HOUGHTON: Risk of taking spending off-budget and circumventing public finance processes is clear

Recent business headlines have been awash with news of Kenya's efforts to privatise itself in a bid to create the much-needed fiscal space to stay afloat.

The buzz has particularly centred on the ongoing partial sale of the government’s stake in telecom giant Safaricom, a private company, and the privatisation of the Kenya Pipeline Corporation, a state corporation.

On the surface, these efforts appear consistent with the national government’s drive for more non-debt revenue to finance an ever-growing budget. With public debt sitting at 66 per cent of GDP and the social limits of taxation reached, Treasury officials have been forced to get creative with revenue streams to avoid an all-out shutdown.

By selling 15 per cent of Safaricom and allowing the public to buy 65 per cent of KPC, an estimated Sh350–355 billion will be raised in 2026 — roughly three times Kenya’s health budget.

But the proceeds of the recent privatisation efforts would likely not be found in the health sector. According to senior government officials, the additional funds raised will likely not even pass through the regular budgetary process prescribed in Kenyan law.

Instead, proceeds target the new National Infrastructure Fund, a limited liability company poised to focus solely on financing commercially viable projects generating ‘long-term public value’.

This represents a significant shift in development financing for Kenya, introducing an off-budget component to development spending, one that would not show up on budget books as it has for most of Kenyan history.

Funds of this type, seen in other countries like India, Australia, and Singapore, typically involve a blending of public funds with private investment to finance infrastructure projects. In each case, success or failure has been determined by the effectiveness of the fund’s governance and the equitable selection of sustainable projects.

While Kenya ranks within the top ten on the Ibrahim Index of African Governance, local public finance watchdogs continue to highlight lapses in oversight and adherence to the rule of law. The risk of taking spending off-budget and circumventing public finance processes is clear.

Eliminating parliamentary approval or public participation in favour of boardroom value-for-money assessments may widen regional infrastructural inequalities. Using commercial viability as a criterion for allocating public goods across the country is tantamount to a father paying only for the education of his smart children.

Citizens can only wait and see if the NIF will indeed respect or fall short of the standards of democracy set out by law.

Based on Kenya’s current public finance reality, that may be a lot to ask.

Economist and public finance practitioner