The World Bank has approved release of $1 billion loan towards meeting Kenya’s budget shortfalls as the country battles multiple crises – Covid-19, desert locust invasion and floods.
The global lender said the budget support financing will help Kenya close its fiscal financing gap, while supporting government’s projects for inclusive growth agenda, including affordable housing and support to farmers’ incomes.
The $1 billion concessionary line of credit comprises a $750 million loan from the International Development Association (IDA) and $250 million from the International Bank for Reconstruction and Development (IBRD).
The IDA tranche has an interest rate of 1.35 percent while the IBRD loan attracts a two percent repayment rate. They both have a five-year grace period and a 30-year maturity. The loan blend is tailored for a country such as Kenya classified as lower middle-income economy.
“The World Bank board has given full approval to Kenya’s Development Policy Operation (DPO) of $1billion. This is the largest DPO we’ve ever received. The fact that World Bank does not provide budget support to countries with weak macro-framework is a testimony of the confidence levels of the bank in our new policy reforms,” Kenya’s Treasury secretary Ukur Yatani said in a tweet.
The World Bank projects Kenya’s economy growth to slow down to 1.5 percent in 2020 in the best case scenario and to contract by one percent in the worst scenario. The Covid-19 crisis has shaken Kenya’s key pillars of forex inflows with sharp drops experienced in tourism receipts, horticultural exports and remittances while the curfew and restricted movements have put activity on ice.
“This line of financing should help provide some breathing space, by offering fiscal buffers over the medium term and crowding in private investment,” World Bank country director for Kenya, Felipe Jaramillo said in a virtual press briefing.
Concerns have been mounting that Kenya is nearing debt distress levels, after accumulating debt loads faster in recent years to upgrade its infrastructure.