NAIROBI (Reuters) – Kenya has received a $ 750 million loan from the World Bank to support its budget and help the East African economy recover from the effects of the COVID-19 pandemic, the lender said on Friday multilateral.
The Kenyan government has gone to great lengths to secure foreign funding to close a large budget deficit before its fiscal year ends at the end of this month.
The $ 750 million disbursement is part of the World Bank’s Development Policy Operations (DPO), which lends money for budget support instead of funding specific projects.
The bank said part of the funds would be used to set up an electronic procurement system for government goods and services to improve transparency.
The World Bank said the concessional loan will have an annual interest rate of 3.1%. Typically, World Bank loans have zero or very low interest rates and repayment periods of 25 to 40 years, with a grace period of five or ten years.
Finance Minister Ukur Yatani presented the 2021/22 budget to parliament on Thursday, with a deficit of 7.5% of gross domestic product, reduced by 8.7% for the current fiscal year ending this month.
The finance ministry forecasts economic growth of 6.6% this year, up from 0.6% in 2020 when sectors like tourism and related services collapsed due to restrictions imposed to curb the spread of COVID-19.
The World Bank predicts that Kenya’s economy will grow 4.5% this year and 4.7% in 2022.
President Uhuru Kenyatta, who took the helm in 2013, has overseen an increase in public borrowing. Total debt stands at 70% of GDP, up from around 45% when it took over – an increase that some politicians and economists say weighs down future generations with too much debt.
The government has defended the increase in borrowing, saying the country needs to invest in its infrastructure, including roads and railways.
Written by George Obulutsa; Editing by Simon Cameron-Moore