Victor Elvis Mugambi
Kenya has announced a significant transformation in its infrastructure financing approach by switching from the traditional rural roads annuity program to a capital markets-based securitisation bond model. This strategic shift aims to improve financial sustainability and better manage public debt, aligning with the government's broader economic reforms.
Government Moves to Capital Markets to Fund Rural Roads
The move to securitisation involves reallocating existing fuel levies, where the Sh3 per litre charge previously directed to the Annuity Fund has been halved to Sh1.50 per litre. These funds will now support the securitisation of pending bills in the road sector, creating an asset-backed financing structure that is attractive to investors.
The government plans to raise Sh120 billion through a Kenya Roads Board (KRB) bond listed on the Nairobi Securities Exchange, aiming to mobilize private sector investment while reducing reliance on direct government expenditure. Investors who purchase these bonds will receive payments sourced from the Road Maintenance Levy Fund, ensuring a steady revenue stream.
Already, this securitisation strategy has enabled the Kenyan government to secure Sh175 billion in bridge financing from commercial banks. This funding is crucial for addressing long-standing arrears owed to developers, thereby accelerating road sector development and maintenance efforts.
This innovative approach demonstrates Kenya’s commitment to leveraging capital markets for infrastructure development, promising more sustainable funding avenues and enhanced transparency. It marks a pivotal shift in policy, with potential implications for economic growth and public service delivery, including rural connectivity and regional development.
