World Bank Approves $750 Million Budget Support for Kenya

The World Bank approved $750 million in funding to Kenya to support the East African nation’s economic recovery from the coronavirus pandemic.

The so-called development policy operation loan, or DPO, will help the country improve fiscal and debt sustainability through greater transparency and efficiency in government spending, according to an emailed statement from the lender. Part of the funds will be used to set up an electronic procurement platform that could yield savings of as much as $2.6 billion, according to the statement.

The financing will support “measures to reduce the budget deficit over time, such as by making public spending more efficient, while minimizing debt costs by helping to meet the government’s current financing requirements on concessional terms,” the lender said.

Closing The Gap

The concessional loan comes at an interest rate of 3.1% and 30-year repayment term and a five-year grace period. It is the third time that Kenya is tapping the facility having received $1 billion in May last year and a $750 million in 2019.

DPOs help countries plug budget deficits and don’t have specific timelines. Requests are presented to the World Bank’s board following implementation of agreed reforms. Kenya consented to a raft of reforms, including at the state-run electricity distributor Kenya Power & Lighting Co., in the monitoring and evaluation of projects and creating new and transparent auction rules for government securities.

Sub-Saharan Africa’s third-largest economy’s budget-financing gap is estimated at 8.7% of gross domestic product in the fiscal year ending June and is forecast to narrow to 7.5% in 2021-22, according to the National Treasury. The ratio of public debt-to-GDP is expected to peak at 73% in 2022-23 and then start declining, according to the International Monetary Fund.

The World Bank projects Kenya’s economy to grow 4.5% in 2021 and 4.7% in 2022.

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