Kenya’s development ambitions have entered a new phase, and how to pay for them is becoming as consequential as the projects themselves.
From a new National Infrastructure Fund seeded with Sh340 billion to another financing package for Kenya Airways and a government commitment to settle billions of shillings in pending bills, the state is trying to mobilise capital, protect strategic assets, and restore confidence among businesses that depend on public payments.
Each intervention addresses a different problem, but together they reveal a common challenge facing the economy: how to finance development and meet existing obligations without placing unsustainable pressure on public finances or transferring poorly understood risks to taxpayers.
The Treasury’s latest projections provide a useful starting point. Kenya’s budget deficit is expected to increase from 5.5 per cent of gross domestic product in the 2026/27 financial year to 5.9 per cent in 2027/28, according to figures released on October 9.
Net domestic financing is projected at Sh929.1 billion in the next financial year, down from Sh1.04 trillion in the current year, while external financing is expected to rise from Sh247.2 billion to Sh423.8 billion.
The Treasury’s projections suggest the government will continue to rely on a mix of domestic and external financing to bridge the revenue-expenditure gap. The figures alone do not establish whether Kenya’s development strategy is affordable, but they sharpen questions about the new financing arrangements.
Which investments will generate sufficient economic returns to justify the committed capital, how much risk will remain with the state, and what mechanisms will ensure the public can distinguish between money raised and value created?
New Infrastructure Financing Model
The National Infrastructure Fund is the clearest expression of the government’s attempt to change how major projects are financed.
Seeded with Sh340 billion, the fund aims to mobilise significantly more capital over the coming decade for commercially viable investments in sectors including transport, energy, water, agriculture, and information and communications technology.
The initial deployment of the capital is revealing. Rather than immediately directing the entire amount into roads, power plants or other physical projects, the fund has begun purchasing government bonds.
The strategy aims to generate investment income, improve liquidity in the banking system, and encourage private-sector lending. The fund expects its bond portfolio to generate about Sh42 billion annually, though the final return will depend on the portfolio’s performance and the conditions under which it is invested.
The fund’s success cannot be measured solely by its initial capital or the amount it hopes to mobilise. Buying government bonds is an investment activity; it is not, by itself, evidence that a new road has been completed, additional electricity generated, or water delivered to underserved communities.
The next test will be how effectively the fund converts its financial position into productive investments. That requires a clear account of how projects are selected, how their commercial viability is established, how private investors are brought in, and how the public can assess performance.
The government has presented the fund as a way of financing infrastructure without relying entirely on additional public borrowing. Yet the precise fiscal implications depend on its legal and financial structure, the source of its capital, how it treats its liabilities, and the risks attached to its investments.
Capital from the sale of public assets may provide a new source of investment funding, but it also raises questions about how the government manages the proceeds and whether the resulting portfolio delivers sufficient long-term value.
The fund’s proposed scale makes these questions important. Its ambitions will require more than the Sh340 billion, with Kenya seeking to mobilise substantially larger sums over the coming decade.
At that scale, project selection quality, the terms offered to co-investors, and the transparency of financial reporting will help determine whether the model delivers the intended results.
A credible assessment should therefore follow the money through distinct stages: capital secured, investments made, projects financed, infrastructure completed and economic returns realised.
Combining these stages into a single measure of progress would obscure the difference between financial activity and development.
Cost Of Keeping Strategic Assets Alive
The financing question becomes more complicated when public capital supports an enterprise whose economic importance extends beyond its own balance sheet.
On October 9, the Cabinet approved $350 million (Sh45.4 billion) in shareholder financing for Kenya Airways to meet urgent financial obligations, including aircraft maintenance and efforts to return grounded aircraft to service.
The Treasury expects to release the funding in tranches under its oversight, with a repayment period of up to 10 years and the possibility of converting it into equity, subject to necessary approvals. The Cabinet also endorsed converting Sh122 billion in existing government loans and accrued interest into an equity-qualifying tradable instrument.
The arrangements are intended to strengthen the airline’s balance sheet and support its longer-term turnaround, although implementation remains subject to the required approvals.
There is a legitimate economic argument for supporting a national carrier. Air connectivity can support tourism, cargo movement, international trade, and businesses’ ability to reach regional and global markets. An airline’s value to an economy is not necessarily captured entirely by its profits.
But these wider benefits do not eliminate the need to establish whether the company can operate sustainably, use its assets productively and reduce its dependence on further public support.
Nor should converting loans into an equity-qualifying instrument be confused with the disappearance of the underlying economic cost.
The precise effect depends on the instrument’s terms, its treatment in the public accounts and the rights attached to it.
The relevant test is whether the latest intervention creates a credible route towards operational recovery and financial sustainability.
That requires measurable milestones covering aircraft availability, maintenance, route performance, revenues, operating costs and the airline’s capacity to meet future obligations.
The public should also be able to see how progress against these milestones influences subsequent financing decisions.
Without that discipline, successive interventions risk becoming separate responses to immediate financial pressures rather than components of a transparent recovery strategy.
The issue is not whether a national carrier should ever receive public support. It is whether the support has a defined economic purpose, clear conditions and measurable results against which the investment can be judged.
The Other Side Of The Balance Sheet
While the infrastructure fund and Kenya Airways illustrate the government’s approach to financing future development and preserving strategic assets, the Cabinet-approved settlement of pending bills highlights a different dimension of public finance: the cost of obligations already incurred.
The Cabinet approved settling 28,726 verified pending bills worth Sh23.74 billion, covering claims valued at Sh50 million or less. The claims represent 98 per cent of the 29,257 claims recommended for settlement following verification.
The Treasury is expected to oversee payments, prioritising micro, small and medium-sized enterprises, particularly businesses owned by women, young people and persons with disabilities.
For suppliers and contractors who have waited years to be paid, the commitment could release working capital, ease pressure on businesses and help protect jobs. Delayed payments are not merely accounting entries: they can force firms to borrow to cover expenses, postpone investment, reduce staffing or abandon opportunities to expand.
The settlement also demonstrates why government spending cannot be assessed only by looking at allocations in annual budgets.
A project may have been approved, a supplier may have delivered the required goods or services, and a payment obligation may have been incurred, yet the economic consequences continue long after the original transaction.
The next question is whether the approved settlement translates into actual payments and whether the government can manage the remaining obligations within a credible timetable.
Cabinet approval is a significant step, but it is not the same as cash reaching suppliers’ accounts. The government must also explain how it will prevent new bills from accumulating while clearing the existing stock.
Without stronger controls over commitments, procurement, cash planning and payment verification, a settlement programme risks treating the symptoms without addressing the conditions that produced them.
There is a broader lesson here. A state that finances new infrastructure while delaying payments to existing suppliers may create conflicting pressures within the same economy.
The long-term value of public investment depends not only on the projects selected but also on the government’s ability to honour contractual obligations and maintain confidence in public procurement.
The Accountability Test
Kenya’s financing debate ultimately comes down to the relationship between capital, risk and results. The infrastructure fund is intended to mobilise investment; the Kenya Airways package is intended to support a strategic enterprise; and the pending-bills settlement is intended to discharge verified obligations to businesses.
These are different interventions, and they should be judged against different objectives. Yet each requires the same basic discipline: clarity about the money involved, transparency about the risks, credible implementation plans and evidence of outcomes.
The projected widening of the budget deficit adds urgency to that discipline. With domestic and external financing both expected to remain important, the government will have to demonstrate that it uses development resources in ways that generate sufficient economic and social value.
The relevant question is not simply whether the money can be found, but whether the resulting investments improve productive capacity, strengthen essential services and create benefits that endure beyond the immediate financing cycle.
A deficit projection is not proof of fiscal failure, just as creating an infrastructure fund is not proof of development success. The outcome depends on investment quality, financing terms, risk management, and institutions’ capacity to deliver.
The government should therefore publish clear, comparable information on the fund’s investments and returns, the milestones attached to Kenya Airways’ financing, and the actual disbursement of the pending-bills settlement.
It should distinguish between commitments and completed transactions, and between financial returns and the wider economic benefits claimed for public investment.
These are not demands for transparency as an abstract principle. They are the minimum conditions citizens, investors, and businesses need to assess whether public resources are used effectively.
Kenya does not lack development ambitions. The challenge is to build a financing system that can sustain those ambitions without letting the cost of capital, unresolved obligations, or poorly measured investments undermine them.
The next phase of the country’s development will be judged not by how many billions are announced, how many funds are established, or how many strategic enterprises receive support, but by what those commitments ultimately deliver.
The question is no longer only how Kenya will finance its next big promises. It is how the country will prove that the money spent on them was worth it.
