World Bank Backs Infrastructure Fund to Ease Kenya's Debt Pressure

The World Bank has proposed that Kenya allocate part of the proceeds from the National Infrastructure Fund (NIF) to retire some of its expensive debt, in an effort to ease the country's high public debt distress. According to the World Bank, Kenya's public debt remains elevated, with domestic borrowing accounting for 56.2% of total debt as of the end of the 2025/26 fiscal year. This has deepened sovereign-bank linkages, increased refinancing risks, and raised interest costs.

As of August this year, Kenya's total public debt has climbed to Ksh 13.5 trillion, with domestic debt amounting to Ksh 7.7 trillion and external debt to Ksh 5.8 trillion. The World Bank's 34th edition of Kenya Economic Update notes that public debt reached about 70% of GDP in the middle of this year, while interest payments absorbed about one-third of government revenue. This leaves fewer resources available for essential services and development priorities.

The World Bank's Division Director, Dr. Qimiao Fan, emphasized that debt service costs continue to constrain the fiscal adjustment. In the last financial year, interest payments remained elevated at 5.8%, attributed to the growing share of domestic debt in the public debt portfolio. The bank advises Kenya to tap parts of the proceeds raised so far towards the NIF to reduce debt-related expenses.

The Kenyan government has been undertaking privatization and divestiture programs targeting State-Owned Enterprises (SOEs), with proceeds expected to create a Ksh 5 trillion fund to finance infrastructure projects across the country. The government has already capitalized the fund with Ksh 103.5 billion raised through the sale of its 65% stake in Kenya Pipeline Company.

Additionally, Ksh 204 billion raised through the divestment of 15% shares held in Safaricom is also expected to be injected into the NIF. The World Bank suggests that allocating part of these proceeds to retire high-cost debt could reduce interest costs, lower refinancing risks, and strengthen debt sustainability.

Kenya's public debt distress is a significant concern, with the country remaining at high risk of debt distress. The World Bank emphasizes the need for sustained fiscal consolidation and prudent debt management to rebuild fiscal buffers. By allocating part of the NIF proceeds to debt retirement, Kenya can reduce its debt-related expenses and create a more sustainable fiscal environment.

The World Bank's proposal is part of its efforts to support Kenya's economic development and reduce its debt burden. The bank's advice is expected to help Kenya navigate its debt challenges and create a more stable economic environment. By prioritizing debt sustainability and fiscal consolidation, Kenya can ensure a more stable economic future.

Key points

• The World Bank advises Kenya to allocate part of the National Infrastructure Fund proceeds to retire expensive debt.
• Kenya's total public debt has climbed to Ksh 13.5 trillion as of August this year.
• The World Bank proposes that Kenya use part of the NIF proceeds to reduce debt-related expenses and strengthen debt sustainability.