World Bank Freezes Multi Billion DPO Loan to Kenya
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Kenya’s shaky fiscal outlook has taken another hit after the World Bank froze a Sh96.93 billion ($750 million) Development Policy Operations (DPO) loan over the government’s failure to implement agreed governance and fiscal reforms.
The frozen DPO loan to Kenya, a critical part of its 2025/26 budget, was expected in July and was already factored into the Treasury’s financing plan. Its suspension leaves a major funding gap and puts pressure on the government to either raise debt or cut spending.
The Sh96.93 billion DPO loan to Kenya was structured as concessional financing, offered at low interest rates and longer repayment terms, intended to support macroeconomic stability and public service delivery. The funds were earmarked for key development projects and to help Kenya manage its growing debt servicing costs.
With the DPO loan withheld, the government faces a tough balancing act between sourcing alternative funding and preserving essential services like healthcare, infrastructure, and education.
The World Bank DPO loan to Kenya was part of the institution’s policy-based support, contingent on the implementation of several governance and fiscal reforms. Among these, the long-delayed Conflict of Interest Bill has become a central sticking point.
The bill is designed to combat entrenched abuse of public office by setting clear legal boundaries for state officers engaging in business dealings where conflicts may arise.
Despite being a condition for the Sh96.93 billion ($750 million) Development Policy Operations (DPO) loan, the Conflict of Interest Bill has been delayed for years. Legislators have either watered down its provisions or blocked progress altogether, with critics pointing to a lack of political will as a key obstacle.
Some lawmakers, seen to benefit from the current legal ambiguity, have resisted efforts to introduce tighter disclosure and anti-graft measures.
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Beyond the Conflict of Interest Bill, other unfulfilled conditions for the frozen DPO loan to Kenya include the full adoption of a single treasury account, meant to consolidate government revenues and enhance oversight, and the automation of public procurement systems to limit insider dealings.
These reforms were designed to curb public resource leakages and improve efficiency in service delivery.
The World Bank’s decision comes amid mounting fiscal stress, with Kenya’s public debt standing at nearly 70% of GDP by the end of 2024. The country remains heavily reliant on external loans to plug budget deficits and fund development, with concessional loans to Kenya forming a major part of its borrowing mix.
However, governance concerns and weak reform implementation have increasingly triggered caution among donors.
The freeze on the DPO loan has wider implications for concessional loans to Kenya from other lenders. The International Monetary Fund (IMF) has also slowed disbursements under its Extended Fund Facility and Extended Credit Facility arrangements, citing similar concerns over fiscal discipline and reform backtracking.
This raises the risk that Kenya may lose access to low-cost multilateral financing and be forced to resort to more expensive commercial borrowing.
Commercial credit, while more accessible in the short term, comes with higher interest rates and shorter maturities, further straining debt sustainability.
With a large portion of Kenya’s external debt denominated in dollars, any new borrowing under market terms could worsen debt servicing pressures, especially amid a weak shilling and rising global interest rates.
The World Bank frozen loan to Kenya comes at a time when the country is seeking to reassure markets and donors of its fiscal discipline. However, the failure to deliver on long-promised reforms, particularly those tied to transparency, anti-corruption, and financial controls, risks denting Kenya’s reputation as a credible borrower.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.
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