The World Bank has cited three hurdles that Kenya must clear before it unfreezes a Sh96.9 billion ($750 million) loan ahead of June 30 amid the economic shocks triggered by the Iran war.
The multilateral lender reckons it will release the billions once Kenya passes regulations indicating the criteria it uses to determine the beneficiaries of monthly stipends offered to orphans, the elderly and persons living with disabilities.
It also wants regulations guiding the issuance of sustainability-linked bonds (SLBs) and legal backing to a policy that obligates Kenya to raise its tree cover to at least 30 percent by 2032 as part of the Forest Conservation and Management Act.
These are the terms that the World Bank offered Kenya at the International Monetary Fund (IMF) and World Bank Spring Meetings in the week ended April 17.
The country risks missing out on the sizeable loan from the World Bank’s budgetary support loan, known as development policy operations (DPO), for the second financial year if it fails to meet the three conditions.
‘Regarding the DPO, outstanding prior actions include approved regulations to the Social Protection Act, amendments to the Conservation Act, and an approved sustainability-linked financing framework,’ a World Bank spokesperson told the Business Daily.
‘In addition, DPOs require an adequate macro-fiscal policy framework.’
The World Bank froze disbursements from the same facility last year after Kenya delayed passing seven laws and four policy reforms.
Kenya has since met some of the demands, including the enactment of the Conflict of Interest Act and the Social-Protection Act.
The country had gone easy in pursuit of the World Bank and the IMF for financing to cover the months to the end of the financial year in June, buoyed by billions of shillings it has received from the Kenya Pipeline Company (KPC)’s initial public offering and issuance of new Eurobonds.
The Treasury has banked Sh106.3 billion from the sale of a 35 percent stake in KPC and is also selling another 15 percent stake in Safaricom to South Africa’s Vodacom in a deal worth Sh244.5 billion.
Kenya also issued two Eurobonds of Sh290.3 billion ($2.25 billion) to fund a $415.35 million (Sh53.5 billion) buyback, leaving it with Sh237.7 billion for budget support. But with delays in receiving the Safaricom cash and transfer of the KPC billions to the infrastructure fund, the need for additional help to plug the deficit is key.
The World Bank cash flows directly to budget for use at the discretion of the State, including paying civil servants’ salaries.
Besides the DPO, Kenya has requested rapid financial support from the World Bank to help it manage the economic shocks triggered by the Iran war.
Like other nations that are heavily reliant on energy imports, Kenya is scrambling to stave off shortages of essential commodities, including petrol, while managing cost increases that could drive up inflation.
The country is the first larger emerging economy to publicly confirm a formal request to the World Bank, although others, such as Egypt, have said they have approached multilateral lenders. Rapid Response Support is a term used by the World Bank for its fast-disbursing financial ?windows and policy support that help countries respond quickly to shocks or crises.
In a sign of the risks facing Kenya’s public finances, President William Ruto signed a law on April 17 cutting value-added tax (VAT) on petroleum products to 8.0 percent from 16 percent for three months to cushion consumers from a surge in crude prices.
The condition on the eligibility criteria for cash transfers aligns with an agreement between Kenya and the World Bank that the country will improve efficiency in the delivery of social protection benefits and services.
The regulations being sought are expected to mandate the national government and counties to establish eligibility criteria using the enhanced single registry (ESR) system for the delivery of poverty-targeted cash transfers and other pro-poor social sector interventions.
The Cabinet approved the National Forest Policy, which incorporates the 30 percent target for tree cover, but is yet to make amendments to the Forest Conservation and Management Act of 2016 to incorporate the target in the law.
Kenya is yet to approve sovereign Sustainably-Linked Bonds rules, which would guide the issuance of the special bonds and improve Kenya’s climate finance credentials.
The sustainability-linked bonds are tied to achieving predetermined environmental or social sustainability targets, and the issuer or government faces penalties such as higher interest rates if they fail to meet the aims.
The government had plans to borrow $500 million (Sh65 billion) using sustainability-linked bonds by March 2026. The Treasury says it is fast-tracking the pending regulations and cited an agreement with Parliament for the passage of amendments to the Forest Management Act, which requires the nod of both the National Assembly and the Senate.