The World Bank Board of Directors on 20th May 2020 approved a $1 billion budget support operation for Kenya, which helps close the fiscal financing gap, while supporting reforms that help advance the government’s inclusive growth agenda, including in affordable housing and support to farmers’ incomes.
The Kenya Inclusive Growth and Fiscal Management Development Policy Financing (DPF), is the second of a two-operation programmatic series aimed at recreating fiscal buffers over the medium term and crowding in private investment. Preparation of this DPF preceded the COVID-19 pandemic, but its approval is timely, since it will help to fill the financing gap generated by the severe, ongoing shock to Kenya’s economy. The DPF thus complements the recently approved Kenya Covid-19 Emergency Response Project which seeks to prevent, detect and respond to the COVID-19 outbreak and strengthen national systems for public health emergency preparedness.
“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,” said World Bank Country Director for Kenya, Felipe Jaramillo.
To secure the financing, Kenya has undertaken policy reforms that directly benefit many low-income Kenyan households. Small holder farmers will now benefit from better targeting of subsidized agricultural inputs through electronic vouchers. The supply of affordable housing is expected to increase, on the back of the updating of antiquated legislation that hindered the development of housing market.
Supporting more transparency in public financial management is a major focus of the operation. Ordinary Kenyans will for the first time be able to review details of public procurement contracts via the public procurement information portal (www.tenders.go.ke). Further, a new Debt and Borrowing Policy sets Kenya up to manage its public debt more strategically and transparently, including by specifying clear oversight and audit responsibilities over the use of borrowed funds.
“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,” saidAllen Dennis, Program Leader and Task Team Leader.
Kenya has recorded strong economic growth in recent years that has led to a reduction in poverty. The poverty headcount rate declined from 43.7 percent in 2006 to 36.8 percent in 2015 (latest data) while GDP growth averaged 5.7 percent between 2013 and 2018, at 1.9 percentage points higher than the average for Sub-Saharan African countries (of 3.8 percent). However, with GDP growth plummeting to a projected 1.5 percent in 2020, the ongoing COVID-19 crisis threatens to derail progress in the reduction of poverty and boosting shared prosperity.
Given Kenya’s classification as a lower middle-income blend country, the $1 billion financing comprised a $750 million credit from the International Development Association (IDA) and a further $250 million loan from the International Bank for Reconstruction and Development (IBRD).