World Bank Freezes Sh96bn Kenya Loan Over Delayed Reforms

By Esther Murigi

Kenya’s access to a Sh96 billion ($600 million) World Bank budgetary support package has been frozen pending implementation of key economic and governance reforms, signaling growing tension between the Bretton Woods institution and President William Ruto’s administration.

According to a local station, the World Bank has withheld disbursement of its Development Policy Operations (DPO) programme, a facility designed to cushion Kenya from fiscal stress and support structural reforms.

The freeze comes at a time of severe liquidity pressure and a weakening shilling, complicating the Treasury’s financing plans and increasing pressure on borrowing. Kenya had expected the funds to help plug part of the Sh703 billion budget deficit for the 2024/25 financial year.

The World Bank’s conditions extend governance, energy, state-owned enterprises, and fiscal management, and were designed to promote long-term fiscal sustainability and transparency.

Treasury insiders said that the reforms in question include restructuring of loss-making parastatals such as Kenya Power, liberalization of the energy sector, rollout of e-procurement to curb corruption, and reduction of pending bills owed to businesses.

The Bank is also pushing for stronger debt management practices, reforms of state-owned sugar and tea factories, and publication of beneficial ownership registers to reveal true owners of companies bidding for public contracts.

Other conditions involve digitization of land records, justifying behavior of the public wage bill, enhanced fiscal discipline at the county level, and passage of current investment and competition laws.

The Bank insists that the funds will only be released once Kenya demonstrates physical progress, including new legislation and credible enforcement of the reforms, many of which were due by mid-2024.

Treasury Cabinet Secretary Njuguna Ndung’u minimized the delay, saying discussions with the World Bank are ongoing and constructive.

Ndung’u maintained that Kenya remains fully committed to fiscal and governance reforms that will improve service delivery and restore investor confidence.

One senior official said that reforms on parastatals and electricity tariffs are politically sensitive, especially in a high-cost-of-living environment. But without them, the World Bank and IMF won’t move.

Kenya’s public debt has increased to more than Sh11.3 trillion, with debt servicing consuming over 63 percent of tax revenues.

The suspension of the World Bank’s DPO funds, which are cheaper than commercial loans, means the government may have to rely more heavily on domestic borrowing or seek emergency funding from regional lenders.

Economists warn that this could push up interest rates, crowd out private sector credit, and strain the local economy.

Churchill Ogutu, an economist at IC Asset Managers, said that Kenya’s fiscal space is narrowing rapidly. He added that the freeze underscores how critical governance and reform credibility are to accessing flexible finance.

Economist Kwame Owino of the Institute of Economic Affairs observed that the standoff highlights Kenya’s “reform paradox.”

Owino noted that they cannot sustain public finances without tough reforms, but implementing those reforms can erode public trust and political capital.

The Treasury is now racing to complete the pending reforms before the end of the fiscal year in June 2025 to unlock the funds. The World Bank has indicated willingness to resume support once credible milestones are achieved.

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The Author is Esther Murigi certified Broadcast Journalist