The World Bank protects Kenya from expensive foreign debt

Economy

The World Bank protects Kenya from expensive foreign debt


World Bank

Signage of the World Bank logo. PHOTO | POOL

Kenya has been heavily dependent on the World Bank Group for Foreign Financing since January against the backdrop of a relatively high-yielding international market, with the Ministry of Finance avoiding expensive priced commercial loans.

The latest government data on external borrowing shows that the volume of debt from rich countries (bilateral) as well as commercial lenders – banks and Eurobond – fell in the four months ending April.

However, loans from multilateral lenders increased by 95.71 billion shs. on a net lending basis – operated by the World Bank International Development Association (IDA) and the Asian Development Bank / Asian Development Fund (ADB / ADF).

The two multilateral financiers, whose loans come on easy terms down to 0.5 per cent in interest and a longer repayment period with a generous grace period, accounted for almost three quarters of the growth in multilateral debt and 95.5 per cent of net foreign debt.

The Ministry of Finance’s Government Debt Office has been keen to take advantage of advantageous loans with longer repayment periods and cut back on expensive, short-term loans to ease the pressure on cash flow.

Loans from IDA – which is largely targeted at the world’s poorest developing countries – rose Sh52.78 billion between January and April to almost Sh1.18 trillion, according to the Ministry of Finance update.

Loans from ADB / ADF, on the other hand, increased by Sh18.35 billion to close at Sh379.03 billion.

Overall, Kenya’s public and government-guaranteed foreign debt rose Sh69.16 billion to Sh4.24 trillion on inflows from multilateral lenders. Commercial and bilateral debt holdings decreased Sh12.59 billion and Sh8.61 billion, respectively.

“This (growth in external debt) was attributed to disbursements and exchange rate movements,” the Treasury wrote in the April bulletin, the latest monthly update.

The shilling weakened 2.33 percent between January and April against the US dollar, the largest currency in which Kenya’s debt is denominated.

In accordance with section 31, subsection 3, of the Public Finance Management Act obliged to report on external loans after every four months in the National Assembly.

For the period up to April 2022, the Treasury signed nine external loan agreements worth DKK 137.93 billion.

Six of the loans worth Sh132.38 billion, or 95.97 percent of the new loan agreements, were signed separately with the World Bank Group under various programs.

The remaining Sh5.55 billion loan agreements were procured from three bilateral lenders – France (Sh2.69 billion), Germany (Sh2.08 billion) and Italy (Sh782.55 million).

“Two of the (nine) loans have been disbursed at the time of submission of this report (May 19),” the Ministry of Finance wrote in the report to Parliament without revealing the creditors who had transferred the cash.

Recent revelations from the Ministry of Finance of the Kenya Gazette indicate that in May the country had taken 172.17 billion Sh 172.17 billion, or 39.75 percent, of Sh433.16 billion of external loans and grant targets for the fiscal year ending June.

Under external borrowing, Kenya had targeted $ 1 billion (Sh117 billion) Eurobond, as it has given up due to high interest rates of around 12 per cent, almost double the 6.3 per cent paid last fiscal year for a similar amount.

“In our financing for this financial year, we have included loans from the international market, Eurobond. But as a result of the challenges in Russia and Ukraine, we realized that borrowing costs have become really high,” Finance Minister Ukur Yatani said earlier this month.

“Last year we borrowed at six per cent, right now it is above 12 per cent and that is no longer possible. That is why we are still investigating the possibilities of looking at a number of banks that can shift our money to a cheaper exchange rate, a figure more or less than last year’s figures, on average six percent. ”

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