Selling off public assets only offers temporary relief to debt crisis, says World Bank

World Bank has criticised the government’s strategy of off-loading lucrative public assets.[Courtesy]

The World Bank has criticised the government’s strategy of off-loading lucrative public assets, warning that selling these prized businesses only offers short-term relief to the country’s debt crisis.

The Bretton Woods institution argues that since the revenue streaming in from the divestiture and privatisation of key State-owned businesses is going into infrastructure projects, there will be almost no impact on the country’s debt.

The strategy to sell off part of the public assets, however, has been touted by President William Ruto as a way to reduce the country’s vulnerability to the ballooning debt, which is at Sh13 trillion.

This is by ensuring Kenya funds its own infrastructure projects through crowding in of private capital rather than taking out loans.

The backing of this strategy is because at least 70 per cent of the country’s revenue goes into debt servicing.

“Privatisation efforts and asset sales are expected to fund commercially viable infrastructure projects through a new National Infrastructure Fund (NIF). However, this would not address the underlying structural weaknesses in revenue mobilisation and spending efficiency, underscoring the need for sustained fiscal consolidation and reforms,” says the World Bank in the Kenya Economic Update 2026.

In this year’s budget, the government will be spending Sh2.3 trillion out of Sh4.8 trillion total expenditure to service debts. This is for both interest and redemption.

Revenue projections for the period are expected to reach Sh3.6 trillion, leaving a gap of over Sh1 trillion, which the government will fill by borrowing.

The World Bank, in the update, takes note of these fiscal challenges, saying budgetary deficits are projected to remain elevated, averaging 5.6 per cent this year through to 2028.

While revenue performance is expected to improve, this will be gradual as the reforms on tax administration and revenue mobilisation take hold in the economy.

It is expected that Kenya’s revenues to the gross domestic product (GDP) will reach 18 per cent by 2027, says the World Bank.

From the Kenya Revenue Authority (KRA), collections for the year ended June 30, 2026 stood at Sh2.6 trillion for ordinary revenue. This ratio is now at 14.7 per cent.

The global lender documents the government’s efforts to offer reprieve to these fiscal challenges by selling part of its shareholding in Safaricom for Sh244 billion and the privatisation of Kenya Pipeline Company (KPC) that brought in Sh106 billion to the exchequer.

These inflows have become the seed funding for the NIF, which the government is using to crowd in private capital for mega projects such as airport expansion, highway construction, electricity transmission, dam construction, among others.

“Even if these efforts and prospective proceeds offer short-term relief, sustained structural and governance reforms will be critical to ensure strong growth and job creation that is led by the private sector,” the lender says.

The World Bank update points out that addressing Kenya’s budgetary challenges requires a more balanced policy mix that supports both fiscal sustainability and responsibility with job-rich growth.

It notes that on the revenue side, reforms should prioritise improvements in tax administration, broadening the tax base, and reducing exemptions, rather than relying primarily on repeated tax rate increases that could weaken investment incentives and formalisation.

On the expenditure side, concentration should be on improving the composition and efficiency of spending, including through better public investment management, procurement reforms, rationalisation of poorly targeted subsidies, and measures to contain the public wage bill.

It adds that strengthening fiscal institutions, including cash and debt management, transparency, oversight of contingent liabilities, and monitoring of state-owned enterprises, will also be essential to rebuilding policy credibility, reducing borrowing costs, and creating fiscal space for productivity. This will enhance investments that support long-term growth and employment creation.

The World Bank warns that without stronger policy action, fiscal vulnerabilities are likely to persist, as debt service obligations remain high, and expenditure pressures continue.

The update points out that while high public debt and persistent fiscal pressures continue to constrain fiscal space, rigid expenditure commitments and large debt-servicing obligations limit the government’s ability to absorb shocks and expand priority social and development spending

“Weaker-than-expected revenue mobilisation or delays in fiscal consolidation could further increase financing needs and borrowing costs,” the update says.

“If refinancing conditions deteriorate or domestic borrowing intensifies, crowding out of private sector credit could increase, weakening investment, confidence, and the expected recovery in domestic demand.”

Despite these risks, says the World Bank, Kenya retains important opportunities to strengthen resilience and support more inclusive medium-term growth.

Further, expansion of renewable energy, digital infrastructure, and regional trade integration would support competitiveness, reduce vulnerability to external shocks, and help create the conditions for stronger job-rich growth over the medium term.

“Continued reforms to improve tax administration, strengthen expenditure efficiency, and enhance fiscal transparency could reinforce fiscal credibility and reduce borrowing costs over time. Progress in State-owned enterprise reforms and privatisation could help crowd in private investment and improve productivity,” the update says.