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Aid flows to Kenya to drop further as focus shifts to poorer countries

Somalia's growth is further expected to consolidate at 3.9 percent next year, whereas Ethiopia's will remain at 7.0. (Photo: File)

By Ibrahim Omar | Tuesday, January 30, 2024

The IPF says this decline in development aid to Kenya is set to continue because rich countries are diverting their attention to countries considered to be least developed.

Development aid to Kenya, critical for funding key pro-poor projects, is set to decline further due to the country’s lower middle-income classification, according to a report released on Monday by the Institute of Public Finance (IPF).

If this projection materialises, it will be a major blow to Kenyans, especially low-income earners who rely on aid-funded projects such as hospitals, community health centres and schools, as their services are affordable.

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According to the report, the Official Development Assistance (ODA) disbursed by rich countries to Kenya hit a record high of $3.99 billion (Sh644.38 billion at current exchange rates) at the height of the Covid-19 pandemic, as the country sought to address the resulting economic fallout.

This declined significantly to $3.14 billion (Sh507.11 billion) in 2021 after the disruptions caused by the pandemic eased.

The IPF says this decline in development aid to Kenya is set to continue because rich countries are diverting their attention to countries considered to be least developed, which is a blow to the country as most of the projects funded by the aid will end or stall.

“ODA is a useful source of financing (especially in sectors such as health) but it is declining in importance over time as Kenya solidifies itself as a lower middle-income economy and becomes less eligible for concessional aid,” the IPF said in the Macro-Fiscal Analytic Snapshot Kenya 2024 report.

The US and the World Bank are the two largest donors of aid to Kenya, accounting for about half of the total aid the country receives.

Typically, donors channel their aid to Kenya in two ways - project financing, which involves tying the aid to specific activities such as constructing roads or energy plants; and budgetary support, which entails directly injecting cash into the National Treasury to support government spending via the national budget.

“Over the medium term, the ODA to Kenya is expected to decline — in real terms, if not nominal, and as a percentage of the total expenditure — as development partners reorient their efforts towards low-income and fragile countries,” said the report, which was produced in conjunction with Oxford Policy Management.

Development aid has been critical for Kenya over the decades as it has helped the country implement development and social assistance programmes in key sectors such as health, manufacturing, and infrastructure without sinking further into a debt hole.

For many years, health, infrastructure and production have been the largest recipients of development aid.