The World Bank is set to approve $1.2 billion of budget financing to Kenya before the end of April, unlocking key financing for the East African nation that wants to cut its reliance on commercial debt.
The amount is slightly less than the $1.5 billion that Kenyan authorities had anticipated receiving from the Washington-based lender and follows other disbursements by the International Monetary Fund as well as Trade and Development Bank, a pan-African lender.
Kenya had earmarked the World Bank funds to finance its budget in the fiscal year that ends June 30.
Higher interest rates have created global macroeconomic difficulties including tight credit markets, which exposed Kenya’s vulnerabilities — lower export competitiveness, high levels of public debt and large financing obligations coming due, the World Bank said in a brief on its website.
“The Kenyan government has taken ambitious steps to navigate these challenges, including a significantly tightened fiscal and monetary policy framework, creating an adequate macroeconomic environment for budget support,” according to the lender.
It’s the sixth time in five years that Kenya is tapping the so-called development policy operation facility. Most recently, the World Bank approved $1 billion in 2023.
Tight Finances
When disbursed, the money will come in handy for the government whose revenue collection is lagging behind target.
“My sense is that most of the funding will be used to plug the budget deficit and maybe settle some pending bills because the funds are more than enough,” said Stellar Swakei, a senior associate for research at Standard Investment Bank.
The World Bank funding would have gone toward retiring a eurobond, but Kenya rolled over most of the amount and is left with about $600 million to pay at maturity in June, dodging a bullet payment that some investors expected it would default on.
The yield on that eurobond dropped 21 basis points to 8.578% by 3:55 p.m. in London.
While the World Bank budget financing is slightly less than what had been expected, the need for external funding has dropped significantly with Kenya’s new Eurobond. However, fiscal risks remain elevated with first-half revenue below target by around 10% — or 0.9% of gross domestic product, according to Patrick Curran, a senior economist at Tellimer Ltd.
“Offsetting revenue measures will be required to prevent a further buildup of arrears” and keep an International Monetary Fund program on track, he said in emailed response to questions.
