The World Bank Group has enhanced Kenya's loan kitty by Sh32.3 billion ($250 million) bringing the expected disbursement from its Development Policy Operations (DPO) facility to Sh129 billion ($1 billion).
The extra disbursement is expected to provide additional resources to Kenya which will in part plug the budget deficit in the 2022/23 fiscal year to June.
“The program development objective is to enhance sustainable, inclusive and green growth by creating fiscal space in a sustainable manner, increasing competitiveness to boost exports in agriculture and improving governance to facilitate inclusive private sector-led development,” the World Bank notes in a disclosure updating the terms on March 2, 2023.
At the end of last year, Treasury Cabinet Secretary Njuguna Ndung’u expected the facility which at the time had Sh96.8 billion ($750 million) as the commitment amount to help bolster Kenya’s access to cheap financing in line with the new administration’s goal of tapping mostly from concessional funding sources in external financing.
“The proposed package under discussion with the World Bank aims at promoting sustainable, resilience and inclusive growth. That will promote human capital development as a major input to economic management,” he said on December 6.
The current preoccupation by the current administration is to enact innovative solutions for liability management that will also signal active public debt management and sustainability.”
World Bank’s Development Policy Operations financing provides rapidly-disbursing financing to help countries address actual or anticipated development financing requirements.
Flows from the DPO financing which is due before the end of June is expected to partly replenish Kenya’s depleted forex reserves which have tanked from the combination of higher external debt repayments and support for the shilling through hard currency sales by the Central Bank of Kenya.
The World Bank loan is expected to get approvals late in the financial year with the published multilateral lender’s board calendar showing no planned meetings with Kenya over the facility through the next three months to the end of May.
The delayed flows from the World Bank could, however, be offset by fresh disbursements from the International Monetary Fund (IMF) three-year programme which is shortly set for its fifth review.
Since 2019, Kenya has received four rounds of disbursements from the DPO facility (DPO 1, 2, 3 & 4) with cumulative disbursements as of the end of June last year standing at Sh419.6 billion ($3.25 billion).
Financing from the World Bank and the IMF is expected to be complemented by the return to external commercial borrowing from where Kenya expects to tap at least Sh116.2 billion ($900 million) from syndicated loans.
In December, the National Treasury told the IMF that it had already mobilised around one-third of the targeted financing (syndicated loan) from banks with the balance expected to be reached in subsequent months.
Kenya will be under more pressure to access external funds in the new 2023/24 financial year which will feature the highest external debt redemption costs including a Sh258.2 billion ($2 billion) Eurobond repayment.
Last week Treasury Principal Secretary Chris Kiptoo told the National Assembly’s committee on Public Debt and Privatisation that Kenya is expected to meet the bullet repayment through tapping concessional external loans.
“The National Treasury will implement liability management operations targeting the 2024 Eurobond maturity to smoothen the maturity structure of public debt over the medium term,” he said.
Under the current financial year, the National Treasury has projected net foreign financing at Sh395.8 billion including Sh110 billion in commercial financing which covers the proposed syndicated loan.