Kenya was forced to seek an estimated $300 million (Sh38.8 billion) emergency World Bank funds to help it manage the economic shocks triggered by the Iran war.
Kenya is the first larger emerging economy to publicly confirm a formal request to the World Bank, although a number of countries, such as Egypt, have said they have approached multilateral lenders.
The country is scrambling to stave off shortages of essential commodities including petrol, while managing cost increases that could drive up inflation.
Turning to the Bretton Woods lender for loans is not new for Kenya, which is also hoping to reach an agreement to draw down up to $750 million (Sh96 billion) from the existing Development Policy Operation (DPO) lending window.
Seeking the emergency funding outside of the DPO programme has exposed the growing concerns at the National Treasury over the effects of the war on the Kenyan economy, which is sensitive to higher fuel prices, and disruptions to forex inflows from remittances, agriculture exports, and tourism.
“We have had very good discussions with the World Bank on the DPO and also getting additional financing, given the kind of shocks that we are facing…. our hope and expectations are that this money will come in this financial year,” said Central Bank of Kenya (CBK) governor Kamau Thugge.
With fuel accounting for about a quarter of Kenya’s import bill, a spike in crude prices exposes the country to balance of payment risk, not to mention the knock-on effect of higher pump prices on consumer demand, which fuels economic growth.
So far, the government has been forced halve VAT on fuel to eight percent to cushion consumers from higher pump prices, and is hoping to use the World Bank cash to plug the resulting revenue hole of about Sh13 billion.
In addition to the tax cut, the State is also spending about Sh6 billion in subsidies on petrol (Sh4.34 per litre), diesel (Sh22.15 per litre) and kerosene (Sh89.41 per litre) in the current pricing period.
Despite the subsidies and VAT cut, petrol and diesel prices rose by Sh19.32 and Sh30.09, respectively to Sh197.60 and Sh196.63 in Nairobi in the April 14 review, highlighting the scale of the impact of the higher crude prices.
Beyond the direct impact of the war on fuel, imports and the markets, Kenya is also facing a slowdown in the overall GDP growth this year as all these shocks converge on the economy.
Two weeks ago, the International Monetary Fund (IMF) cut Kenya’s growth forecast for 2026 to 4.5 percent from its earlier projection of 4.9 percent, citing rising energy costs, risks to remittances and export disruptions linked to the Iran war.
The World Bank has lowered Kenya’s projected growth to 4.4 percent from 4.9 percent, citing mounting external shocks, while CBK forecast 5.3 percent, down from 5.5 percent.
The projected slowdown is expected to stem from reduced productivity as firms grapple with rising input costs, including fuel and fertiliser.
Higher inflation is also set to erode household purchasing power, weakening demand in the economy that cascades into lower tax collection as businesses report reduces sales.
