How World Bank and IMF loans are reshaping policymaking in Africa

Nairobi, Kenya – For decades, multilateral lenders such as the World Bank and the International Monetary Fund (IMF) have provided developing countries with financing that is often cheaper than commercial borrowing, particularly through concessional lending windows.

But such financing has often come with reform commitments requiring governments to strengthen public financial management, improve tax collection, enhance transparency, and adopt measures aimed at stabilising their economies.

Supporters argue that these measures help ensure borrowed funds are used effectively, reduce corruption risks, and protect countries from deeper debt problems. Critics, however, say they can extend the influence of international lenders into domestic policy decisions, particularly in countries with limited affordable financing options.

Across Africa, governments seeking concessional funding have increasingly been required to implement reforms beyond the projects the loans are intended to support. These commitments have included governance reforms, procurement changes, climate measures, social protection policies, and efforts to improve financial discipline.

Kenya’s recently secured $750m World Bank financing package has brought those debates back into focus. The package combines conventional World Bank lending through the International Bank for Reconstruction and Development (IBRD) and concessional financing through the International Development Association (IDA), with reforms linked to governance, public finance, climate resilience, and social protection.

The central question is whether such reforms strengthen institutions and improve public services, or whether they give external lenders too much influence over domestic policy choices.

Cheaper loans… but at what cost?

President William Ruto has criticised what he describes as the broad requirements African countries are sometimes expected to meet when seeking foreign financing.

Speaking at a State House dinner for members of the African Trade and Investment Development Insurance (ATIDI) on June 2, Ruto said some lenders attach policy demands that go beyond the purpose of the financing.

“It is difficult to go borrowing money from people. They subject you to all manner of things. You know. Do this, go and pass this law, how about you go and pass the sexuality laws, go and do this, and do this. Things that have nothing to do with the money you are looking for,” Ruto said.

Kenya secured the financing under the second phase of its three-part Fiscal Sustainability and Resilient Growth Development Policy Operation.

According to the World Bank, the funding is intended to support governance reforms, public financial management, social protection, and livelihoods for refugees and host communities. The programme has raised questions over how much room governments retain to negotiate when they depend on multilateral financing.

“It takes two to tango. When fiscal space is constrained, governments have less room to negotiate. As financing options improve, the conditions become less stringent,” Churchill Ogutu, head of research at Capital A Investment Bank, told Al Jazeera.

Ogutu said Kenya’s efforts to diversify its financing sources, including through international bond markets, reflect a desire to reduce dependence on conditional multilateral lending.

The human cost of lender-pushed reforms

Across Africa, reforms linked to international financing have often included politically sensitive measures such as tax increases, subsidy reductions, and spending controls.

Lenders argue that such measures are necessary to restore fiscal stability and reduce debt risks. Critics say they can increase living costs and place pressure on households already struggling with economic challenges.

Kenya’s 2024 anti-Finance Bill protests, which later expanded into wider antigovernment demonstrations, highlighted the political sensitivity surrounding fiscal reforms. Rights groups and other observers reported more than 60 deaths during the unrest.

The protests followed tax proposals introduced as Kenya sought to meet fiscal targets under its IMF-supported programme. Approved in 2021, the programme included measures aimed at strengthening revenue collection, reducing fiscal pressures, and implementing economic reforms.

Wangari Kebuchi, economist and managing director at Expertise Global, said social sector budgets are often among the first affected when governments tighten spending.

“When budgets tighten, social sector budgets are cut first, and children, who make up the largest share of our population, absorb that hit through weaker health, education and protection systems,” Kebuchi told Al Jazeera.

Kebuchi said Kenya faces rising debt servicing costs, declining official development assistance, and weak domestic revenue collection, leaving governments with fewer resources to respond to social needs.

Similar debates have emerged elsewhere on the continent. Nigeria removed its longstanding fuel subsidy in 2023 and introduced foreign exchange reforms during a period when the naira experienced a sharp depreciation, contributing to higher import and transport costs.

Ghana, after defaulting on parts of its debt in 2022, introduced measures including restrictions on public sector hiring, wage controls, and spending reductions amid rising prices and public frustration.

The debate over conditional lending is not new. Critics have long argued that Structural Adjustment Programmes introduced by the World Bank and IMF during the 1980s and 1990s weakened public services in parts of Africa through spending cuts, privatisation, and market reforms.

Supporters of those programmes argue that many reforms addressed longstanding economic weaknesses and helped restore financial stability, while critics say the social costs were underestimated.

Some academic studies have associated IMF-linked structural adjustment programmes with adverse health outcomes in parts of sub-Saharan Africa, although the findings remain debated.

Policy influence through loan distribution

Supporters of concessional lending argue that loan requirements are designed to protect both borrowers and lenders. They say stronger institutions, improved financial management, and better governance increase the likelihood that countries can repay debts and sustain economic growth.

The World Bank says conditional financing is intended to support long-term development by helping governments address structural constraints and improve economic resilience.

Eric Musau, head of research and sustainable finance at Standard Investment Bank, said concessional financing gives governments cheaper borrowing options while reducing reliance on expensive commercial debt.

“By extending repayment windows and subsidising interest rates, these facilities lower the immediate cost of sovereign debt,” Musau told Al Jazeera.

He said concessional loans are particularly important for countries such as Kenya, which have faced challenges accessing affordable financing because of weaker credit ratings.

“Conceptually, concessional financing should benefit ordinary citizens. For countries such as Kenya with sub-investment grade credit ratings, these loans reduce the overall cost of borrowing, with the concession component intended to cushion the most vulnerable,” he said.

For governments facing high debt levels and limited financing choices, cheaper loans remain attractive. Yet experiences across Africa suggest that the cost of concessional financing is measured not only by interest rates and repayment periods, but also by the reforms and consequences that accompany access to it.

As Kenya and other countries continue to navigate the balance between financial support and national priorities, the debate over conditional lending is likely to continue. For many citizens, however, the debate is less about the technical terms of borrowing and more about what those choices mean in daily life.

“There’s a bitter irony here: Citizens are asked to pay more in taxes to fund health, education, water, social protection, then asked to pay out of pocket for those same services because the tax revenue never actually reaches targets,” Kebuchi said.

Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: aljazeera.com