World Bank Approves $1.2 Billion to Support Kenya’s Fiscal Sustainability and Resilient Growth

“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.

The World Bank has approved a new $1.2 billion Kenya Fiscal Sustainability and Resilient Growth Development Policy Operation (DPO) to help Kenya address short-term fiscal pressures and promote long-term, inclusive, and green growth.

This DPO, the first in a series of three, was developed under an improved macroeconomic environment after the Kenyan government took steps to tackle challenges such as tight liquidity pressures, depressed investor confidence, and limited capital inflows, which had led to 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 in three key areas:

Public Finances: Address structural constraints, alleviate fiscal pressures, and promote a more efficient and sustainable budget.

Product and Labor Markets: Foster more competitive and inclusive markets.

Climate Action: Build on Kenya’s leadership under the 2023 Nairobi Declaration on Climate Change.

Key reforms include establishing a Treasury Single Account, consolidating the wage bill, modernizing the social protection system, removing county-level licensing distortions, opening the ICT sector for more foreign investment, and improving services and job access for refugees. On climate, the DPO will support Kenya’s ambitions for 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, 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 capacity and proactively manage liabilities by focusing on concessional financing to reduce interest costs and repayment pressures,” said Naomi Mathenge, World Bank Senior Economist for Kenya.

The DPO integrates climate adaptation into the development agenda by enhancing social protection systems, public services, and job access for Kenya’s 550,000 refugees, as well as increasing forest cover. It also supports Kenya’s climate leadership ambitions while accessing green financial resources for development.

The DPO aligns with the Government of Kenya’s Bottom-up Economic Transformation Agenda and the World Bank’s FY23-FY28 Country Partnership Framework for Kenya, complementing the broader World Bank portfolio in the country.

This $1.2 billion DPO is funded through a mix of financial instruments, including an International Bank for Reconstruction and Development (IBRD) 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.