The World Bank has issued fresh conditions on narrowing of Kenya’s budget deficit before unlocking a frozen Sh96.9 billion ($750 million) loan, setting the stage for possible tax increases and austerity measures.
The Treasury says Kenya has yet to agree on additional measures to reduce the budget deficit, delaying the disbursement of the loan that was expected before the end of June 2025.
President William Ruto’s administration has been struggling to narrow the fiscal deficit and govern under a heavy total debt-to-GDP ratio of around two-thirds, well above the 55 percent level considered a sustainable threshold.
Kenya’s budget deficit is estimated at Sh901 billion for the fiscal period running to June 2026, and the Treasury can cut expenditure or raise revenues to cut the shortfall.
The government is also struggling to seek new sources of funding after last year’s countrywide protests forced it to pursue austerity measures and scrap planned tax hikes worth more than Sh346 billion.
The World Bank had earlier asked Kenya to consider additional consumption taxes like excise duty and value-added tax (VAT) for budget support, which could trigger fresh protests if adopted.
The multilateral lender did not specify if it is pushing for an increase in excise duty and VAT on specific goods or it wants the Treasury to increase the range of products that attract the two taxes.
‘The key reason why the disbursement is yet to take place is the World Bank team needed to undertake a macro adequacy assessment to ascertain that Kenya’s debt remains sustainable,’ Treasury Cabinet Secretary John Mbadi said last week.
‘This assessment has been done, and we are in discussions to generate more consensus on potential additional measures to be implemented in the medium term to support further fiscal consolidation.’
Discussions with the World Bank continue at a time when Kenya is also engaged with the International Monetary Fund (IMF) for a new funded programme to tap additional cheap financing.
The World Bank previously froze the disbursement after Kenya failed to pass key legislation preventing conflict of interest within the public service and enhancing social protections for vulnerable Kenyans.
Kenya has since met the demands after Parliament passed a new Conflict of Interest Bill and the Social Protection Bill, both of which are now Acts after President William Ruto assented to the legislation.
Regulations associated with the Acts are currently before the National Assembly.
The government opted against imposing new taxes or increasing existing ones in this year’s budget proposals after deadly protests broke out last year against the government’s measures to raise revenue.
More than 50 people were killed when the youth-led protests broke out in June last year, forcing President William Ruto to abandon tax hikes.
The Treasury has preferred to widen the tax net and launch a crackdown on tax cheats to grow national income and ease the appetite for borrowing amid mounting public debt.
Spending cuts have proven difficult against sustained expenditure pressures, including a bloated public wage bill that is estimated at Sh1 trillion every year.
The government projects the budget deficit to fall from 5.8 percent in the financial year ended June 2025 to 4.7 percent in the current cycle.
The fiscal deficit is expected to pick up slightly in the 2026/27 cycle to 4.9 percent before falling again to 3.7 percent by June 2028 and settling at 2.9 percent by June 2030.
Mr Mbadi said Kenya would write to the World Bank to approve the Sh96.9 billion ($750 million) development policy operations (DPO) facility after agreeing on the set of reforms to drive down the fiscal deficit.
An adverse opinion is an auditor’s professional judgment that a company’s financial statements are materially misstated and misleading, meaning they do not present a ‘true and fair view’ of the organisation’s financial position or performance.
Mr Njoroge and Ms Anunda-then serving as finance managers-sued, contending that no such offence was contemplated in the Kemsa Human Resources Dispute Policy Manual.
They further stated that during the financial year in question, they were away from the office because they were among the Kemsa staff sent on compulsory leave.
This was after the government stepped in to reform the State agency in the wake of a mega scandal during the Covid-19 pandemic.
The court heard that a caretaker team put in place following the directive by the Head of Public Service was the one running the State corporation.
Stressing that it was the caretaker team that should have been wholly held responsible for any act or omission during the financial year, the petitioners informed the court that they were recalled to office in May 2023.
In the judgment, the court found that Kemsa unlawfully placed Mr Njoroge and Ms Anunda on indefinite compulsory leave without notice, hearing, or justification-a move deemed ‘psychological torture’ and ‘public ridicule’.
‘The petitioners suffered psychological torture, public ridicule and odium upon being publicly subjected to unlawful compulsory leave for an indefinite period without any notice, hearing and or any opportunity to explain themselves,’ said the court.
‘The petitioners were interdicted without substantive charges and timelines to respond.’
The court heard that the forced leave was a tactic to circumvent earlier conservatory orders barring disciplinary action against them.
They also said sending them away out of 22 directors and deputy directors without any reason was an act of unlawful discrimination.
Mr Njoroge argued that Kemsa’s actions, including deactivating his work access, left him no choice but to resign on October 1, 2024.
The court agreed, saying the employer’s conduct constituted a repudiatory breach of his employment contract.
Ms Anunda, employed permanently since 2012, was controversially downgraded to a five-year contract in 2020 despite holding a pensionable role.
Though she sought renewal in February 2025, Kemsa declined without explanation and was replaced immediately.
While the court acknowledged the unfairness, it ruled her claim over the 2020 contract change was time-barred as it was filed outside the statutory limitation period of three years.
‘The petitioner would have no doubt made a good case of discrimination since her senior counterparts remained in permanent and pensionable terms, and there was no written justification for the transition from permanent and pensionable terms to contractual terms.
That particular dispute is time-barred and cannot be adjudicated upon in this matter,’ said the court.
However, the court condemned Kemsa’s failure to explain the non-renewal despite her ‘stellar performance,’ awarding damages for rights violations.
The judgment criticised Kemsa’s board for acting unlawfully in terminating Ms Anunda’s contract.
The court dismissed preliminary objections by the Attorney General and Public Service Commission, affirming the petition’s validity.
The court cited the Supreme Court’s stance that constitutional damages aim to ‘vindicate violated rights,’ even without proven financial loss.