The World Bank has approved new funding to help Kenya address short-term fiscal pressures and accelerate a more prosperous, green, and inclusive future.
The $1.2 billion Kenya Fiscal Sustainability and Resilient Growth Development Policy Operation (DPO), the first in a series of three, has been prepared under an improved macroeconomic environment following government action to address challenges such as tight liquidity pressures, depressed investor confidence, and limited capital inflows that had resulted in a rapidly depreciating shilling.
“The policy dialogue around this DPO has helped to strengthen the macroeconomic framework, sustain an ambitious fiscal consolidation path, and tighten monetary policy,” said Keith Hansen, World Bank Country Director for Kenya. “After tackling the immediate fiscal pressures, the focus can now shift to addressing the country’s longer-term challenges.”
The DPO will support policy and institutional reforms to address structural constraints in Kenya’s public finances, alleviate fiscal pressures, promote a more efficient and sustainable budget; foster more competitive and inclusive product and labor markets; and strengthen climate action. This builds on Kenya’s leadership under the 2023 Nairobi Declaration on Climate Change.
Key reforms include establishing a Treasury Single Account, wage bill consolidation, modernizing social protection systems, removing county-level distortions through fragmented licensing systems, opening the ICT sector for more foreign investment, and providing better access to services and jobs for refugees. On climate issues, the DPO will support ambitions on green public transport, increasing forest cover, and leveraging climate finance through carbon credits and green bonds.
“For Kenya to return to moderate risk of debt distress,” said Naomi Mathenge, World Bank Senior Economist for Kenya. “the government will need to maintain the fiscal consolidation path, promote export growth, enhance the country's policy and institutional assessment to increase its debt-carrying capacityand proactively manage liabilities by focusing on concessional financing to reduce interest costs and repayment pressures.”
Climate initiatives are integrated with development goals promoted in this DPO by strengthening adaptation through an improved social protection system. It also aims at improving public services for 550,000 refugees in Kenya while increasing forest cover. The DPO supports Kenya's ambition to be a global climate leader while tapping into green financial resources for climate action.
The DPO aligns with priorities laid out in the Government of Kenya’s Bottom-up Economic Transformation Agenda and complements broader efforts outlined in the World Bank’s FY23-FY28 Country Partnership Framework for Kenya.
This $1.2 billion Development Policy Operation is funded through multiple financial instruments: an International Bank for Reconstruction and Development loan of $850 million; an International Development Association (IDA) credit of $300 million; and a $50 million IDA grant from the Window for Host Communities and Refugees.
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