Kenya receives Sh107b WB credit to strengthen budget

Seth Onyango @SethManex

The World Bank has approved an additional Sh107 billion toward Kenya’s Covid-19 response kitty, just a week after the International Monetary Fund (IMF) gave Sh79 billion to the exchequer.

The cash to be disbursed under Development Programme Operations (DPO) kitty will go towards budgetary support as per National Treasury Cabinet Secretary Ukur Yatani.

“World Bank Board gives full approval to Kenya’s DPO of $1 billion. This is the largest DPO we’ve ever received.

The fact that World Bank does not provide budget support to countries with weak macro-framework is a testimony of the confidence levels of the bank in our new policy reforms,” he tweeted.

This comes as a direct support to government revenues unlike programme loans which are come with specific terms and conditions. 

Kenya’s largest ever cache from World Bank’s DPO facility therefore aligns to the Treasury’s target of replacing its appetite for external commercial loans with cheaper concessional debt sources.

Coming at a time Treasury had appealed to IMF, European Investment Bank and World Bank for Sh275 billion to bolster its efforts to management the economic fallout from the pandemic, it also bolsters Kenya’s dwindling revenue collections as businesses shed massive income from the financial meltdown of coronavirus shocks.

The World Bank grant will be instrumental in covering the balance of payment deficits in the coming months through the end of 2020.

Kenya has been raiding the international lenders for funding to pay pending bills to suppliers and process company tax refunds to support the economy, battered by the virus.

This is after it became clear that the government was unable to raise the funds needed to oil all its programmes.

World Bank said in an online news conference that $750 million of the loan, which will come from the International Development Association, will be repaid over a 30-year period, after a grace period of five years, with 1.35 per cent interest.

The second component of $250 million, which will come from the International Bank for Reconstruction and Development, will have a market-based interest rate of about 2 per cent.

Domestic consumption

In March, Yatani projected revenue collections to dip significantly as both the imports and domestic consumption slow.

“We are looking at underperformance as a result of just Covid-19, of about Sh70 billion … in terms of revenue for the remaining three months (of this financial year),” he told the press.

As a result, he announced the State will then shift planned spending towards urgent development projects to recurrent expenditure tailored toward Covid-19 response. Thus, Treasury plans to release Sh49 billion to suppliers for unpaid bills and expedite payment of close to Sh10 billion in value-added tax refunds to businesses over a three month period.

As Treasury plans to absorb the just approved funds from the World Bank, economists expect the amount if plugged into the economy will shock-absorb the economy from the vagaries of the virus in the short term.

Before Covid-19 economic fallout, Kenya had struggled to access loans from international creditors due to huge pile up of loans vis-à-vis the gross domestic product (GDP). Kenya’s debt to GDP) ratio has been rising with IMF criticising the country’s management of the same. 

The debt level is a key factor that currency traders, among them, major commercial banks across the globe use to launch speculation attacks.

It is, however, feared that IMF officials may propose tough austerity and fiscal policy measures that could increase pain on Kenyans.

In February, the Central Bank Governor Patrick Njoroge vowed that the banking sector regulator will not be bullied into accepting conditions that will be unfavourable to the economy.