Risks of Kenya's off-book debt as State ramps up securitisation drive

Treasury Cabinet Secretary John Mbadi has defended securitisation, terming it an innovative model to finance mega projects. [Wilberforce Okwiri, Standard]

Kenyans will continue grappling with the high tax regime as the government continues pledging future tax collections to lenders in return for new off-balance-sheet loans and, in turn, limiting its flexibility to lower taxes and offer relief to citizens in future.

Analysis by different entities shows that using taxes and levies as collateral poses risks such as the government being unable to lower levies even where there is a change in circumstances that could allow the Treasury to offer Kenyans reprieve.

Such reliefs include reprieve at the pump through review of the Road Maintenance Levy (RML) or a reduction in the housing levy rate, which are among the levies that the government has used as collateral to secure new loans.

Projections show that while the government could raise nearly Sh1 trillion in the short term through securitisation, the figure goes up when projects being undertaken through the Public Private Partnership (PPPs) are factored in.

While PPPs are fully funded by private sector players and expect to recoup their investments by charging users through such fees as road tolls, the government bears the risk if a project fails to attract sufficient usage, forcing the state to step in and pay the investors.

The off-balance-sheet loans are increasingly under scrutiny, with lobbies protesting how the government is increasingly using them to fund infrastructure development, but also pressure from multilateral lenders to classify the loans as national debt to reflect the actual levels of Kenya’s indebtedness.

Ken Gichinga, chief economist at Mentoria Economics, said there is significant risk in leveraging the levies and taxes, noting that the government might in future not be able to lower such things as fuel taxes. It will also be left with little room to manoeuvre in adjusting the cost of moving cargo on rail or restructure the housing levy.

This is due to the need to continue servicing the loans that have been secured through the levies.

“Levies are policy instruments that the administration uses to address specific objectives. By securitising, future administrations are denied the opportunity to adjust to respond to specific economic situations. For example, if fuel prices are very high for consumers, the government will be unable to respond by reducing the levy rates, leading to economic instability,” he said, giving the example of RML, where the government has securitised Sh7 out of the Sh25 per litre that motorists pay to the road maintenance kitty.

The government raised Sh175 billion to pay road contractors and further plans to securitise another Sh5 per litre and raise another Sh125 billion, which would increase the securitised amount to Sh12 and leave only Sh13 available to road agencies for road repairs.

Gichinga further noted that more worrying is the recent revelation by the Controller of Budget that she does not have sight of the money that goes into the kitties.

“The Controller of Budget has no visibility into how levy funds are used, thus opening up the process for abuse,” he said.

Controller of Budget Margaret Nyakang'o recently said her office has no visibility over billions of shillings collected through key government funds and levies, renewing fears about transparency in the government’s administration of multibillion-shilling financial vehicles.

Other than RML, the government raised Sh45 billion through the securitisation of the Sports Fund for the construction of the Talanta Stadium.

It recently said it plans to securitise the housing levy, through which the government plans to raise Sh100 billion for the affordable housing programme.

The government is further pushing for the securitisation of the Railway Development Levy to raise Sh387 billion for the extension of the Standard Gauge Railway (SGR) and the Air Passenger Service Levy that will raise Sh154 billion for the upgrade of the Jomo Kenyatta International Airport (JKIA).

The money already raised through the model, as well as planned securitisation of other levies, will see funds raised through the model add to about Sh980 billion.

The government also owes contractors in excess of Sh600 billion, although analysts note that some of these debts have been settled through the money raised through securitising RML.

The new model to finance infrastructure has attracted critics who dismiss it as debt, as well as lawsuits trying to stop the government from moving further in this direction.

Treasury Cabinet Secretary John Mbadi has defended securitisation in the past, terming it an innovative model to finance mega projects, with Kenya becoming a key learning point for other developing economies.

“It is important to also note that we came up with a model of financing some infrastructure projects like roads and stadia, the securitisation model. And even though some people are still sceptical about it... it is receiving admiration globally. I attended a meeting in Washington, DC (IMF and World Bank’s spring meetings in April), and there was a set of discussions about how securitisation can be amplified and used in the rest of the world,” he said at a past press conference.

Securitisation has, however, been opposed by different stakeholders, with Kiharu MP Ndindi Nyoro being among the vocal critics of securitisation and arguing that it is debt by another name.

“This borrowing is not reflected in official debt records, and Parliament was never consulted; this raises serious concerns about transparency, legality and the long-term sustainability of public finances,” said Nyoro.

“Kenyans who look at things through the lens of reality have continuously been saying that securitisation is illegal and that the proceeds of securitisation must be part of the national debt.”

The Institute of Social Accountability (TISA), in an ongoing  court case, has raised concerns about securitising taxes and claims that it will be impossible for the country to budget in future without the influence of investors who have advanced Kenyan loans on the strength of future tax revenues.

Tisa has argued that if the court does not intervene, once taxes are contractually pledged to investors and funds drawn from the sale of public assets are utilised, it will be impossible to reverse the damage.

“The securitisation scheme commits future tax revenues for decades, thereby limiting future fiscal space and imposing obligations on generations who have not participated in or approved the decision. Delay would allow these long-term obligations to crystallise,” Tisa said.

It further said Kenya’s public finance is anchored in at least 10 articles of the Constitution, explaining that the basis of the budgeting process is transparency, public participation, oversight and fiscal sustainability.

“This scheme ring-fences future tax revenues before they are paid into the Consolidated Fund and contractually pledges them to bondholders, thereby alienating public revenue in advance. Although styled as securitisation or asset monetisation, the scheme is in substance a form of public borrowing, obligating future revenue streams for repayment,” said the Institute, adding that no financial engineering should bypass Parliament’s approvals and scrutiny, including, among others, the Controller of Budget and the Auditor-General.

The Institute of Economic Affairs (IEA) noted that the major problem with Kenya’s securitisation plans is that it has not been used to complement sound fiscal management that unlocks additional investment capacity.

Instead, it has been used as a “substitute for fiscal consolidation, deployed precisely because conventional borrowing capacity is exhausted and revenue mobilisation has failed politically”.

IEA further noted that Kenya’s experiment “with securitisation is a case study in the political economy of fiscal innovation under stress”.

“Using securitisation to clear arrears (in the case of RML) is a fiscal band-aid, not a growth strategy. Future securitisation should be tied to projects with demonstrated returns exceeding the cost of the securitised capital,” said IEA in an April 2026 analysis of securitisation of the road levy.

IMF’s technical arm has also pinpointed deep flaws in how Kenya reports its true liabilities, warning that a narrow legal definition of debt could mask a significant portion of the country’s debt.

The IMF has demanded that Kenya reclassify these pledged tax revenues as public debt.

In a recent report, the IMF concluded that while Kenya’s published debt statistics are broadly accurate, Kenya is largely not observing international standards on transparency.

The key finding by the IMF is that Kenya’s constitution defines public debt too narrowly, as only loans or securities that charge the Consolidated Fund. This excludes a growing stock of other liabilities, including pending bills estimated at Sh684 billion and now securitisation.

“The Kenyan government mustn't maintain only a narrow definition of public debt,” the IMF mission, led by David Bailey and Naoto Osawa, wrote after a July 2025 assessment.

“More comprehensive public debt statistics reports should be produced... to provide full transparency and address any user concerns of there being ‘hidden debts’.”