First Kenya Fiscal Sustainability and Resilient Growth

The Development Policy Operation (DPO) is the first of a series of three operations that support Kenya’s policy and institutional reforms to (i) promote efficiency, transparency, and equity of public finance; (ii) foster more competitive and inclusive product and labor markets; and (iii) strengthen climate action. This DPO of US$1.2 billion, financed by IBRD and IDA (including the Window for Refugees and Host Communities), supports the ambitious reform agenda of the Government of Kenya (GoK) to drive transformational change in the country. It is tailored to Kenya’s challenging macroeconomic context, framed by tight global and domestic credit conditions, fiscal pressures, shocks from climate change, and persistent poverty and inequality. The DPO is designed to address the country’s short-term challenges by strengthening fiscal, economic, and environmental institutions that will simultaneously lay the foundations for a more prosperous, green, and inclusive future. This DPO also supports Kenya in a difficult economic climate as it hosts a significant population of refugees and asylum seekers while undertaking a process of refugee policy reforms. There are over 550,000 refugees and almost 200,000 asylum seekers in the country (320,572 refugees and asylum seekers in Dadaab Camp and 271,995 in Kakuma Camp and Kalobeyei Settlement). The camps and settlement are managed by the GoK’s Department of Refugee Services (DRS), with support from the United Nations High Commissioner for Refugees (UNHCR) and other humanitarian partners. The inflow of refugees has significantly changed the spatial and social dynamics of host counties. The GoK has demonstrated its commitment to the Global Compact on Refugees by enacting the Refugees Act of 2021, Cap 173 of Laws of Kenya, which grants refugees more rights and protections, and by drafting the Shirika Plan in 2024, which seeks to create more integrated settlements where refugees can live, access social services, and work alongside...