Kenya in Talks With World Bank for Budget-Support Loan
Kenya in Talks With World Bank for Budget-Support Loan
Kenya is in talks with the World Bank for a loan to provide further budget support, according to Treasury Secretary Ukur Yatani.
The East African nation’s government and the lender are “still discussing policy areas” to be covered by the financing and are yet to agree on the amount, Yatani said. The loan “doesn’t look likely for this financial year,” he said Tuesday in a text message.
Budget support operations do not have specific time-lines and are presented to the board for decision upon completion of the implementation of the reform actions, the World Bank said Wednesday in an emailed response to queries.
“The amount has not yet been decided because we are at the early stages,” it said.
The Washington-based lender in May approved $1 billion in budget support for Kenya, which followed a $750 million package approved in 2019. The government will spend the money on subsidized agricultural inputs, affordable housing and improving transparency in public financial management, the lender said at the time.
This will be the third time Kenya takes up a so-called development policy operation loan from the World Bank. It is a tool used to provide financing to help countries plug budget deficits and signals the nation’s shift to seek cheaper concessional funding as it faces debt-distress concerns. The International Monetary Fund in May raised Kenya’s risk of debt distress to high from moderate, citing coronavirus shocks.
The budget gap of East Africa’s biggest economy is seen at 840.6 billion shillings ($7.8 billion) in the current fiscal year, or 7.5% of gross domestic product, and will be partly financed via net foreign borrowing of 347 billion shillings, Yatani said in his June budget speech. Kenya also plans to borrow 493.4 billion shillings domestically.
Kenya has no plans to issue commercial debt such as Eurobonds or syndicated loans to finance the budget in the current financial year that ends June 2021, Yatani said on Tuesday.
What Bloomberg’s Economist Says
“This is unsurprising given the large fiscal hole created by the crisis and still weak dollar receipts from the tourism sector. The loan is also likely to come at a much lower cost than the prevailing market rate. It can, if used correctly, help to position the economy for a more robust recovery. The bigger test will be the government’s ability to restore fiscal sustainability once the headwinds from the virus fade.”
Boingotlo Gasealahwe, Africa economist
©2020 Bloomberg L.P.