments and the severe drought experienced in the Horn of Africa, which is said to be the worst in four decades. Moody’s, a global ratings agency, recently downgraded Kenya’s senior unsecured debt rating and long-term foreign-currency and local-currency issuer ratings, citing increased government liquidity risks.
The Central Bank of Kenya predicts that the economy will expand by 5.8 percent in 2023, as stated in March, reflecting an improvement from the 4.8 percent growth observed in 2022. The World Bank’s loan aims to assist Kenya in addressing its debt and currency challenges, providing support for sustainable economic growth and financial stability.
