Kenya to tap another Sh136bn loan from the World Bank

Kenya is queuing up to secure another Sh136.5 billion loan from the World Bank as it seeks funds to ease a cash flow crunch and boost dwindling foreign exchange reserves hit by a weak shilling.

The Board of Directors of the World Bank Group is set to meet on May 26 to approve $1.0 billion (NIS 136.5 billion at current foreign exchange rates) for Kenya through the Development Policy Operations (DPO) Framework.

Disabled Persons Organizations are provided in the form of non-earmarked loans, credits or grants to support the country’s economic and sectoral policies and institutions.

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If approved, the Bretton Woods lender is expected to send the billions to the Treasury in one month given that the funding has been budgeted for the 2022/23 fiscal year ending June 30.

Among the reforms linked to the proposed financing is to strengthen domestic revenue mobilization with a focus on the emerging digital economy.

A recently published Finance Act proposed the introduction of a digital asset tax of 3.0 percent targeting cryptocurrencies and non-fungible tokens.

“The reforms will build on recent improvements in domestic revenue mobilization by pursuing measures to broaden the tax base given the changing structure of the economy such as taxing the increasingly digital economy, capitalizing on advances in the use of financial derivatives, and ensuring compliance of multinational corporations by limiting base erosion. And turn a profit,” the program document states.

The World Bank initially indicated that the potential loan to Kenya was $750.0 million before increasing the ticket size to $1.0 billion in March 2023 while changing the program theme from ‘Promoting Economic Management for Resilient and Inclusive Growth’ to ‘Fiscal and Inclusive Sustainability’. Green Growth Development Policy Process.

Unlike the previous plan, funding is now expected to focus specifically on climate change mitigation and adaptation.

This comes on the back of the Treasury Department publishing a draft national green fiscal stimulus policy framework.

Among the proposals in the draft policy is the establishment of a green investment bank to provide a set of financing tools and associated incentives to support the public and private sectors in overcoming barriers to large-scale green investments.

During the current IDA cycle, the World Bank has allocated additional financing for development policy operations of US$750 million for the current fiscal year. said Nguguna Ndongo, Minister of the Treasury, during the launch of Kenya’s Economic Update on December 6, 2022.

According to the program document supporting the planned financing from the World Bank, the government will ensure that three pillars are achieved.

The first pillar entails creating fiscal space in a transparent and fair manner; The second pillar focuses on enhancing export competitiveness in agriculture, while the third pillar focuses on improving governance and financial inclusion to promote a private sector-led growth model.

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

The program document states that “the operation will support the improvement of debt sustainability by making the debt management framework more transparent and by requiring the government to communicate with parliament on actionable steps to reduce debt”.

This comes at a time when Kenya’s external debt has swelled by 344.4 billion shillings ($2.58 billion), giving dimensions to the impact of a weak shilling whose exchange rate fell against the dollar to a historic low of 133.55 shillings.

Data from the Central Bank of Kenya shows that the total external debt in January was $37.63 billion (4.7 trillion shillings), at which the average exchange rate was 124.4 against the dollar.

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