The World Bank has approved $1.2Billion (Ksh155.7B) funding to support Kenya’s Fiscal Sustainability and Resilient Growth Development Policy Operation (DPO).
This is the first in a series of three which has been prepared under an improved macroeconomic environment following government action to address the challenges that had overshadowed the economy including tight liquidity pressures, depressed investor confidence and limited capital inflows that had resulted in a rapidly depreciating shilling.
“The policy dialogue around this DPO has helped to strengthen the macroeconomic framework, sustain an ambitious fiscal consolidation path, and tighten monetary policy,” said Keith Hansen, World Bank Country Director for Kenya.
“After tackling the immediate fiscal pressures, the focus can now shift to addressing the country’s longer-term challenges,” he added.
World Bank Support
The Development Policy Operation (DPO) will support policy and institution reforms to address structural constraints in Kenya’s public finances, alleviate fiscal pressures and promote a more efficient and sustainable budget.
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The DPO will also foster more competitive and inclusive product and labor markets and strengthen climate action, building on Kenya’s strong leadership under the 2023 Nairobi Declaration on Climate Change.
World Bank Senior Economist for Kenya, Naomi Mathenge said for Kenya to return to moderate risk of debt distress, the Government will have to play a key role.
“For Kenya to return to moderate risk of debt distress, the government will need to maintain the fiscal consolidation path, promote export growth, enhance the country’s policy and institutional assessment to increase its debt carrying capacity and proactively manage liabilities by focusing on concessional financing to reduce interest costs and repayment pressures,” said Naomi Mathenge.
Ruto on Loans
President William Ruto’s administration is targeting to borrow Ksh3.6 trillion in his five-year time limit.
The spending is under the Bottom-up economic plan, which proposes to channel resources to sectors that have a mass impact in creating jobs and wealth.
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The DPO will also focus on the priorities laid out in the Government’s Bottom-up Economic Transformation Agenda and The World Bank’s FY23-FY28 Country Partnership Framework.
The loan is a combination of financial instruments, including an International Bank for Reconstruction and Development loan of $850 million, an International Development Association (IDA) credit of $300 million, and a $50 million IDA grant from the Window for Host Communities and Refugees.
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