The World Bank announced on Tuesday that it had authorised a $1 billion loan to help Kenya, the economic engine of East Africa with heavy debt loads, declining currency and the country’s balance of its budget.
The World Bank, located in Washington, will lend money through a tool known as a Development Policy Operations (DPO) loan, which obligates Kenya to implement reforms intended to free up fiscal flexibility, boost agricultural competitiveness, and enhance governance.
“The government’s reforms, supported by the DPO, will help to achieve fiscal consolidation, which is essential for reducing the debt burden and related risks, in an equitable and sustainable manner,” Aghassi Mkrtchyan, Senior Economist for the World Bank in Kenya, stated.
Kenya met the requirements for funding under the DPO mechanism in 2019 and has since received four such loans, the most recent of which was disbursed in March.
According to the World Bank, Kenya will implement reforms under the most recent agreement that include eliminating administrative price-setting for publicly purchased cereals and expediting the state’s disengagement from commercial investments.
Due to mounting debt obligations and the consequences of the worst drought in the Horn of Africa in forty years, Kenya’s finances have been under pressure.
Global rating organisation Moody’s downgraded Kenya’s long-term foreign-currency and local-currency issuer ratings earlier this month, citing an increase in government liquidity problems.
After state debt exploded under his predecessor, President William Ruto, who was elected last year, has vowed to regain fiscal restraint.
However, civil officials and political rivals have objected to his idea to raise taxes on a broad range of commercial activity as part of the financial package his government will present in parliament next month.
According to the country’s central bank, Kenya’s GDP will grow by 5.8% in 2023, up from 4.8% in 2022.