The government will now retain the money raised from the sale of its entities, offering the Exchequer a major boost amid a growing budget deficit and mounting debt payment obligations.
This follows the enactment of the Privatisation Act 2025, which requires that the billions of shillings raised from the sales be wired directly into the Consolidated Fund (CF).
This is a departure from the current situation, in which the proceeds from the sale of State entities are first used to settle debts that the entity owes, foot the cost of the privatisation process and fund the firm’s capital investments. The remainder is then transferred to the CF.
The government is keen to raise hundreds of billions of shillings through the privatisation of its entities to help narrow the budget deficit, which is estimated at Sh876.1 billion in the current financial year to June 2026. Debt repayment gobbled up an equivalent of 92 percent of the tax revenues in the three months to September this year.
Treasury is targeting to raise Sh149 billion in the financial year to June 2026. The money will help plug the budgetary deficits and ease pressure on the Exchequer, choking under spiralling debt repayment obligations.
‘Any proceeds from the sale of a direct national government shareholding shall be paid into the Consolidated Fund,’ reads the new Act, which will take effect from November 4, 2025.
Money in the CF is used to pay public debt, salaries for constitutional office holders and pensions. Withdrawals from this account require the authorisation of the Controller of Budget.
The current law, the Privatisation Act of 2005, gives priority to the payment of debt by any State entity being privatised.
‘Subject to the approval of the Minister, the privatisation proceeds referred to in Subsection (2) shall be used- to liquidate the debts of the State corporation, to pay the costs of financial . Any surplus under Subsection (3) shall be paid into the Consolidated Fund,’ states the Privatisation Act of 2005.
The use of the money to clear debts mainly applies where the State is only selling part of its ownership.
The Treasury is facing a growing budget deficit and mounting debt repayment obligations, a situation that has triggered creative ways to raise cash and fund critical services.
The legal changes in the Privatisation Act 2025 are a major boost to the Treasury, given that the current sale of at least 11 State firms, including Kenya Pipeline Company (KPC), is intended solely to plug the current budget deficit.
KPC is set to be privatised by March 2026, with the government expecting to raise at least Sh100 billion from the sale of its 65 percent shareholding in the petroleum firm.
Under the Privatisation Act 2005, the Treasury would have been forced to use part of the billions of shillings to pay debts currently in KPC’s books.
Other State firms earmarked for partial or full sale are the National Oil Corporation of Kenya, Kenyatta International Convention Centre, Rivatex East Africa and New Kenya Co-operative Creameries, among others.