The World Bank Group has increased to Sh128.9 billion ($1.0 billion) a budget support loan for Kenya expected by June 30.
The amount is a Sh32 billion increase from the initially announced Sh96.7 billion ($750 million) soft loan.
Technically called a Development Policy Operation (DPO) facility, the funding will provide a much-needed breather coming at a time when interest rates on dollar-denominated loans are relatively high and Kenya’s foreign exchange reserves have been on the decline.
This loan increase is in line with remarks by Treasury Cabinet Secretary, Prof Njuguna Ndung’u, who on December 6, 2022 indicated that the government was negotiating with the Bretton Woods lender for a large financing envelope.
“During the current International Development Association cycle, the World Bank has lined up additional Development Policy Operation financing of $750.0 million for the current financial year. We have been trying to negotiate that to a $1.0 billion but Keith (the World Bank country director) has indicated that this is what is possible at the moment”, said Prof Ndung’u during launch of the Kenya Economic Update.
Documents seen by the Sunday Nation reveal that the terms of the planned DPO were last updated on March 2 and that the same are still subject to board approval.
A DPO is a low-cost loan through which the World Bank supports a member country’s programme of policy and institutional actions geared towards growth and sustainable poverty reduction.
The terms of the planned DPO are not yet known. For context, however, the $750 million third DPO secured by Kenya in 2021 had a 30-year repayment period, including a grace period of five years and an interest rate charge of three per cent per annum.
The documents further reveal that the title attached to the planned DPO has been changed from the previous ‘Strengthening Economic Management for Resilient and Inclusive Growth’ to ‘Fiscal Sustainability and Inclusive Green Growth Development Policy Operation’.
Unlike the earlier plan, the financing is now expected to place special focus on climate change mitigation and adaptation. It comes against the backdrop of the Treasury having published the draft version of the National Green Fiscal Incentives Policy Framework.
Among the proposals in the Draft Policy is the set-up of a green investment bank to provide a range of funding instruments and associated incentives to support the public and private sector in overcoming barriers to making green investments at scale.
“The proposed package in the discussion with the World Bank aims at promoting sustainable resilient and inclusive growth and this is going to be very important for us to promote human capital development as a major input to economic management”, said Prof Ndung’u in his December 6 address.
Published by The Nation.Africa
