Kenyans may soon be spared the cost of repaying expensive external loans should the government adopt a raft of new proposals to mobilise local funds for development projects.
Pension firms, banks and insurance companies will be the new financiers of government projects under the proposed framework.
This is among the initiatives the state is considering to make it easier to secure financing for its mega projects.
The government argues the move will shield Kenyans from high debt repayments occasioned by currency fluctuations.
The shift marks a significant policy change, reverting to domestic resource mobilisation, public-private partnerships, and innovative financial instruments to fuel national development.
Traditionally, Kenya has relied heavily on external loans from multilateral institutions and bilateral agreements—particularly with China, IMF and the World Bank—to finance major infrastructure such as roads, railways, and energy plants.
Kenya has been grappling with high debt obligations, with the national debt hitting Sh11.5 trillion as of Friday.
For instance, the National Treasury was forced to pay some Sh1.87 trillion in the current financial year, with the projected figures set to keep the proportion of revenue to debt repayment above 60 per cent.
MPs have warned the situation won’t get better, especially with debt service obligations set to increase to Sh2.47 trillion by June 2027.
The mounting national debt, coupled with pressure from global credit rating agencies and the IMF’s debt sustainability concerns, has prompted the government to chart a new course in project financing.
A committee of experts drawn from insurance, banks, pension funds and government is now looking to ride on the ‘idle’ cash held by these fund managers to drive growth.
Over the years, fund managers have decried exclusion from state projects with the limited investment options pushing most of them to government securities.
The final report of the committee of experts on leveraging local financial markets for investments says pending bills, infrastructure financing and financial markets will now be left to the private sector to manage under a special agreement.
National Treasury Principal Secretary Chris Kiptoo said a tripartite trust fund managed by representatives from government, the private sector, and reputable independent trustees will be created.
“This will not be a government agency—it’s a trusted financing vehicle that allows us to attract both local and international investment into projects that are commercially viable,” he said.
The move comes at a time the country is awaiting the fate of its programme with the International Monetary Fund. Economists agree that whether Kenya will be portrayed positively or not by the IMF after the review remains uncertain, but one thing is clear: the country faces a challenging financial future.
Over the next decade, the country must raise at least Sh3.36 trillion to repay maturing loans. Further, the government needs more than Sh193.5 billion yearly for interest on external debt.
In the upcoming budget, there is no inclusion of IMF loans, which is possibly a sign that the country is shifting financial priorities and more realistic targets are being set, especially after falling short in the past.
The expert committee's overarching strategic recommendation is the establishment of the PPP Implementation Trust Fund (PPP-ITF) as a centralised vehicle for mobilising and deploying domestic capital for projects.
Committee chairman Hosea Kili said the PPP-ITF aims to pool long-term domestic institutional capital, such as pension and insurance funds, to finance the construction and operation phases of PPP projects, ensuring predictable investor returns and reducing reliance on sovereign guarantees.
"The PPP-ITF represents a paradigm shift in how we finance our nation's development. By creating a structured mechanism that aligns the interests of institutional investors with national development priorities, we can build sustainable infrastructure while generating consistent returns for Kenyan savers and pensioners," Kili said.
The fund would aggregate financing for vetted PPP projects, removing the need for sovereign guarantees that have previously burdened public finances.
The trust fund will be structured into two components: Fund A, holding resources from contracting authorities and the National Treasury to guarantee investor payments, and Fund B, comprising pooled investor capital from pension funds, banks, insurers, Saccos, and Islamic finance institutions.
The National Treasury pointed out that there has been slow investment from fund managers. Kiptoo is now calling for increased investment by pension funds in treasury bonds and infrastructure projects to help restructure Kenya’s growing public debt.
The PS says there is a need to shift from traditional debt financing to alternative investments, including PPPs and tradable bonds, to ease fiscal pressure.
Currently, domestic debt accounts for 54 per cent (Sh6.13 trillion) of Kenya’s total debt, with treasury bonds making up 85 per cent of this portion.
However, only Sh1.5 trillion of these bonds is actively traded in the secondary market, raising concerns about liquidity and capital market depth.
"Why is there a problem here? We need a conversation on how to enhance trading so that money isn’t just locked in investments but circulates to deepen our capital markets,” Kiptoo said.
“We are at a turning point. Our infrastructure ambitions must now align with fiscal prudence and homegrown solutions. Mobilising local capital markets and engaging Kenyan investors is not just a choice—it’s a necessity.”
Director General of PPP at the National Treasury Kefa Seda said all other recommendations are designed to support, operationalise, and enhance the effective implementation of the trust fund.
“The PPP-ITF will leverage financing from the public sector, either from the national government or contracting authorities, to match private sector funding, thereby enhancing the viability and sustainability of infrastructure investments."
He added that some aspects of the report will require legislative amendments, while specific sections will easily be implemented through administrative actions.
Stakeholders from key sectors—including pensions (with over Sh2.4 trillion in assets), insurance (Sh1.3 trillion), banking, Saccos, and Islamic finance—have expressed readiness to invest.
Though no exact figure was given, the pool of available capital is estimated in the trillions.
Equity Bank CEO James Mwangi said the industry is under siege. Money is moving and people are looking for alternatives beyond the traditional banking offerings, which have failed to evolve with the environment.
Mwangi, who sits on the Vision 2030 Delivery Secretariat, pointed out that too much capital is tied up in government securities. If it were to be channeled in the right economic areas, Kenya could be growing at eight or nine per cent annually.
“It’s been 20 years since we launched Vision 2030, and only now are we seeing the kind of market-enabling frameworks we anticipated,” Mwangi said. “For a long time, it felt as though the market was moving faster than the systems meant to guide it.”Priority projects under consideration include the long-delayed upgrade of Jomo Kenyatta International Airport, expansion of Kenya’s power transmission infrastructure through Ketraco, and conversion of major roads into expressways, with investors repaid through tolling systems.
Another recommendation of the report is that banks, pension and insurance companies will take over the payment of government pending bills.
The fund, the committee recommends, could support the clearance of pending government bills through the securitisation of receivables, offering relief to contractors and boosting economic activity.
The government has reiterated its commitment to settle outstanding pending bills, with the verification committee already having cleared Sh229 billion to be paid in the next fiscal year, to restore contractor confidence and stimulate job creation.
The experts also proposed the establishment of a Pending Bills Liquidation Trust Fund to address the growing challenge of unsettled public sector arrears.
The fund would play a central role in managing the settlement of verified pending bills through what they describe as innovative, market-based financing mechanisms.
“One of the major things, which we are recommending in our report, which has a really good record, is that we have set up to assist you to solve pending bills. Not just for only one sector; the entire national pending bills,” Kili said.
In their recommendations, the experts also advocate for the securitisation of budgeted receivables from public entities, coupled with the creation of a regulatory framework to facilitate this process.
Securitisation, they argue, would enable public institutions to convert expected future payments into marketable securities, thereby attracting private capital to bridge financing gaps.
If adopted, the approach could mirror successful initiatives already being implemented in the roads sector, where securitisation has helped unlock funds to clear longstanding contractor payments.
The experts said the approach aligns with the government’s fiscal consolidation strategy, which aims to reduce borrowing and shift commercially viable projects to the private sector.
“Since 2013, Kenya has successfully mobilised approximately Sh140.7 billion in private capital through PPPs. However, this represents only a fraction of what can be achieved by effectively harnessing our domestic capital markets," PS Kiptoo said.
The country is operating under tight fiscal space, where out of the Sh4.2 trillion national budget Sh1.1 trillion is going towards interest payments.
Projects like JKIA’s upgrade, long overdue with its capacity overstretched by over two million passengers annually, and Nairobi’s traffic-choked roads, are among those set to benefit first.
The proposal includes replacing sovereign guarantees with credit enhancements from independent organisations, paid for by the government, to attract investor confidence.
The Treasury has given itself a one-month window to review the report internally and identify actionable recommendations.
“The ideas around trust funds are promising; we must ensure that pensioners’ savings are safeguarded while creating a credible and efficient investment mechanism,” Kiptoo said.
As the government moves to operationalise this strategy, the experts expressed hope to not only fast-track infrastructure development but also foster greater private sector participation, reduce fiscal strain, and revamp Kenya’s economic engine.
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