Kenya Gets $1 Billion Financing From World Bank
Kenya Gets $1 Billion Financing From World Bank
The World Bank will lend Kenya’s government $1 billion in budget support, its biggest financing package yet for the East African economy, according to Treasury Secretary Ukur Yatani.
“The fact that 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 said on Twitter.
The concessional loan comprises $750 million credit from the International Development Association at an interest rate of 1.35%, 30-year repayment period and a five-year grace period. The remaining $250 million is from the International Bank for Reconstruction and Development at just above 2%, the World Bank’s country representative, Carlos Felipe Jaramillo, told reporters in the capital, Nairobi.
The so-called development policy operation loan, or DPO, was under discussion for about two years and follows $750 million approved in 2019. The government will spend the money on subsidized agricultural inputs, affordable housing and improving transparency in public financial management, Jaramillo said.
The DPO comes on the heels of a $739 million International Monetary Fund loan announced earlier this month in emergency support and $50 million in World Bank support for Kenya’s health systems. The nation has confirmed 963 Covid-19 infections.
Safety Net
While the World Bank is concerned about Kenya’s debt sustainability, the coronavirus pandemic allows for a freeze for any fiscal consolidation plans so governments can mitigate shocks from the virus, he said.
“We would worry about fiscal consolidation at a later stage,” Jaramillo said. “In the short run we are happy to be able to provide safety net through a loan like this one.”
Kenya has plans to spend 53.7 billion shillings ($503 million) in the year beginning July 1 on a stimulus package to support businesses hit by the pandemic, which the Treasury says won’t affect its budget deficit. The financing gap is seen narrowing to 7.3% of gross domestic product in 2020-21 from an estimated 8.2% in the year through June.
The World Bank continues to be concerned about Kenya’s growing debt pile, but it’s seen a shift toward concessional borrowing by the state, Jaramillo said. About 35% of $28.4 billion in domestic debt matures this year, posing a high refinancing risk, the National Treasury said in February.
“Our biggest concern is that the money we provide is spent transparently and is well accounted for,” he said.
©2020 Bloomberg L.P.