The $1 billion loan is aimed among other things at assisting Kenya tackle the economic shocks resulting from COVID-19, assist them in closing the country’s fiscal financing gap-budget deficit and support reforms that help advance the government’s inclusive growth agenda, including affordable housing and support to farmers’ incomes. The negotiation procedure initiated before the outbreak of the pandemic marks the second time Kenya is resorting to World Banks’ direct lending for their budget after the first was processed last year.
The World bank in a statement said, “Its approval is timely, since it will help fill the financing gap generated by the severe, ongoing shock to Kenya’s economy”.
The budget deficit has swollen to 8.2% of GDP in the financial year to the end of June, from an initial forecast of under 7%, mainly due to reduced tax collection and lost revenue from VAT and income tax cuts. According to Finance Minister Ukur Yatani, the approval was a vote of confidence in the government’s handling of the economy. The bank said 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% interest
The pandemic has affected all economies around the world and it is evident Kenya is not an exception. In fact, in a statement make by World Bank Country Director for Kenya, Felipe Jaramillo he said:
“COVID-19 represents an unprecedented shock to the global economy. The World Bank remains very committed to support our client countries in these very challenging times.This operation provides concessional resources to help Kenya navigate the current COVID-19 crisis and to cushion the impact on livelihoods and jobs, while supporting the continued operation of essential public services,”
The government intends to manage this loan in all transparency and for the first time, ordinary Kenyans will be able to review details of public procurement contracts via the public procurement information portal (www.tenders.go.ke). This is to ensure the population understands clearly why the state needed the funds, what the funds will be used for and how they will be managed to achieve set objectives.
“The reforms achieved through this operation have begun yielding results for ordinary Kenyans and are expected to help in the rebuilding of the Kenyan economy Post-COVID. While much has been achieved, more needs to be done. The World Bank remains committed to monitoring the implementation of the reforms for maximum impact,” The Program Leaser and task team leader Allen Dennis said in an official statement.