News

The World Bank has announced Kenya will receive $800m (Sh56bn) in new loans over the next year, in a gesture of good faith that marks a profound shift in relations between the Bank and the Government.

The Bank suspended the aid for two years, from 2004 to 2006, on the back of concerns about corruption in Government. Yet Kenya now becomes the first country to have its assistance programmes renewed following the adoption of a Bank-wide policy linking all lending to reduced corruption in the public sector and improved governance. The new lending comes at a time when the country has achieved virtual self-sufficiency in financing its recurrent expenditure, reducing its need for structured loans: a point made recently by both the Central Bank Governor and the President.

On this basis, and ahead of any full agreement on policy-based lending, the Bank will now channel a significant chunk of new lending directly to some of the nation’s most economically disadvantaged communities. Up to $154.5 million (Sh10 billion) will go to 2,000 of the nation’s poorest communities to provide technical support and funding for income generating micro projects. “These projects reflect our commitment to continue supporting policies that target more aggressively the most vulnerable people with assistance that equips them to help themselves,” said World Bank Country Director Colin Bruce.

Germany’s ambassador to Kenya Walter Lindner, who was involved in crafting the new lending strategy, said assistance would be linked to continued efforts to fight graft at all levels. “The approach (of the new assistance strategy) captures the essence of the balance that many of us are trying to strike in backing feasible reforms that make more headway on governance and anti-corruption, help the poor today, build country-wide systems that provide assurance tomorrow, and generate gains that stand the test of time well into the distant future,” the paper says.

In announcing resumption of lending, the World Bank signalled its pleasure with the government’s economic recovery efforts, while also calling for action to arrest “missed opportunities.” A statement released following the meeting noted that the country’s macro-economic environment had improved with falling public debt, more stable prices and lower interest rates.

More needed to be done, it said, to implement a privatisation strategy and improve the health and transport sector. The World Bank also decided to change course in its assistance policy. It will focus on tackling inequality with emphasis on assisting communities in some of the poorest areas in the country.

Two projects in Western Kenya will receive a significant chunk of the newly approved funds. These are the Western Kenya Community Driven Development and Flood Mitigation Project, and the Natural Resource Management Project. Western Kenya is one of the country’s most natural resource-rich areas. It also has some of the highest levels of poverty in the country. Financing for the projects will aim at spurring wealth creation while helping local communities to better manage the environment to mitigate annual floods in the area.

Funds will be provided for micro-projects in 600 communities, including 200 projects earmarked for youth groups in Siaya and Bondo, Western Kenya. Bee keeping, dairy goat keeping and poultry farming are among the activities earmarked to receive technical support and funds for seed capital.

The aim of these activities is to address the growing levels of inequality which have accompanied economic growth in the country. About 56 per cent of households are below the poverty line with statistics indicating the poorest 20 per cent of the population receive less than 6 per cent of the national income in while the richest 20 per cent take 49 per cent.

The World Bank’s new assistance strategy refrained from pinpointing specific areas that will receive the new funding, tying disbursal of funds to continued reforms in governance. Implementation of institutional changes will trigger financing for agriculture, health and infrastructure.

New funding for roads would be dependent on implementation of proposals of a new roads strategy and governance program for independent rural, urban and inter-city roads authorities including toll roads through public-private partnerships. The World Bank will also support efforts aimed at instituting reforms in the judiciary to boost prosecutorial management, police oversight and judicial capacity as part of efforts to improve governance.

“Kenyans have long identified poor governance and corruption as a major constraint to simulating and sustaining economic growth and poverty reduction,” said Dr Bruce. “There is universal agreement that recent economic gains in Kenya can be multiplied and sustained if further and faster progress is made on governance.”