The World Bank said on Tuesday it approved a $1 billion loan to Kenya to support its budget as East Africa’s economic powerhouse confronts high debts and a weakening currency.
The lending will be done through an instrument called a Development Policy Operations (DPO) loan, which commits Kenya to instituting reforms aimed at creating fiscal space, improving agricultural competitiveness and improving governance.
“The government’s reforms, supported by the DPO, will help to achieve fiscal consolidation, which is essential for reducing the debt burden and related risks, in an equitable and sustainable manner,” Aghassi Mkrtchyan, Senior Economist for the World Bank in Kenya, said in a statement.
President William Ruto, who was elected last year, has pledged to restore fiscal discipline after public debt surged under his predecessor.
But his proposal to raise taxes on a wide swathe of economic activities as part of the finance bill his government will put forward in parliament next month has faced pushback from civil servants and political opponents.
Kenya qualified for financing under the DPO instrument in 2019 and has since received four such loans, the last in March.
Reforms that Kenya will adopt under the latest agreement include the elimination of administrative price-setting for publicly procured cereals and the streamlining of the state’s exit from commercial investments, the World Bank said.
Kenya’s finances have been under strain from rising debt repayments and the effects of the Horn of Africa’s worst drought in four decades.
Earlier this month, global ratings agency Moody’s cut Kenya’s senior unsecured debt rating as well as long-term foreign-currency and local-currency issuer ratings, citing an increase in government liquidity risks.