Government's new funding model is just what Kenya needs

President William Ruto chairs Cabinet meeting at State House on 15/12/2025.[PCS]

Ordinarily, governments finance development in one of these two ways: Taxing citizens in fulfillment of their civic obligations or by borrowing when revenues fall short, most often, to pay for big-ticket infrastructure projects.

In Kenya, however, public borrowing has too often strayed from both prudence and the law which restricts such debt to development purposes. The result today is widespread hardship; a burden of debt accumulated in the name of investment yet yielding little of the growth or returns that were promised. Further, at Sh12 trillion presently, the country has reached its debt ceiling and no longer has the wriggle room for additional borrowing.

Taxation too, has reached the limits of its current design. Workers in the formal economy are vastly outnumbered by those in the informal sector yet it is the former who shoulder almost the entire burden of direct taxation. Piling further levies on this narrow base without widening it is a recipe for chaos. Kenya’s 2024 Finance Bill illustrated the point: Proposals billed as essential for fiscal progress instead provoked a sharp public backlash, exposing the political and economic limits of tax increases imposed on an already overtaxed minority.

With these risks in view, the government’s effort to loosen its dependence on tax receipts and public borrowing to finance development is a sensible one. The Kenya Kwanza administration says it plans to establish both an infrastructure fund and a sovereign wealth fund, instruments intended to bankroll the country’s development ambitions while easing the strain on the public purse.

Already, the securitisation of the Road Maintenance Levy has unlocked Sh175 billion for road building. Seven shillings out of the Sh25 levied on each litre of petrol and diesel are now diverted to clear long-outstanding arrears owed to contractors. Projects long mired in limbo have begun to move again while those still on the drawing board can, at last, count on funding as the scheme gathers pace.

Corrupt fixers

However, ignorance continues to shape the misinformation surrounding these worthy initiatives. One persistent claim concerns the government’s divestment from companies in which it holds stakes. The sales are meant to capitalise both the infrastructure fund and the sovereign wealth fund. But critics insist, without evidence, that the proceeds are destined, not for public investment, but for the pockets of corrupt fixers.

It is important to counter the culture of misinformation. For instance, recent chatter over the partial sale of the government’s 35 per cent stake in Safaricom, Kenya’s dominant telecom, has been lively but misleading.

Only 15 per cent of the stake is being sold and at Sh34 a share, the government has secured a better price from Vodafone than the market offers on the Nairobi Securities Exchange where shares languish at Sh28.

Contrary to fears of a foreign takeover, key non-executive positions, including the chairmanship will reportedly remain in Kenyan hands. Meanwhile, the President vows to ring-fence proceeds through legislation, ensuring the funds bolster infrastructure and sovereign wealth projects rather than line bureaucratic pockets. In short, the sale is carefully controlled and, despite the noise, far from a giveaway.

Innovative funding models promise transformative impact in Kenya yet their success hinges on shielding them from unproductive criticism that could derail progress and investor confidence.

Mr Khafafa is a public policy analyst