The World Bank has approved a $750 million (Sh75 billion) loan to Kenya for budget support, underlining the cash flow hitch that has gripped the Treasury.
The loan marks the first time in years the World Bank is putting cash straight into the Treasury to be used at the discretion of the government as opposed to the recent trend where it has channelled funds straight into projects.
This reflects the worsening cash flow at the Treasury in an environment where revenues are below target amid rising debt interest payments, denying the economy cash for projects like infrastructure upgrade.
The loans, whose terms were not disclosed, will be used to support the ongoing fight against corruption and the ‘Big Four Agenda’ policy aimed at boosting economic growth by improving food security, rolling out universal healthcare, supporting manufacturing, and building affordable housing.
“Measures supported by this operation are expected to benefit ordinary Kenyans through better targeting of agricultural subsidies to reach low income farmers, prosecuting those who engage in fraudulent procurement, increasing availability of affordable housing, and improving revenue mobilisation,” said the World Bank in its approval notice.
The loan approval comes days after Kenya raised $2.1 billion (Sh210 billion) through an Eurobond whose proceeds will mainly refinance some of its existing loans.
Kenya’s public debt as a percentage of gross domestic product has increased to 55 percent from 42 percent when President Uhuru Kenyatta took office in 2013.
The government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.
Critics of the borrowing spree have questioned the value of some of the projects, particularly the multibillion-shilling China-backed Standard Gauge Railway from Mombasa to Nairobi completed in 2017.
The increased debt has seen Kenya commit more than half of taxes to paying loans, leaving little cash for building roads, affordable housing and revamping of the ailing health sector.
Treasury chiefs project in draft Budget Review and Outlook Paper that total debt will jump to nearly Sh7.17 trillion in the year ending June 2022, from the estimated Sh5.4 trillion this June.