Securitised taxes, levies swell debt by Sh1tr

The government could raise nearly Sh1 trillion in the short term through the controversial securitisation model despite protest from Kenyans and mounting legal challenges.

The model, which entails pledging levies and taxes that will be collected in future as collateral for loans, is increasingly becoming the new normal for  Kenya’s infrastructure financing strategy as the government finds little room to borrow or raise adequate funds through taxation to build mega projects.

It has, however, ignited intense pushback, drawing lawsuits but also dismissed by critics as a questionable mechanism to hide billions in public debt but also seen as an innovation under duress. The model will also leave State agencies with severely depleted cash reserves for their operations, with what they get through levies now going to repay loans taken through securitisation.

The government, however, defended the model as an innovative way to build infrastructure without borrowing or increasing taxes.

The latest are plans to securitise the housing levy, through which the government plans to raise Sh100 billion for the affordable housing programme.

This will be in addition to several other levies that have been used as collateral including the Road Maintenance Levy (RML) Sh175 billion — and the government plans to further increase this by Sh120 billion — as well as the Sports Fund (Sh45 billion).

The government is further pushing for the securitisation of the Railway Development Levy to raise Sh387 billion for the extension of the Standard Gauge Railway and the Air Passenger Service Levy that will raise Sh154 billion for the upgrade of the Jomo Kenyatta International Airport.

The additional planned securitisation of levies will see funds raised through the model add to about Sh980 billion

A new report by the National Assembly’s Budget and Appropriations Committee (BAC) reveals plans by government to raise Sh100 billion using the housing levy as collateral.

BAC said while meeting other committees to take their views on the budget for the 2026/27, the “Committee on Housing noted that the proposed 2026/27 financial year allocation for the Affordable Housing Programme amounts to Sh110 billion against an estimated funding requirement of Sh228.3 billion resulting in a funding gap of approximately Sh118.3 billion.”

“To address this shortfall, the State Department proposes to mobilise an additional Sh150 billion through securitisation (Sh100 billion) and Sh50 billion proceeds from the sale of completed housing units.”

The housing levy was introduced through the Finance Act 2023 and has since become one of the most contested levies, including being among the issues that featured during the June 2024 protests but also multiple law suits. The levy is set at 1.5 per cent of gross monthly salary for employees that is then matched by an identical 1.5 per cent by the employer.

 Funds raised using RML as collateral have been used to pay road contractors, which the government said has resulted in completion of stalled projects.

Out of the Sh25 per litre of petrol and diesel that motorists pay at the pump as RML, the government has securitised Sh7 per litre and raised Sh175 billion. It has recently said it plans to securitise an additional Sh5 per litre, which will help raise Sh120 billion.

This would bring the total securitised amount to Sh12 per litre, leaving road agencies and county governments with just Sh13 per litre to share for road maintenance, which is the primary purpose of the kitty.

The government has also securitised the Sports Fund, funded through taxes on gambling, raising Sh44.79 billion for the construction of the Talanta Stadium.

Linzi Finco, the firm that raised the Sh44.79 billion to finance construction of the Stadium, has more recently proposed to develop a new office block for the Office of the Attorney General (AG) through a similar model.

In a Privately Initiated Proposal that is set to go through public participation, the firm said it would design and build the complex at Nairobi’s Upper Hill. The development will be funded through money raised through securitising guaranteed rental payments that the AG’s office would pay over time.

A recently enacted law allows the government to securitise 90 per cent of the money going into the Railway Development Levy Fund. Treasury has in the past said it planned to raise Sh387 billion by securitising the levy, with the funds going to partly fund the expansion of the SGR to Kisumu and Malaba.

The government also recently increased the Air Passenger Service Levy, raising the international passenger fee to $50 (Sh Sh 6,500 under current exchange rate) and the domestic fees to Sh600. The higher levies are expected to increase annual collections of the levy to Sh19 billion, which the government then expects to securitise, raising Sh154 billion that will then be used for the planned upgrade of the JKIA.

The new model to finance infrastructure has attracted critics who dismiss it as debt.

Treasury Cabinet Secretary John Mbadi however terms it as an innovative model to finance mega projects, with Kenya becoming a key learning point for other developing economies.  “It is important to also note that we came up with a model of financing some infrastructure projects like roads and stadia, the securitisation model. And even though some people are still sceptical about it, I will tell you that it is receiving admiration globally. I attended International Monetary Fund and World Bank spring meetings in April, and there was a set of discussions about how securitisation can be amplified and used in the rest of the world,” he said.

Securitisation has, however, been opposed by different stakeholders, with Kiharu MP Ndindi Nyoro being among the vocal critics of securitisation and arguing that it is debt by another name.

“This borrowing is not reflected in official debt records, and Parliament was never consulted; this raises serious concerns about transparency, legality and the long-term sustainability of public finances,” said Nyoro.

The Institute of Social Accountability (TISA), in a court case claims that it will be impossible for the country to budget in future without the influence of investors who have advanced Kenya loans on the strength of future tax revenues.

“The securitisation scheme commits future tax revenues for decades, thereby limiting future fiscal space and imposing obligations on generations who have not participated in or approved the decision. Delay would allow these long-term obligations to crystalise,” argued TISA’s lawyer, Evans Ogada.

The lawyer said that Kenya’s public finance is anchored in at least 10 Articles of the Constitution. He explained that the basis of the budgeting process is transparency, public participation, oversight and fiscal sustainability.

“This scheme ring-fences future tax revenues before they are paid into the Consolidated Fund and contractually pledges them to bondholders, thereby alienating public revenue in advance. Although styled as securitisation or asset monetisation, the scheme is in substance a form of public borrowing, obligating future revenue streams for repayment,” he argued.

Ogada asserted that no financial engineering should bypass Parliament’s approvals and scrutiny, including, among others, the controller of budget and the auditor general.

The Institute of Economic Affairs (IEA) noted that the major problem with Kenya’s securitisation plans is that it has not been used to complement sound fiscal management that unlocks additional investment capacity. Instead , it has been used as a “substitute for fiscal consolidation, deployed precisely because conventional borrowing capacity is exhausted and revenue mobilisation has failed politically”.

IEA further noted that Kenya’s experiment “with securitisation is a case study in the political economy of fiscal innovation under stress”.

“Using securitisation to clear arrears (in the case of RML) is a fiscal Band-Aid, not a growth strategy. Future securitisation should be tied to projects with demonstrated returns exceeding the cost of the securitised capital,” said IEA in an April 2026 analysis of securitisation of the road levy.

IMF’s technical arm has also pinpointed deep flaws in how Kenya reports its true liabilities, warning that a narrow legal definition of debt could mask a significant portion of the country’s Sh12.8 trillion burden.

The report concluded that while Kenya’s published debt statistics are broadly accurate, the Ruto government is largely not observing international standards on transparency.

The key finding by  the IMF is that Kenya’s constitution defines public debt too narrowly, as only loans or securities that charge the Consolidated Fund.

This excludes a growing stock of other liabilities, including pending bills estimated at about Sh684 billion and now securitisation estimated.

“The Kenyan Government mustn’t maintain only a narrow definition of public debt,” the IMF mission, led by David Bailey and Naoto Osawa, wrote after a July 2025 assessment.

“More comprehensive public debt statistics reports should be produced… to provide full transparency and address any user concerns of there being ‘hidden debts’.”