World Bank approves Sh80 billion loan for Kenya

In Summary

• The new policy framework will help strengthen Kenya Power and Lighting Company’s (KPLC’s) finances with a new competitive pricing regime.

• Kenyans will also benefit from better healthcare and disease prevention.

Treasury CS Ukur Yatani.
Treasury CS Ukur Yatani.
Image: FILE

World Bank has approved $750 million loan for Kenya to support in post Covid-19 recovery.

According to the international lender, the loan priced at 3.1 per cent will also support policy reforms that will strengthen transparency and accountability in public procurement and promote efficient public investment spending.

''This development policy operation supports measures to improve medium-term fiscal and debt sustainability through greater transparency and efficiency in government spending,'' the international lender said.

Both measures are expected to yield fiscal savings of up to $2.6 billion (over Sh265 billion).

“The operation prioritizes reforms in hard hit sectors, such as healthcare, education, and energy, which have been made urgent by the impacts of the Covid-19 crisis,” Keith Hansen, World Bank Country Director for Kenya said.

He added that in recognition of the severity of the crisis and need for a comprehensive response, World Bank is supporting the government’s post-Covid-19 Economic Recovery Strategy, which is designed to mitigate the adverse socioeconomic effects of the pandemic and accelerate economic recovery and attain higher and sustained economic growth.

The policy operation also prioritizes energy sector reforms to improve electricity access and ensure that Kenyans benefit from least-cost, clean energy sources.

Further, the new policy framework will help strengthen Kenya Power and Lighting Company’s (KPLC’s) finances with a new competitive pricing regime.

Kenyans will also benefit from better healthcare and disease prevention, especially for the poorest and most vulnerable households, through National Hospital Insurance Fund (NHIF) governance reforms and the establishment of the Kenya Center for Disease Control (KCDC) to strengthen disease prevention, detection, and response.

Reforms will further seek to provide Kenyans with more equitable access to higher education, through a performance-based funding method to reduce the imbalances and inefficiencies created by the existing funding model for universities.

“Stabilizing the debt trajectory and reducing high debt costs is a top priority,” said Alex Sienaert, Senior Economist and Task Team Leader, World Bank Kenya.

He said that the policy operation supports measures to reduce the budget deficit over time, such as by making public spending more efficient, whilst minimizing debt costs by helping to meet the government’s current financing requirements on concessional terms.

The loan approval is coming just a day after the country announced ambitious Sh3.6 trillion budget for the financial year starting July 1.

The country is expected to borrow close to Sh1 trillion next year to fill budget gap, further pushing the overstretched public debt currently sitting at Sh7.4 trillion.

This is the third time the country is receiving a facility from World Bank since the first coronavirus case was reported in March last year.

DPOs are used by the World Bank to support a country’s policy and institutional reform agenda to help to accelerate inclusive growth and poverty reduction.

The negative impacts of the Covid-19 crisis have made reforms that improve governance and service delivery, including those covered by this operation for Kenya, even more critical because they create better conditions for Kenya to inclusively and sustainably recover from it.

Financing provided by the World Bank is offered by on concessional terms, making it significantly lower than commercial loans.