Kenya Gets $750 Million World Bank Loan, and Eyes Another One

(Bloomberg) -- Kenya received a $750 million loan from the World Bank last week and will be starting talks on a new facility as early as the fourth quarter of the year.

The lender has released the funds, that were approved in May, according to Hafez Ghanem, the World Bank’s vice president for Africa. It will help to finance affordable housing, agriculture and other development projects. These are part of the government’s Big Four agenda, which also aim to boost manufacturing and improving health care.

“It is a very common source of financing, it is just that we had not done this sort of financing for Kenya in a long time,’’ Ghanem said Wednesday in an interview in Nairobi, the capital. “What changed? The government and the bank reached agreement on what we consider to be a very strong and credible economic program.’’

Ghanem didn’t give further details on the new facility that will be negotiated.

The loan comes amid concerns that Kenya is taking on too much debt. This year alone, the country has also accessed a $1.25 billion syndicated loan and raises a $2.1 Eurobond. Government debt has more than doubled since 2013 to 5.42 trillion shillings ($52.8 billion) by March, according to central bank data. Debt-service costs rose to 33.4% of revenue from 23.5% in 2013.

The concessional loan is a better bet than more expensive commercial debt because it has a tenor of 25 years, a seven-year grace period for paying interest and a rate of 2%, which makes it almost a grant, according to the World Bank.

“It is better to use as much as possible concessional loans, and good to diversify as much as possible the sources of financing,” Ghanem said. “If we did not think it was a good thing, we would not have done it ‘’

The loan was granted on the assumption that the government will implement plans to increase revenue and ease the uptake of debt. The Treasury seeks to narrow the budget deficit to 3% of gross domestic product by 2022 from an estimated 6.8% of GDP in the fiscal year that ended June 30.

The reduction in debt and the budget deficit has to be done “in a gradual way that does not reduce investment,” Ghanem said. “Public investment needs to be maintained, and we have to ensure the consolidation does not have a negative impact on growth.’’

To contact the reporters on this story: Adelaide Changole in Nairobi at achangole2@bloomberg.net;David Herbling in Nairobi at dherbling@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Rene Vollgraaff, David Malingha

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