In a bid to cut debt from overseas capital markets after a borrowing binge in recent years,Kenya is in advanced talks with the World Bank for “a fairly priced” loan of up to 100 billion shillings ($991.57 million), nearly half of its required external funding this fiscal year.
The World Bank, which has multiple development funding programmes with Kenya worth billions of dollars, is seen as one of the viable alternatives to commercial debt.
The Washington D.C.-based financier lent money to the Kenyan ministry of finance for the first time last year, changing past practice where it channelled cash straight to the projects, bypassing the Treasury.
The loan size will be determined by how much its funders can put together, says Julius Muia, principal secretary in the Kenyan Finance ministry.
“We are thinking something between 50-100 billion (shillings) depending on what kind of interest there will be”. The loan will be cheaper than commercial debt, in line with the government’s policy of cutting its funding costs, Muia adds.
Kenya became a middle-income country in 2014 after it rebased the economy, meaning it cannot secure funds from the World Bank at the concessional rates offered to low-income states.
The finance ministry has set a budget deficit of 6.3% of GDP for this financial year to the end of June with about 213 billion shillings expected from external sources.
The balance will be raised through Kenya’s first sovereign green bond, with the country taking advantage of next week’s UK-Africa investment summit in London to gauge investor demand for the potential issue.
“It is taking shape as we go,” Muia says.
The Treasury projects that the budget deficit will shrink to 5.7% of GDP in 2020/21. The gap, which peaked at 9.1% of GDP in 2016/17 financial year, is expected to narrow further to the desired level of 3.3% in 2023/24
