Kenya seeks new World Bank loan after IMF deal

Kenya is in talks with the World Bank for a new loan as it seeks to bolster financing from concessional/cheap sources.

The country is seeking to tap from the World Bank Development Policy Operations (DPO), a framework that provides rapid-disbursing financing to help countries address actual or anticipated development financing requirements.

The new facility is expected to meet Kenya’s external financing needs to address ongoing shocks including a severe drought alongside access to the international capital markets.

The move fits with the National Treasury plan of doubling down on concessional/cheap financing.

“We will have an enhancement with the World Bank. It is one of the support areas for our recovery and it is targeting some of the areas we are looking at, for instance, the hunger safety net,” National Treasury Cabinet Secretary Prof. Njuguna Ndung’u said on Thursday.

The loan which is likely to trickle in the first half of the next year will be Kenya’s fifth similar facility from the World Bank in five years.

The National Treasury did not however disclose the size of the loan sort as it is in the early stages of discussion with the multi-lateral lender.

Kenya has accessed World Bank DPO financing for the last four consecutive years (2019,2020,2021 & 2022) for a total of Ksh.395.6 billion ($3.25 billion).

In March this year, the World Bank approved a Ksh.91.3 billion ($750 million) loan to Kenya to help strengthen fiscal sustainability through reforms and accelerate Kenya’s ongoing recovery from the COVID-19 crisis.

Discussion for a new World Bank loan comes just two days after Kenya struck a preliminary deal which will see the International Monetary Fund (IMF) wire Ksh.52.7 billion in the coming weeks as part of its ongoing 38-month loan program.

Even with the expected flows from both the IMF and the World Bank, Kenya would still be in need of further external financing with the National Treasury setting the target for net external financing at Ksh.280.7 billion.

According to the exchequer, external commercial financing conditions are easing pointing to the likelihood of Kenya issuing a syndicated loan to plug the shortfall from concessional funding.

“The markets are coming back to normal, they are not yet there but they are near normal which gives us some chance in terms of syndication when we need it,” added Prof. Ndung’u.

Over the medium term, the National Treasury is betting on concessional funding to help it re-profile Kenya’s liabilities including the potential swap of expensive-outstanding domestic debt.

Presently, the exchequer is keen on stretching financing from all available multi-lateral partners which would include the African Development Bank (AfDB).

Loans from multi-lateral lenders are usually the cheapest in comparison to bilateral and commercial loans with some of the loans attracting interest rates of less than one per cent per annum.

The facilities also largely feature longer repayment durations and mostly feature a sizable grace period.