Treasury Explains Move to Drop Local Banks for World Bank & IMF Loans

The National Treasury has detailed strategies Kenya will use in seeking external funding days after the World Bank and the International Monetary Fund (IMF) approved Ksh1.9 trillion in loans. 

In a statement, CS Njuguna Ndung’u detailed that the country would lean towards sourcing loans from multilateral agencies rather than taking commercial loans from banks.

Njuguna added that the concessional loans from bodies such as the World Bank and IMF made more economic sense to the country owing to the terms and conditions for the credits offered.

Usually, concessional loans are offered at a lower interest rate in comparison to those offered by commercial banks.

Borrowers are also given a longer grace period to repay the credit.

“In light of the uncertainty surrounding access to global bond markets, the government strategy has shifted to focus on seeking out concessional funding from the multilateral lenders like IMF and the World Bank and bilateral development partners, in addition to stepping up efforts to improve macroeconomic environment and carrying out the necessary structural reforms.

“Kenya will continue its efforts to access commercial financing when favourable market conditions permit,” read the statement in part.

On the other hand, the CS indicated that the government would continue implementing other strategies, such as enhanced revenue collection to ensure timely repayments of debts.

Revision of the budget with the aim of cutting unnecessary expenditure was also highlighted among the new fiscal measures. 

“As such, the fiscal deficit is projected to decline from 5.6 per cent of GDP in FY 2022/23 to 4.7 per cent of GDP in FY 2023/24 and further to below 4 per cent of GDP in FY 2024/25.

“Despite the liquidity challenges Kenya is facing, the macroeconomic environment remains stable, with real GDP expanding by 5.4 per cent in the first half of 2023, primarily due to a robust recovery in the agriculture and services sectors,” read the statement in part.

The strategies by the Treasury were unveiled after the World Bank announced that it would give Kenyans Ksh1.8 trillion ($12 billion) in phased credit disbursement in three years.

On the other hand, the IMF announced that the country would get a loan amounting to Ksh142.8 billion.

According to Ruto, the credit facilities will be used to boost the country’s coffers and tame inflation and debt vulnerabilities.

As of September 2023, the country’s debt portfolio, including the Eurobond set to mature next year, stood at Ksh10.58 trillion. Kenya is set to pay Ksh500 billion to service the Eurobond from December.