World Bank to lend Kenya $1.2 billion amid liquidity pressures

“For Kenya to return to moderate risk of debt distress, the government will need to maintain the fiscal consolidation path, promote export growth, enhance the country’s policy and institutional assessment to increase its debt carrying capacity and pro-actively manage liabilities by focusing on concessional financing to reduce interest costs and repayment pressures,” said Naomi Mathenge,

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The World Bank approved $1.2 billion in funding for Kenya to support the East African nation’s economic growth amid external shocks.

The development policy-operation loan, or DPO, will boost foreign-exchange reserves ahead of a $557-million eurobond repayment due June 24. It’ll also help fund Kenya’s budget as it’s missing tax-revenue targets and provide more support for the shilling, the world’s best-performing currency against the dollar so far this year.

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The fresh funding, “the first in a series of three, has been prepared under an improved macroeconomic environment following government action to address the challenges that had overshadowed the economy, including tight liquidity pressures, depressed investor confidence and limited capital inflows that had resulted in a rapidly depreciating shilling,” the World Bank said in an emailed statement Thursday.

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Key reforms include establishment of a Treasury single account, wage-bill consolidation, a modernized social protection system, opening up the ICT sector to more foreign investment and better access to services and jobs for refugees.

The funding is a combination of $850 million from the International Bank for Reconstruction and Development, $300 million from the International Development Association and a $50 million grant for refugees.

Debt Distress

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It will be the sixth time Kenya is tapping the World Bank facility, with the nation having borrowed $4.25 billion since 2019.

Kenya is at high risk of debt distress, according to the International Monetary Fund, and in 2021 agreed to a program with the lender to help reduce that vulnerability. The $4.43 billion of facilities run to April 2025.

Kenyan authorities are turning to concessional loans, rather than pricey commercial debt, to address concerns the debt is getting unmanageable.

The $113 billion economy is battling high interest rates triggered by tighter monetary policy in advanced economies, which priced African governments out of capital markets and elevated domestic borrowing rates.

“For Kenya to return to moderate risk of debt distress, the government will need to maintain the fiscal consolidation path, promote export growth, enhance the country’s policy and institutional assessment to increase its debt carrying capacity and pro-actively manage liabilities by focusing on concessional financing to reduce interest costs and repayment pressures,” said Naomi Mathenge, a senior economist for Kenya at the World Bank.

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