April 5, 2025

World Bank set to approve another Sh136bn loan to Kenya

World Bank set to approve another Sh136bn loan to Kenya

Kenya to acquire another Sh136bn loan from the World Bank as it seeks to ease cash crunch in the country

Kenya to acquire another Sh136bn loan from the World Bank as it seeks to ease cash crunch in the country.

Kenya is waiting in line to get another loan of Sh136.5 billion from the World Bank as it looks for cash to help the cash flow issue and increase its diminishing foreign exchange reserves, which have been affected by the weakening shilling.

To approve the $1.0 billion (Sh136.5 billion at the current exchange rates) loan to Kenya under its Development Policy Operation (DPO) framework, the World Bank Group’s board of directors is set to convene on May 26.

DPOs are given as non-earmarked loans, credits, or grants to assist the nation’s institutions and economic and sectoral programs.

Given that the funding has been planned for the fiscal year 2022–23 ending on June 30th, the Bretton Woods lender will be required to transfer the billions to the exchequer in a month if approved.

The enhancement of domestic revenue mobilization with a focus on the emerging digital economy is one of the measures associated with the proposed funding.

A 3.0 percent Digital Assets Tax with a focus on cryptocurrencies and non-fungible tokens has just been suggested in the Finance Bill.

“Reforms will build on recent improvements in domestic revenue mobilisation by pursuing measures to broaden the tax base given the changing structure of the economy such as taxation of an increasingly digitised economy, capturing of advances in the use of financial derivatives, and ensuring compliance by multinational companies by reducing base erosion and profit shifting,” the programme document states.

The World Bank had initially indicated the potential loan to Kenya was $750.0 million before the ticket size was upsized to $1.0 billion in March 2023 with the programme’s theme changed from the previous ‘Strengthening Economic Management for Resilient and Inclusive Growth’ to ‘Fiscal Sustainability and Inclusive Green Growth Development Policy Operation’.

The loan comes against the backdrop of the Treasury having published the draft version of the National Green Fiscal Incentives Policy Framework.

Among the proposals in the Draft Policy is the set-up of a green investment bank to provide a range of funding instruments and associated incentives to support the public and private sectors in overcoming barriers to making green investments at scale.

“During the current International Development Association cycle, the World Bank has lined up additional Development Policy Operation financing of $750.0 million for the current financial year. We have been trying to negotiate that to a $1.0 billion but Keith (the World Bank country director) has indicated that this is what is possible at the moment”, said Njuguna Ndung’u, the Treasury Cabinet Secretary, during the launch of the Kenya Economic Update on December 6, 2022.

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According to the programme document underpinning the planned financing from the World Bank, the government will be keen to realise three pillars.

The first pillar entails the creation of fiscal space in a transparent and equitable manner; the second pillar focuses on enhancing competitiveness to boost exports in agriculture and the third is on improving governance and financial inclusion to foster a private sector-led growth model.

The World Bank wants the government of Kenya to commit to greater transparency on matters of public debt management.

“The operation will support improved debt sustainability by making the debt management framework more transparent and by requiring the government to engage with Parliament on actionable steps to reduce debt”, the programme document states.

This comes at a time Kenya’s external debt has ballooned by a staggering Sh344.4 billion ($2.58 billion), giving dimension to the impact of a weakening shilling whose exchange rate against the greenback has tanked to a historic low of Sh133.55.

The Central Bank of Kenya data shows that total external debt as of January stood at $37.63 billion (Sh4.7 trillion), where the mean exchange rate was 124.4 against the dollar.

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