Kenya has terminated a $207.4 (Sh21.4 billion) loan deal with the World Bank for road upgrades following delays in execution of the projects.
The lender says Kenya opted to cancel the loan deal inked in 2012 and involved the multilateral lender providing $300 million (Sh31 billion) and the Treasury topping up $113 million (Sh11.6 billion) for roads upgrades in Nairobi and other urban centres.
The termination of the loan agreement is a departure from the Treasury’s recent trend where it has developed an appetite for foreign loans, drawing criticism over the borrowing spree.
“The GoK (Government of Kenya) requested to cancel the undisbursed amount of the credit via a letter dated December 21, 2018…of the IDA credit of $207.47 million equivalent,” said the World Bank.
The loans agreement was signed in 2012 and was expected to be closed by December last year, when the lender said it had disbursed Sh6.3 billion ($61.8 million) to the Treasury.
The World Bank says Kenya cancelled the deal due to Treasury’s delay in releasing part of its funding of $113 million for infrastructure works.
It also blamed land compensation rows that delayed compulsory acquisition of land for the projects and merging of roads functions under one ministry when President Uhuru Kenyatta took the helm of government from Mwai Kibaki.
Works under the World Bank’s Sh21 billion loans deal, including upgrade of a road running from Jomo Kenyatta International Airport through Waiyaki Way, Kisumu and Meru bypass routes and construction of rapid transport routes in Nairobi.
The cancellation of the infrastructure loans came as Kenya was in talks with the World Bank for a separate loan of 750 million (Sh75 billion) loan for budget support, underlining the cash flow hitch that has gripped the Treasury.
The Sh75 billion 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 channeled funds straight into projects.
Worsening cash flow
This reflected the worsening cash flow at the Treasury in an environment where revenues are below target, amid rising debt interest payments. This has denied the economy cash for projects like infrastructure upgrade.
Kenya’s public debt as a percentage of gross domestic product has increased to 55 percent from 42 percent when President Kenyatta took office in 2013.
The Government has defended the increased borrowing, saying the country must invest in its roads and railways.