Kenya's debt rises as World Bank approves $750m loan

Treasury Cabinet Secretary Henry Rotich before the National Assembly's Finance and National Planning committee on July 3, 2018. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP 

In Summary

• The Treasury wrote to the lender in March seeking an urgent loan for budget support.
• On Wednesday, the lender said the loan facility will support critical reforms that will enhance competition and market transparency, reduce corruption opportunities in agriculture, and help Kenyan farmers to achieve higher productivity and increase their incomes.
• The loan request is a departure from a 10-year tradition where the country kept off World Bank loans as it sought to wean itself from over-reliance on the Bretton Woods institution to support its budget.

By DAILY NATION
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The World Bank has approved the Ksh75 billion ($750 million) loan request for Kenya, further raising the country’s debt.

On Wednesday, the lender said the loan facility will support critical reforms that will enhance competition and market transparency, reduce corruption opportunities in agriculture, and help Kenyan farmers to achieve higher productivity and increase their incomes.

“Reforms supported by the facility include better targeting of subsidies for agricultural inputs to reach the intended beneficiaries (using e-vouchers and biometric digital identification); reducing inefficiencies and leakages in the procurement and marketing of fertiliser; and establishing a warehouse receipt system and a commodities exchange to help farmers get easier access to credit and to reduce post-harvest losses,” the World Bank said in a statement.

Digital ID

The lender also said the loan will support the advancement of digitisation through the creation of the national digital ID and pushing for access of Internet services to all Kenyans.

“The facility will enhance service delivery by the government to its citizens and reduce the need for face-to-face interactions and corruption opportunities.”

The Treasury wrote to the lender in March seeking an urgent loan for budget support.

The loan request is a departure from a 10-year tradition where the country kept off World Bank loans as it sought to wean itself from over-reliance on the Bretton Woods institution to support its budget.

Under the regime of former President Mwai Kibaki, Kenya kept away from this type of credit and most of the support from the World Bank came in the form of project support.

Warning

Financial analysts and economists have raised concern on the speed at which Kenya is borrowing, saying it signals the gravity of the country’s rapidly deteriorating cash-flow situation characterised by falling revenue and worsening debt service obligations.

The Institute of Economic Affairs (IEA), an economic think tank, recently warned that Kenya risks defaulting on its debt obligations in a decade if the current appetite for borrowing remains unchecked.

Kenya’s public debt crossed the Sh5.1 trillion mark in September 2018 and the latest borrowing is likely to push it beyond Sh5.5 trillion by close of the year

But the Treasury has defended the loan while denying that the government was broke. Cabinet Secretary Henry Rotich said the money will go towards the Big Four Agenda.

“This is a development policy operation by the World Bank. It is being given to many countries. Yes, it is a budgetary support but we have had to sacrifice our own projects so as to turn it into a budgetary support,” Mr Rotich said. “It doesn’t add to debt because we cancelled some projects. If a project is slow... we say instead of losing the money let us convert them into budgetary support and implement,” he added.