Fiscal Sustainability and Inclusive Green Growth (FIGG) Development Policy Operation

closed

The objective of the Fiscal Sustainability and Inclusive Green Growth Development Policy Operation (DPO) for Kenya is: (i) creating fiscal space in a sustainable and equitable manner; (ii) improving competitiveness to boost agricultural exports; and (iii) improving governance and financial inclusion for private sector-driven development. This DPO supports the new administration’s efforts to make the government leaner, more transparent, and accountable, while setting the country on the path of more inclusive, greener, and private-sector-led growth. The program is rooted in the government’s key policy priorities: fiscal consolidation, developing the agriculture sector, and improving governance, while combatting climate change and improving inclusion. Therefore, the program clusters the reforms it supports into three pillars: (i) creating fiscal space in a sustainable and equitable manner; (ii) improving competitiveness to boost agricultural exports; and (iii) improving governance and financial inclusion for private sector-driven development. This DPO builds on the previous series of World Bank policy lending in Kenya to support policy and institutional reforms. The series delivered in FY21 and FY22 served as a platform for important reform areas, including public investment management and public procurement reforms, the removal of the interest rate cap and market distortions in the financial markets, introduction of e-vouchers for fertilizers in an overhaul of distribution of subsidized fertilizers to hundreds of thousands of farmers, and the reforms in the regulatory framework that helped to boost the supply of affordable housing. The series also facilitated close engagement and policy dialogue between the government and the World Bank, especially in the context of post-COVID-19 recovery and the design of fiscal consolidation. This highlights the role of DPOs in a challenging domestic and external environment. This operation plays a central role in the World Bank’s programmatic portfolio approach and is closely coordinated with other lending support that address sustainability and governance. The design of the operation is informed by ongoing preparations of World Bank’s pipeline programs, especially Programs for Results (P4Rs) in energy, agriculture, and public financial management. By supporting higher-level policy and institutional actions, the proposed DPO sets the stage for subsequent operational engagement focused on successful implementation of key reforms to be supported by the upcoming programs.