The latest Ksh75 billion ($750m) loan advanced to Kenya by the World Bank will saddle taxpayers with debt for 30 years, adding the burden on future generations to repay the country’s mounting loans.
The World Bank disclosed Thursday that the loan will be repaid until 2059 and that it has allowed the Treasury to start paying the principals in 2024, easing the quarterly repayment costs.
“The DPF is a concessional credit with 30-year repayment period including a grace period of five years, and interest and other charges of two percent annum,” the bank said.
This means taxpayers will pay at most Ksh1.5 billion ($15m) annually to the World Bank as interest in the first five years before Kenya starts paying the Ksh75 ($750m) billion loan.
The longer repayment term and the grace period will ease the Treasury’s annual debt settlement costs that have seen Kenya commit more than half of taxes to paying loans.
There has been a rise in government borrowing since President Uhuru Kenyatta came to power in 2013 — a jump that some politicians and economists say is saddling future generations with too much debt.
At two percent, the interest is lower than the Eurobond costs. Kenya raised Ksh210 billion ($2 billion) through two tranches of a Eurobond mid-May, with one having an interest rate of seven percent and the other eight percent.
For the first time in years the World Bank is putting cash straight into the Treasury to be used at the discretion of the government, mainly in support for agriculture and housing.
Kenya has multiple development funding programmes worth billions of shillings with the Washington-based lender. But for years the funding bypassed the Treasury and is usually channelled straight into the projects.
“Measures supported by this … are expected to benefit ordinary Kenyans through better targeting of agricultural subsidies to reach low-income farmers, (and)… increasing availability of affordable housing,” Felipe Jaramillo, the World Bank country director, said.
The World Bank said some of the funds will also go towards helping the creation of a digital national identification system.
Kenya’s public debt as a percentage of gross domestic product has increased to 55 percent from 42 percent when Mr Kenyatta took office in 2013.
The government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.
Critics of the borrowing spree have questioned the value of some of the projects, particularly the multi-billion shilling China-backed standard gauge railway from Mombasa to Nairobi completed in 2017.