Kenya's debt trap: Lobby sues State for offering taxes as loan collateral

Foreigners and private investors could soon influence how much Kenyans pay in taxes and potentially gain control over key national infrastructure if the government is not stopped, the High Court has been told.

The Institute of Social Accountability (TISA), in its petition, argues that Kenya risks losing fiscal sovereignty through an emerging borrowing model that uses future tax revenues as collateral.

The organisation warns that it will become impossible for the country to independently prepare its budget in future if external actors gain contractual control over major revenue streams pledged by the Kenya Kwanza administration to secure loans for infrastructure development.

According to TISA, the government has increasingly turned to securitisation, which is borrowing against future tax collections. It has already securitised part of the Road Maintenance Levy to raise Sh170 billion, funds used to clear pending bills owed to road contractors.

In another arrangement, the State borrowed Sh45 billion to finance the construction of Talanta Stadium through a bond backed by revenue from the Sports Fund.

The government is also pursuing plans to securitise the Railway Development Levy to fund the extension of the Standard Gauge Railway to Kisumu.

TISA’s lawyer, Evans Ogada, told the court that unless judicial intervention is made, the consequences will be irreversible once public revenues are contractually pledged to investors and proceeds from asset sales are absorbed.

“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 Ogada.

He added that Kenya’s public finance system is anchored in at least 10 Articles of the Constitution, which demand transparency, public participation, oversight and fiscal sustainability. Parliament, he stressed, holds exclusive authority over public finance through the annual Appropriation Act and no public revenue may be alienated, earmarked or encumbered outside that framework.

“Parliament exercises exclusive authority over public finance through annual appropriation and no public revenue may be alienated, earmarked, or encumbered outside this constitutional architecture,” he said.

However, Ogada argued that the Government Owned Enterprises Act, 2025 fundamentally alters Kenya’s fiscal structure, weakening public control over state assets and financial decisions made on behalf of citizens.

Sweeping powers

He said the law erodes at least 19 other statutes by granting the Treasury Cabinet Secretary sweeping authority to decide what public assets to sell and what revenues to pledge as security for loans.

He further argued that it removes the requirement for mandatory parliamentary approval, public participation and full disclosure of risks.

Ogada also claimed that after selling public assets through share divestitures, the government is now seeking to use the proceeds as collateral for additional borrowing, deepening fiscal exposure.

He warned that ordinary citizens could eventually bear the cost of these arrangements, including higher fuel prices tied to structured repayment mechanisms.

“According to Ogada, Kenya will, in the future, pay Sh5 per litre of fuel, which will be sold to private investors as a future Road Maintenance Levy, through a special purpose vehicle.”

“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 said.

Ogada maintained that no financial engineering can override constitutional requirements for parliamentary scrutiny, including oversight by the Controller of Budget and Auditor-General.

He criticised the use of Special Purpose Vehicles (SPVs), saying they obscure accountability by hiding key details such as borrowing amounts, lenders and contractual terms under commercial confidentiality clauses.

Rubber stamp

In his view, this approach reduces Parliament to a rubber stamp in fiscal decision-making, undermining its constitutional oversight role.

Kenya’s public debt currently stands at about Sh12.9 trillion, while the  statutory debt ceiling under the Public Finance Management Act, 2012 is Sh10 trillion. Ogada argues that securitisation is being used to bypass this limit amid growing fiscal pressure.

TISA has sued the Attorney General, the National Treasury, the Cabinet Secretary for State Corporations and the National Assembly. It has also named the Auditor-General and Controller of Budget as interested parties.

TISA Executive Director Diana Gichengo said the Constitution does not envisage securitisation of public taxes. “By ring-fencing future tax receipts and contractually pledging them to private bondholders before the funds enter the Consolidated Fund, the process alienates public revenue and effectively nullifies Parliament’s sacrosanct power of annual appropriation,” she said.

She added that the move allows the government to incur liabilities outside constitutional safeguards.

TISA is seeking orders declaring the Government Owned Enterprises Act, 2025 unconstitutional and barring the government from using Kenyan taxes as collateral for loans.

It also wants the court to declare illegal any commitment of future revenues before parliamentary approval and to nullify agreements between the Kenya Kwanza administration and investors involving securitised tax revenues.

Additionally, it seeks a declaration that selling Safaricom shares for infrastructure financing without an established legal fund is unconstitutional.