A call for debt cancellation as World Bank loans increase while grants reduce

The World Bank Board approved the first loan to Kenya on May 27, 1960. The $ 5.60 million financing for “African Agriculture and Roads Project”. The first component of the loan was to finance the completion of programs under the Swynnerton Plan, complete land consolidation and registration of land rights and assist farmers in “high potential areas” to modernise agricultural production. The second component was construct one road and improve 22 roads in 12 districts spread across four provinces. These projects were to be completed in three years, from 1960 to 1963. 

Since that first loan in 1960, the World Bank has financed a total of 304 projects in Kenya, as at October 2021. Out of these, 260 projects have been closed or dropped, leaving only 44 active projects. All the active projects go back over the past 10 years, to May 2012. It follows that nearly all the World Bank projects, currently active, have been implemented under the current Jubilee administration, that came into power in 2013. 

Since that first loan in 1960, the World Bank has financed a total of 304 projects in Kenya, as at October 2021

One constant feature of the World Bank funded projects is that they are small and ring-fenced. Shrinking project sizes means that while they give the World Bank the power to continue injecting their policy recommendations in the governance of the country, these small-sized projects are fragmented, multiply administrative costs, and complicate coordination by World Bank and recipient governments. In short, they do not generate transformative change. That is why, while World Bank gave Kenya a $ 5.60 million to improve agriculture and build a few roads scattered across the country in 1960, in June 2021 it has also given Kenya a $ 2.75 million for labor-based road maintenance in Meru, a project that should best be done by the county government, using local resources. 

Ring-fencing in donor funding ensures that, even if the project is implemented successfully, the government does not develop long-lasting capacity to deliver the same services in the future.

Sub Saharan Africa has too much debt than it can pay. Photo: Pixarbay

World Bank supports projects through grants, mainly provided through its International Development Association (IDA) arm, or loans, mainly provided by the International Bank for Reconstruction and Development (IBRD) arm. Analysis from the project information provided by World Bank, shows that the total IDA and IBRD commitment stands at $5 billion. Out of this, only three percent are grants. That 97% of the money the World Bank has given Kenya for the implementation of 44 projects is loans, which Kenya must repay, puts the narrative of “helping poor African people” into a question.

That 97% of the money the World Bank has given Kenya for 44 projects is loans, which Kenya must repay, puts the narrative of “helping poor African people” into a question

How the narrative of foreign aid is language often pits caricatures of African leaders begging the World Bank for money and avoids the inconvenient detail that such loans effectively burden poor countries future debts. The World Bank coming to aid poor African countries is rarely in the form of grants, that is, free financial resources that poor countries can use to complement domestic revenues. 

While loans may induce policymakers to use funds wisely or to expand tax mobilisation to meet growing development needs, history has scanty evidence of the World Bank closing the loan tap to corrupt regimes. For instance, despite endemic grand corruption in the Jubilee government since it came to power in 2013, the World Bank committed $5 billion in loans. The net result is excessive debt accumulation in poor countries, which currently poses the greatest threat to poverty reduction and attainment of sustainable development outcomes.

Greed is deadly. End Poverty to Stop Crime Photo: Bart Everson/Flickr/ Attribution 2.0 Generic (CC BY 2.0)

The increase in World Bank loans while grants reduce, in the midst of rising debt levels in Kenya which threaten servicing sustainability, coupled with the country’s aggressive borrowing to meet short-term expenditure needs and plug budget deficits, is a time bomb waiting to explode. Increasing debt service payments will continue to put more pressure on domestic resources, pushing the government deeper into borrowing. Citizens are already feeling the pinch as government increases taxes on basic goods in the face of a worsening debt crisis.

Call to cancel World Bank loans

The World Bank loans are targeted at investment areas, ranging from health, education, infrastructure, agriculture, public administration, and private sector development among others. However, excessive lending leads to massive debt accumulation and acts as an obstacle of sustainable development. It is for this reason that there is a growing call for cancellation of World Bank debt or the shift of foreign aid towards grants while encouraging increased overall assistance to developing countries.

‘Debt is a cleverly managed reconquest of Africa’ – Thomas Sankara

In May 2020, 300 parliamentarians from two dozen countries on all six continents, urged the World Bank and International Monetary Fund to cancel debt obligations of the poorest countries outright, and not simply suspend them. The call came in the face of the COVID-19 pandemic as poor countries struggled to proactively protect their populations from the destruction of the disease. Lawmakers argued that the debts were unsustainable and cancellation was the only way of preventing increased poverty, hunger, and disease threatening the lives of millions of people around the world. A reduction in debt service obligations can allow poor countries to make poverty-related investments and direct more resources to health, education, HIV/AIDS programs, basic infrastructure and governance reform. 

The IMF made a lengthy response on the question of 100 percent debt cancellation, arguing against the call by stating that they are a “a unique source of concessional finance for the world’s neediest countries which operates on the principle that developing countries borrow from and pay back into the same sources of financing” and they intended to retain their creditor status and would “continue to provide financial support to their members on a sustainable basis, even in very difficult circumstances.”

The World Bank and IMF instead pushed for the establishment of a Debt Suspension Initiative (DSSI) to help poor countries fight the pandemic and safeguard the lives of millions. DSSI came into effect on May 1, 2020, to deliver $5 billion to more than 40 eligible countries. The World Bank also announced that 73 countries were eligible for a temporary suspension of debt-service payments owed to their official bilateral creditors, with the suspension period extended to December 2021. And with such a policy direction, the advocacy for 100 percent debt cancellation continues.

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