The World Bank Group deems gains arising from creation of Kenya’s National Infrastructure Fund (NIF) short-term, stressing the need for deeper reforms to achieve a lower budget deficit and ease debt pressures.
Kenya has bet on the new infrastructure fund to move some of its development financing needs from the budget (off-balance sheet) and create fiscal space to cater for other spending requirements such as expenditures on social services and health.
The National Infrastructure Fund is expected to mobilise up to Sh5 trillion by crowding in private capital, raising Sh10 for every Sh1 invested in the vehicle.
The World Bank, while crediting creation of the fund as positive, however, calls for sustained structural and governance reforms to ensure strong growth and employment creation.
The multilateral lender has recommended key reforms to anchor fiscal consolidation and debt sustainability including increasing productivity by ending market distortions and the promotion of a more equitable and redistributive fiscal policy.
“Privatisation efforts and asset sales are expected to fund commercially viable infrastructure projects through a new National Infrastructure Fund. However, this would not address the underlying structural weaknesses in revenue mobilisation and spending efficiency, underscoring the need for sustained fiscal consolidation and reforms,” the World Bank said in a new Kenya Economic Outlook report.
“The Government of Kenya intends to use the proceeds of privatisation through the fund. Even if these efforts and prospective proceeds offer short-term relief, sustained structural and governance reforms will be critical to ensure strong growth and job creation that is led by the private sector.”
Despite the proposed off-balance sheet funding for major infrastructure projects to relieve budget pressures, spending for the budget starting July 1, 2026, is projected to rise to Sh4.8 trillion from Sh4.6 trillion in the previous cycle. Spending on development is estimated to be slightly lower at Sh749 billion in the period, from Sh758.4 billion previously.
The projected fiscal deficit is only estimated to narrow slightly to Sh1.11 trillion for the cycle to June 30, 2027, from Sh1.19 trillion previously.
The government has initiated privatisation of select State-owned enterprises (SOEs) to reduce fiscal pressures and contingent liabilities.
The government has partially privatised Kenya Pipeline Company by selling 65 percent of its shares through an initial public offering (IPO), retaining a 35 percent stake and raising Sh106.3 billion in the transaction.
The government has also recently completed its partial divestment from Safaricom, selling a 15 percent stake to South Africa’s Vodacom Group Limited for Sh34 per share and generating an estimated Sh244.5 billion including an upfront dividend payment from its remaining 20 percent stake in the business.
Proceeds from KPC and Safaricom transactions are set to provide seed capital for the National Infrastructure Fund.
On Thursday, National Treasury Cabinet Secretary John Mbadi appointed Centum Investment Company chief executive officer James Mworia, Fahima Ali, Christopher Kibui and Latoya Ouma to be members of the fund’s board for a period of three years as the government moves to fully constitute the vehicle.
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Lawrence Kibet and Mohammed Abdirahman have also been appointed to the fund’s board.
The World Bank has further cut its growth projection for Kenya this year to 4.3 percent from the previous 4.4 percent, reflecting the impact of the Middle East conflict on Kenya’s macroeconomic outlook.
The World Bank recently disbursed Sh97 billion ($750 million) to Kenya from its second development policy operations (DPO) to support key fiscal reforms and provide key resources for the country’s budget.
The institution expects Kenya’s fiscal deficit to remain elevated and average 5.6 percent in the 2026-2028 period, keeping debt levels high and limiting fiscal space.
“Without stronger policy action, fiscal vulnerabilities are likely to persist, as debt service obligations remain high, and expenditure pressures continue,” the World Bank added.
“Planned privatisation of select State-owned enterprises is expected to provide only limited direct fiscal relief, as most proceeds are expected to finance infrastructure investment.”
