On Wednesday May 20, the World Bank approved a $1 billion loan for Kenya to help close a gaping budget deficit and tackle the economic impact of the coronavirus pandemic.
The loan which was requested before the pandemic is the second ever direct budget lending from the World Bank, after the first was processed last year.
Kenya’s budget deficit rose by 8.2 percent of GDP in the financial year to the end of June, from an initial forecast of under 7 percent, mainly due to reduced tax collection and lost revenue from VAT and income tax cuts.
In a statement made by the World Bank, the bank classified the approval of the loan as timely, since it will help fill the financing gap generated by the coronavirus pandemic to Kenya’s economy.
The loan comes two weeks after the IMF approved $739 million in emergency financing, a move which has supported the shilling currency.
Finance Minister Ukur Yatani said the approval was a vote of confidence in the government’s handling of the economy.
“The WB (World Bank) does not provide budget support to countries with a weak macro framework,” he posted via Twitter.
According to the Bank, $750 million of the loan would come from the International Development Association, and will be repaid over a 30-year period, after a grace period of five years, with 1.35 percent interest.
More so, the second round of $250 million, is expected to come from the International Bank for Reconstruction and Development and will have a market-based interest rate of about 2 percent.
The latest World Bank Kenya Economic Update (KEU) forecasts a growth of 1.5 percent in 2020 with a potential downside scenario of a contraction to 1.0 percent, if COVID-19 related disruptions in economic activity last longer.
It is hoped that this loan will help stabilize Kenya’s economy, as it grapples with curbing the spread and economic impact of the virus.