At least $750 million (Sh96.7 billion) in World Bank funding to Kenya remains frozen as the country works to meet eleven policy and legislative conditions required for the release of the loan, with the National Treasury now pushing to secure early disbursement ahead of the March 2026 timeline indicated by the Washington-based development lender. The
money, intended to support national reforms under the World Bank’s seventh Development Policy Operations facility, has been held up since the 2024/25 fiscal year ended in June, creating significant budgetary pressures as Kenya seeks to fund essential services while managing mounting debt obligations.
Speaking on Thursday, December 18, 2025, National Treasury Cabinet Secretary John Mbadi revealed that Kenya has so far failed to meet eleven prior conditions necessary for the new financing, forcing the government to explore alternative funding sources while negotiations continue with the multilateral lender. The delay represents a continuation of persistent challenges Kenya has faced in accessing World Bank budget support, with previous tranches also experiencing delays due to unmet governance and policy reform benchmarks.
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“We still expect about $750 million from the World Bank’s DPO seven (a type of financing that supports a country’s policy and institutional reforms), and we are still concluding discussions on the targets to be met,” Mbadi said during a press briefing at the National Treasury Building. “The World Bank is talking about March, but we have told them that we may need the money earlier, so we are trying to fast-track the funding.”
The discussions with the World Bank come as Kenya also holds talks with the International Monetary Fund to unlock a new funded facility, although the Treasury does not consider IMF financing critical, describing it as a windfall rather than a necessity for the current financial year. “Our borrowing plan for the 2025/26 financial year remains on course, and we are not worried at all,” Mbadi added, projecting confidence despite the significant funding gap created by the frozen World Bank disbursement.
The Eleven Outstanding Conditions: A Comprehensive Reform Agenda
Last month, the World Bank listed seven laws and four policy reforms that must be implemented before it can release the funds, creating a comprehensive reform agenda that touches multiple critical sectors of Kenya’s economy and governance structure. The conditions represent a mixture of legislative amendments, policy implementations, and administrative reforms that collectively aim to enhance transparency, boost economic efficiency, and strengthen public finance management across national and county governments.
Competition Policy Reforms
Among the most significant conditions, the World Bank wants Kenya to amend the Competition Act to strengthen regulations controlling firms with dominant market shares, a move aimed at reducing monopolistic practices that have long characterized certain sectors of the Kenyan economy. This requirement aligns with broader World Bank research showing that procompetitive reforms could boost Kenya’s GDP growth by up to 1.35 percentage points and increase labor compensation growth by up to 2.0 percentage points—equivalent to approximately 400,000 jobs annually at average wage levels.
According to a recent World Bank-Competition Authority of Kenya joint report titled “From Barriers to Bridges: Procompetitive Reforms for Productivity and Jobs in Kenya,” Kenya’s Product Market Regulation score of 2.92—the highest among peers—indicates significant room to loosen regulatory restrictions on competition. The report emphasizes that robust competition is critical for unlocking private investment, creating jobs, and improving consumer welfare across the economy.
The Competition Authority of Kenya has been working on a Competition Amendment Bill 2024 that proposes significant changes including regulation of digital activities, establishment of frameworks for determining dominant positions in digital markets, and replacement of the concept of “abuse of buyer power” with “abuse of superior bargaining position.” The amendment bill also seeks to specify prohibited forms of conduct more clearly and empower the CAK to develop sectoral codes of practice while imposing penalties of up to 10% of annual turnover for non-compliance.
Experts note that Kenya stands to gain more than Sh77.7 billion in additional GDP if it accelerates pro-competition reforms across key sectors. CAK Director General Adano Wario Roba emphasized during the report launch that “the room for growth is still quite high, even within the current fiscal realities,” urging removal of rules that distort competition including discriminatory licensing regimes, rigid minimum fees, and loss-making state-owned enterprise interventions that crowd out private players.
Financial Inclusion for Refugees
Additionally, the lender has stipulated that Kenya must allow refugees to register for mobile telephony services and M-Pesa, addressing long-standing exclusion of refugee populations from formal financial services. This requirement builds on regulatory changes already initiated earlier in 2025 when Kenya gazetted new regulations under the Kenya Information and Communications Act that officially recognized refugee identification cards as valid documentation for registering SIM cards and accessing mobile financial services.
Commissioner for Refugee Affairs John Burugu revealed that while the regulatory framework now exists, full implementation requires additional guidelines to protect refugee data and address potential security loopholes. The initiative aims to enhance financial inclusion and communication capabilities for refugee populations residing in Kenya, particularly through services like M-Pesa, Africa’s leading mobile money platform with over 30 million active users.
Under the amended regulations, refugees will be able to maintain direct communication with family members and access essential financial services in their own names, ending the practice of using Kenyan proxies to operate M-Pesa accounts—an arrangement that Burugu indicated must be phased out within six months of the regulations’ gazettement. Kenya is shifting its refugee management policy from reliance on external aid to integration with host communities, with financial inclusion representing a key aspect of the Shirika Plan aimed at making refugees self-sufficient.
Urban Transport and Infrastructure Policies
The World Bank also wants Kenya to enact policies that ease urban traffic congestion, including measures that encourage rail transport usage—a condition reflecting broader concerns about the economic costs of traffic jams in Nairobi and other major urban centers. This urban transport policy requirement addresses persistent infrastructure bottlenecks that hamper productivity and economic efficiency, particularly in Kenya’s rapidly urbanizing population centers.
Fiscal Management and Transparency Reforms
Other critical conditions include issuing a sovereign sustainability bond policy, fully implementing e-procurement to curb corruption in government purchases, and consolidating all government bank accounts at the Central Bank of Kenya instead of maintaining them across multiple commercial banks. This last requirement, known as the Treasury Single Account, is designed to improve cash management efficiency and reduce opportunities for misappropriation of public funds.
The Treasury Single Account system aims to provide the government with a consolidated view of its total available cash balances spanning across Ministries, State Organs, State Departments, State Agencies/Corporations, and other government entities. According to National Treasury Director Jonah Wala, the government has developed a monitoring system that enables the Central Bank of Kenya to view all bank accounts used by government bodies, marking a significant step toward full TSA implementation.
As of June 2023, the banking sector held Sh509.8 billion in deposits from the national government and other public sector entities, constituting 10.4% of the sector’s total deposits during that period. The eventual consolidation of these funds into the TSA is expected to simplify government banking, enhance visibility of cash resources, increase transparency, and help control expenditure while minimizing fragmentation of government accounts.
However, the Treasury has adopted a hybrid TSA model where ministries and state departments will operate accounts at the Central Bank of Kenya while State Agencies and Government Authorities’ accounts will remain in commercial banks on condition that no idle cash is retained. The phased implementation approach, approved by Cabinet in January 2024, is expected to take three years to complete.
Additional Legislative and Regulatory Requirements
The disbursement was initially frozen after Kenya failed to pass legislation preventing conflicts of interest within the public service. Parliament has since enacted both the Conflict of Interest Bill and the Social Protection Bill, although implementing regulations are yet to be published—a critical gap that continues to delay full compliance with World Bank requirements.
Other outstanding actions include full implementation of e-government procurement systems, establishing a framework to speed up approval of County Government Additional Allocations Bills, and updating information and communications regulations. The country also needs to revise the Forest Conservation and Management Act and put in place a sovereign sustainability-linked financing framework that will guide Kenya’s access to environmentally-focused development funding in future years.
According to Cabinet Secretary Mbadi, the complete list of prior actions includes “regulations to the Conflict-of-Interest Act, regulations to the Social Protection Act, regulations to the County Licensing (Uniform Procedures Law), amendments to the Competition Act, updated Kenya Information and Communications Regulations, the urban transport policy, amendments to the Forest Conservation and Management Act and the sovereign sustainability-linked financing framework.”
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Kenya’s Challenging Fiscal Position and Debt Sustainability Concerns
The frozen World Bank funding comes at a particularly challenging time for Kenya’s public finances. The country’s public debt stood at approximately 68% of GDP in 2024, with interest payments absorbing roughly one-third of tax revenue, severely limiting the government’s ability to fund essential services like education and healthcare while meeting mounting debt obligations.
President William Ruto’s administration has been struggling to narrow the fiscal deficit and govern under a heavy total debt-to-GDP ratio of around two-thirds, well above the 55% level generally considered a sustainable threshold by international financial institutions. The government projects the budget deficit to fall from 5.8% in the financial year ended June 2025 to 4.7% in the current cycle, with further gradual reductions projected through 2030.
Kenya’s budget deficit is estimated at Sh901 billion for the fiscal period running to June 2026, and the Treasury faces difficult choices between cutting expenditure or raising revenues to reduce the shortfall. The government is struggling to identify new funding sources after last year’s countrywide protests forced it to pursue austerity measures and scrap planned tax hikes worth more than Sh346 billion, removing a significant portion of anticipated revenue that had been built into budget projections.
The Kenya National Chamber of Commerce and Industry has projected a challenging financial year for businesses, citing high taxes, rising operational costs, and unfavorable policies. A survey of 1,981 businesses conducted by KNCCI revealed that 60% of firms do not plan to expand their workforce in 2025, attributing the negative outlook to declining sales and increased costs. These economic headwinds have further strained Kenya’s ability to meet its fiscal obligations without external budget support.
The Strategic Importance of World Bank DPO Financing
The frozen $750 million represents the seventh tranche of Kenya’s participation in the World Bank’s Development Policy Operations facility, a financing mechanism the multilateral lender uses to support countries implementing policy and institutional reforms aimed at achieving economic growth and poverty reduction. Unlike project-specific loans that finance particular infrastructure or development initiatives, DPOs provide budget support directly to a country’s treasury in exchange for specific policy changes designed to improve areas like public finance management, market efficiency, regulatory frameworks, and climate action.
Kenya received Sh155 billion ($1.2 billion) from the World Bank last year as part of the first tranche of the current DPO facility. Fresh budget documents submitted to the National Assembly show that Kenya expects to remain in the World Bank’s DPO program until at least the end of the 2028/29 financial year, with the country expecting to receive a total of Sh682 billion in equal parts across multiple fiscal cycles, beginning with Sh170.5 billion in the year starting July 1, 2026.
The World Bank provides DPO financing on concessional terms with an annual interest cost of approximately 3.0%, making it significantly less expensive than commercial loans available in international capital markets or even bilateral lending from other development partners. This favorable pricing makes DPO financing particularly attractive for a country facing high debt service costs and increasingly limited access to affordable external borrowing options.
Credit ratings agencies have warned that Kenya is heavily dependent on the World Bank and International Monetary Fund for maintaining access to funding from international capital markets and protecting foreign currency reserves. According to Moody’s, funding from these multilateral lenders is crucial to Kenya’s ability to meet debt obligations without depleting the central bank’s reserve buffer, which serves as a critical safeguard against external shocks and currency volatility.
Qimiao Fan, the World Bank Division Director for Kenya, Rwanda, Somalia, and Uganda, has emphasized that the timing of loan disbursement hinges strictly on the government meeting agreed conditions. “World Bank development policy operations are contingent on the completion of prior actions and an adequate macroeconomic and fiscal policy framework,” Fan stated, making clear that the lender will not compromise on reform requirements regardless of Kenya’s urgent fiscal needs.
A Pattern of Delayed Disbursements Highlighting Implementation Challenges
The current funding freeze is not the first time Kenya has struggled to access World Bank budget support due to unmet conditions. Throughout 2025, the $750 million loan has been repeatedly delayed, creating persistent budgetary gaps that have forced the Treasury to explore alternative financing arrangements and make difficult expenditure prioritization decisions.
In July 2025, when the delay first became apparent, Treasury Cabinet Secretary John Mbadi indicated that the earliest the funds could be released would be later in the year, forcing the government to navigate the final months of the 2024/25 fiscal year with a significant revenue shortfall. In November 2025, the World Bank issued fresh conditions focusing on narrowing Kenya’s budget deficit, setting the stage for possible additional tax increases and austerity measures beyond those already implemented.
The repeated delays highlight persistent challenges in Kenya’s reform implementation capacity, with political considerations, bureaucratic inertia, and stakeholder resistance combining to slow progress on commitments made to international development partners. Some reforms require legislation that must pass through Parliament, where political dynamics can delay or dilute reform measures—as evidenced by the prolonged struggle over the Conflict of Interest Bill, which experienced multiple presidential vetoes and parliamentary revisions before finally becoming law in July 2025.
Other reforms require complex administrative actions and policy implementations that face resistance from vested interests or prove technically challenging to execute within compressed timeframes. Full implementation of the Treasury Single Account, for example, requires consolidating thousands of government accounts scattered across multiple commercial banks—a logistically challenging undertaking that touches on established banking relationships, bureaucratic procedures developed over many years, and the interests of commercial banks that benefit from government deposits.
Alternative Financing Options and Future Prospects
While waiting for World Bank funding, Kenya has been actively exploring alternative financing sources to bridge the gap created by the frozen DPO disbursement. The government seeks to diversify its sources of concessional financing, eyeing sustainability-linked bonds and debt-for-development swaps that could provide much-needed resources while aligning with environmental and climate objectives.
The World Bank is expected to support Kenya in issuing its first sustainability-linked bond in March 2026, estimated at approximately Sh65 billion. These innovative financing instruments tie borrowing costs to achievement of specific sustainability targets, potentially offering Kenya access to environmentally-conscious investors willing to accept lower returns in exchange for verified progress on climate and environmental goals.
Kenya has also secured a $200 million (Sh25.8 billion) loan from the African Development Bank and continues negotiations with the World Bank for additional facilities beyond the frozen DPO funding. According to Kenya’s financial engagement strategy, the country currently holds outstanding debt of approximately Sh1.074 trillion ($8.3 billion) with the World Bank across concessional financing from the International Development Association and non-concessional lending through the International Bank for Reconstruction and Development.
The World Bank is Kenya’s biggest lender, with outstanding loans totaling Sh1.66 trillion as of the end of September 2025, while borrowings from the IMF stand at Sh477.2 billion. In a strategic plan covering fiscal years 2024 to 2026, the World Bank committed to disburse up to Sh1.55 trillion ($12 billion) to Kenya, though access to this substantial funding envelope remains contingent upon meeting strict reform benchmarks across multiple policy areas.
The Road Ahead: Balancing Reform Ambitions with Political Realities
Treasury Cabinet Secretary Mbadi indicated that Kenya would write to the World Bank to request approval of the Sh96.9 billion DPO facility after agreeing on the complete set of reforms needed to satisfy lender requirements. “We have had successful and fruitful engagements with the World Bank, and I am happy that the bank has a positive view of the progress we have made, although there are issues we wait to work on,” he stated, striking an optimistic tone while acknowledging significant work remains.
The challenge facing Kenya is balancing the urgent need for budget support against the World Bank’s insistence on comprehensive reforms that touch sensitive areas of governance, competition policy, financial inclusion, urban planning, environmental management, and public finance administration. Some of these reforms have faced political pushback from constituencies that benefit from existing arrangements or fear disruption to established practices.
The introduction of an e-procurement system by the National Treasury, launched in March 2025, aims to curb corruption and save an estimated Sh50 billion annually by streamlining public procurement processes and eliminating opportunities for collusion and insider dealings. However, full implementation across all government ministries, departments, and agencies has proven slower than anticipated, with technical challenges, capacity constraints, and resistance from stakeholders accustomed to opaque procurement processes creating implementation bottlenecks.
Competition Authority of Kenya Director General Adano Wario Roba has called for a whole-of-government approach to reform, stressing that uncompetitive markets raise business costs, stifle small and medium enterprises, and harm consumers through higher prices and reduced service quality. He emphasized that ongoing legislative changes—such as the Competition Amendment Bill 2025, stronger buyer-power enforcement mechanisms, and enhanced digital-market oversight—are critical to lowering prices, improving services, and attracting both domestic and foreign investment.
Broader Economic Context and Labor Market Challenges
The delays in World Bank funding come against a backdrop of mixed economic signals for Kenya. According to the World Bank’s latest Kenya Economic Update, several macroeconomic indicators continue to show strength, with inflation within the Central Bank’s target range, a relatively stable exchange rate, and foreign exchange reserves at record-high levels. Private sector credit has been rebounding, growing 5% year-on-year by September 2025, supported by lower lending rates and an accommodative monetary stance from the Central Bank of Kenya.
Economic growth has gained momentum, with GDP expanding by 4.9% in the first quarter of 2025 and 5.0% in the second quarter, supported by easing monetary policy and a rebound in the construction sector following years of contraction. However, World Bank Country Economist for Kenya Jorge Tudela Pye cautioned that “many key macroeconomic indicators continue to show strength; however, the fiscal outlook remains subject to downside risks that could threaten sustained and inclusive economic growth.”
Labor market weaknesses persist as a significant concern, with formal employment remaining at just 15% of total jobs and real wages falling, reflecting structural weaknesses in productivity growth and job creation capacity. In 2024, out of 782,300 new jobs created in Kenya, 90% were in the informal economy—up from 84% in 2014. This presents a multi-pronged challenge of low productivity, inadequacy of safety nets such as pension and medical cover for the growing working population, and unpredictable incomes which leave households vulnerable to emerging economic shocks.
The World Bank has emphasized that procompetitive reforms in key services sectors such as electricity, transport, telecommunications, and professional services could sustainably boost Kenya’s economic performance. “Economic growth momentum could be further sustained by addressing key barriers to competition, which would also lead to more and better paying jobs, and lower prices to consumers,” stated Qimiao Fan, highlighting the direct link between the reform conditions Kenya must meet for DPO funding and the country’s broader economic transformation goals.
Conclusion: A Critical Test of Reform Commitment and Implementation Capacity
The withholding of Sh96.93 billion in World Bank Development Policy Operations funding underscores the increasingly stringent conditions attached to concessional development financing in an era of heightened scrutiny on governance, transparency, and policy effectiveness. For Kenya, the delay serves as a stark reminder that budget support from multilateral lenders is not automatic entitlement but rather contingent on demonstrated commitment to policy reforms that enhance accountability, economic efficiency, and institutional capacity.
As Kenya navigates this fiscal challenge, the government faces mounting pressure to balance competing imperatives: meeting debt repayment obligations to maintain creditworthiness, sustaining economic growth to generate employment and improve living standards, delivering essential public services to an increasingly demanding citizenry, and implementing sometimes politically difficult reforms to satisfy external development partners.
Whether Kenya can successfully meet the eleven outstanding conditions and unlock the frozen $750 million before March 2026—or ideally earlier as the Treasury hopes—will depend critically on the government’s ability to demonstrate both legislative progress and administrative follow-through on a comprehensive reform agenda spanning competition policy, financial inclusion, urban transport, environmental management, and public finance administration. The outcome will have significant implications not just for Kenya’s immediate fiscal position but also for its longer-term relationship with multilateral development partners and its capacity to access the concessional financing that remains essential for funding development priorities amid constrained domestic revenue mobilization.
The March 2026 timeline looms as both a deadline and an opportunity: a deadline for completing reforms that have proven politically sensitive and administratively complex, and an opportunity to demonstrate that Kenya can implement the structural changes necessary to unlock not just this particular tranche but also future development financing that will be critical for achieving the country’s Vision 2030 development goals and transitioning to upper-middle-income status.
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By: Montel Kamau
Serrari Financial Analyst
19th December, 2025
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