President William Ruto recently announced plans to establish a sovereign wealth fund (SWF) and an infrastructure fund, both meant to help manage public debt pressures and attract new investment.
The National Treasury has invited public views on Kenya Sovereign Wealth Fund Bill, 2025 which will anchor the proposed fiscal direction.
The question is: can these funds deliver fiscal relief and national prosperity, or will they become another opaque vehicle for political patronage and deeper indebtedness?
Let us delve into the potential benefits, inherent risks, and crucial governance challenges Kenya faces in implementing these ambitious financial instruments.
Over the past decade, Kenya’s public debt has ballooned, crossing KSh10 trillion, representing a significant portion of its GDP. This surge has been driven by ambitious infrastructure projects, a depreciating shilling, and rising interest rates on international loans.
With increasing interest payments consuming a larger share of the national budget and limited access to concessional financing from traditional lenders, the government is under immense pressure to find creative and sustainable financing models.
The proposed funds, Ruto says, will mobilise both domestic and foreign capital for long-term projects and savings, aiming to diversify revenue streams and reduce reliance on conventional borrowing.
What is a Sovereign Wealth Fund?
A sovereign wealth fund is essentially a state-owned investment fund built from surpluses — such as export earnings, natural resource revenues, privatisation proceeds, or fiscal savings.
These funds are typically designed for long-term investment horizons, aiming to generate returns that can stabilise national budgets, fund future development, or provide intergenerational wealth.
Countries like Norway (Government Pension Fund Global, built on oil revenues), Singapore (Temasek Holdings and GIC, leveraging trade surpluses and state-owned enterprises), and Botswana (Pula Fund, derived from diamond revenues) have successfully used SWFs to stabilise budgets and build substantial wealth for future generations.
In Kenya’s case, the proposed SWF is meant to pool income from natural resources, which are yet to be fully exploited but hold potential, privatisation proceeds from state-owned enterprises, and returns from public asset investments. The goal is to create a diversified portfolio that can generate sustainable income and act as a buffer against economic shocks.
Opportunities and Risks
Well-structured and transparent SWFs can be highly attractive to private capital, including institutional investors and foreign direct investment. If the governance framework is credible and demonstrates a commitment to market-driven investment decisions, private partners may be more willing to co-invest in projects, thereby leveraging public funds to unlock larger pools of capital. This can accelerate critical infrastructure development and economic diversification.
By generating returns from its investments, the SWF could supplement the national development budget, reducing the need for the government to resort to high-interest domestic or international borrowing. Over time, this could significantly alleviate public debt pressures and free up resources for essential social services and other priority sectors.
A prudently managed SWF can serve as a vital mechanism for intergenerational equity. By setting aside a portion of current national wealth, particularly from finite resources or one-off privatisation gains, the fund can build reserves that help future generations manage economic shocks, fund long-term social programs, and ensure sustainable development beyond the current fiscal cycle.
However, these kind of funds come with risk with the most significant being governance opacity. Without robust, independent oversight and stringent accountability mechanisms, such funds can easily become opaque vehicles for political patronage, rent-seeking, and corruption.
History is replete with examples of SWFs in developing economies being misused, leading to capital flight, misallocation of resources, and ultimately, a deepening of public mistrust. The temptation for political interference in investment decisions can undermine the fund’s financial viability and its intended purpose.
Another risk is fiscal illusions where governments may be tempted to use the existence of an SWF to mask true debt levels or bypass parliamentary budget scrutiny.
By channelling funds through the SWF, there’s a risk of creating off-budget liabilities or making politically motivated investments that do not align with sound economic principles. This can erode fiscal discipline and lead to an unsustainable accumulation of hidden debt.
The success of an SWF hinges on its investment performance. If investment decisions are politically driven rather than based on rigorous market analysis and financial prudence, the fund is likely to underperform or even incur significant losses.
This not only squanders public resources but also undermines the fund’s credibility and its ability to achieve its objectives of wealth creation and debt reduction.
Lessons from Elsewhere
Countries around the world have tried similar funds, with mixed results. Kenya can draw critical lessons from both the successes and failures.
Botswana’s Pula Fund, created in 1994, remains Africa’s benchmark. Managed by the central bank, it follows strict fiscal rules: deposits are made from mineral revenues, and withdrawals are allowed only under clear conditions. Regular audits and public reports sustain credibility. The lesson here is that Kenya should entrench withdrawal and investment rules in law, not rely on executive discretion.
Nigeria’s Sovereign Investment Authority (NSIA) was set up in 2011 to manage oil wealth. Despite some successful projects, political disputes over fund control and inconsistent contributions have weakened its impact. Therefore, Kenya must protect its funds from intergovernmental wrangling and ensure steady funding sources.
Chile runs two major funds: the Economic and Social Stabilisation Fund and the Pension Reserve Fund. Deposits and withdrawals are automatically tied to fiscal surpluses and deficits. Every transaction is published online. It therefore would be prudent for Kenya to link deposits and withdrawals to measurable economic indicators and commit to real-time transparency.
Malaysia’s 1Malaysia Development Berhad (1MDB) started as an ambitious development fund but turned into a global scandal after billions were misappropriated through political networks. For the Kenyan one to succeed, transparency and independent audits must be built into the fund’s DNA, not left to goodwill.
Rwanda’s Agaciro Development Fund and Rwanda Infrastructure Fund successfully mobilise citizens and the diaspora to invest in national development. Accountability is enforced through open quarterly reports. Kenya could invite domestic and diaspora investors to participate in the fund through transparent shareholding models.
Ghana operates both a Stabilisation Fund (for short-term shocks) and a Heritage Fund (for future generations). After years of mismanagement, reforms introduced withdrawal caps and stronger audit requirements. Kenya can consider a two-tier approach, one fund for long-term savings, another for infrastructure investment.
Singapore’s Temasek Holdings and GIC are professionally run and commercially driven, with clear separation from political offices. Their annual reports are publicly available and audited by independent firms. Therefore, Kenya must appoint fund managers based on merit and insulate the board from political interference.
Kenya’s Governance Challenge
The proposed model for Kenya’s funds will reportedly include an independent board and clear reporting structures, aiming to emulate best practices. However, Kenya’s track record on public fund management, from the Youth Fund to the Hustler Fund, shows how easily oversight mechanisms can weaken, and political influence can creep in once implementation begins. The challenge lies not just in designing robust frameworks but in ensuring their consistent and unwavering application.
As analysts have warned, the success of these funds depends less on how they’re launched and more on whether Parliament and the Auditor-General can track every shilling, every investment, and every return with uncompromising rigour.
Without genuine political will to uphold transparency and accountability, these funds risk becoming another avenue for public resource mismanagement.
Kenya is undoubtedly right to explore innovative financing tools to address its pressing debt challenges and stimulate long-term economic growth.
However, without radical transparency, robust independent oversight, and strict adherence to market-driven principles, these funds could merely reshuffle old debt problems into new, more complex, and potentially less accountable structures.
A credible framework must include active and informed scrutiny by Parliament to ensure adherence to founding principles and investment mandates. There should be regular, comprehensive, and publicly accessible audits by the Auditor-General to verify financial integrity and performance.
Timely and detailed public disclosure of the funds’ financial statements, investment portfolios, and performance metrics will enhance public confidence. This should be coupled with mechanisms to ensure that investment decisions are made by professional fund managers based on economic merit, free from political directives.
If implemented with unwavering commitment to good governance, transparency, and professional management, Kenya’s sovereign wealth and infrastructure funds can indeed be a turning point for the nation’s financial resilience and sustainable development.
They have the potential to diversify revenue, attract investment, and secure a more prosperous future.
However, if the critical lessons from other countries are ignored, and the funds become susceptible to political interference and opacity, they could become yet another story of well-intentioned reform that ultimately deepens mistrust in public finance and exacerbates the very debt problems they were designed to solve.
The success of this bold bet rests entirely on Kenya’s ability to build and maintain institutions that prioritise national interest over short-term political gains.
