The World Bank Group has withheld disbursement of a Sh96.93 billion ($750 million) loan to Kenya over delays in implementing agreed reforms, including the passing of a Bill to curb conflict of interest involving politicians and public officials.
The lending, which was expected this month after an initial delay, was to be done through an instrument called a Development Policy Operations (DPO) loan, which commits Kenya to instituting reforms aimed at creating fiscal space and improving governance.
Besides the Conflict of Interest Bill, Kenya was expected to adopt a single bank account for public finances and automation of government tenders to eliminate collusion, insider dealings and fixing contracts.
The Treasury had budgeted for the World Bank billions in the year starting July, when it didn’t factor in funds from the International Monetary Fund (IMF).
The freeze on the World Bank funding could see the Treasury increase borrowings amid the ballooning public debt or cut spending to plug the budget hole.
The World Bank told the Business Daily that the release of the billions of shillings is hinged on the Kenyan meeting all the trigger actions agreed under the DPO facility, which disbursed Sh155 billion ($1.2 billion) last year as a first tranche.
“World Bank development policy operations (DPOs) are contingent on the completion of prior actions and an adequate macroeconomic and fiscal policy framework,” said Qimiao Fan, the World Bank Division Director for Kenya, Rwanda, Somalia and Uganda in an email response.
“We are continuing to prepare the second operation [second tranche] and the timing of the presentation of the operation to our board hinges on the government meeting the agreed prior actions and having an adequate macroeconomic policy framework for budget support.”
The Treasury had expected to receive the funds this month after the National Assembly passed an improved version of the Conflict of Interest Bill.
The Bill seeks a “high bar” on accountability, integrity and anti-corruption measures among politicians and public officials.
It was designed to discourage corruption in public procurement that has seen government officials influence the award of lucrative tenders to their firms and those linked to their cronies.
In June, President William Ruto refused to assent to the Bill, citing 12 clauses that had watered down the proposed law and asked the National Assembly to accommodate his reservations.
He was opposed to, among others, a clause that allowed public servants to receive gifts while on official duty.
The National Assembly complied, but the Senate blocked the upgrades.
Senators quashed provisions that prohibited government officials from seeking tenders with public entities and others that required regular declaration of wealth, including of their spouses and children, to curb unexplained accumulation of wealth.
County governors, MPs and ministers have in the past been prosecuted on graft charges related to the influence of multi-billion shilling tenders.
President Ruto’s Cabinet had approved the Bill with radical sanctions to discourage public officials from doing business with the government to amass ill-gotten wealth, a corrupt practice that has minted overnight millionaires from persons whose salaries do not match their extravagant lifestyles.
Other unmet conditions are transparency in public spending and efficiency in the delivery of social protection benefits and services. The Treasury did not immediately respond to comments over the World Bank impasse.
“The World Bank funding seems to be going to July because some of the legislation that was precedent to the release of these funds were delayed,” Treasury Cabinet Secretary John Mbadi told Parliament in early June.
“The Conflict of Interest Bill was a key Bill for the World Bank to give us the funding and when it was unlocked there was no time to take it to the board for approval. We are going to June 30 with a Sh97 billion hole that as CS [Cabinet Secretary], I did not prepare for.”
Kenya is expected to deepen its reliance on the World Bank, forecasting to tap loans worth Sh170.5 billion for every fiscal year over the next four budget cycles from Sh129 billion in the year ended June.
World Bank loans, which tend to be long-term, often carry less stringent conditions when compared to the IMF’s, which are short- to medium-term and tackle immediate economic instability.
The IMF had prescribed painful conditions in the wake of its surging loans after the Covid-19 pandemic, including the need to increase tax revenues, cut budget deficits and restructure State-owned enterprises.
The Treasury has not factored in any funding from the IMF over the next four financial years, with its last programme with the fund having lapsed prematurely after Kenya failed to meet key conditions for funding.
The country failed to honour 11 conditions agreed upon with the IMF, including the restructuring of national carrier Kenya Airways (KQ) and a review of billions of shillings collected from fuel levies.
The costly break-up of the programme, which was inked in April 2021, saw Kenya miss out on Sh63.3 billion ($490 million) in IMF funding at the tail-end of the fiscal year that ended in June.
The country has since put in a formal request for a new programme with the fund and the IMF has opened talks on the possibility of fresh funding.
