When Kenya’s debt numbers rise, the immediate reaction is predictable; alarm, austerity calls and renewed pressure from international lenders. But what if part of the problem is not the debt itself-but how it is being counted?
That question now sits at the centre of Kenya’s engagement with the International Monetary Fund (IMF), which is pushing for a broader definition of public debt to include liabilities linked to fuel levies, sports levies, import duties, and pending bills.
The result, if fully implemented, could significantly inflate Kenya’s debt-to-GDP ratio, already estimated at 68-72 percent, well above the country’s 55 percent sustainability threshold.
To be clear, some of this reclassification is justified. Pending bills-now estimated at over Sh500 billion-are genuine obligations. They represent unpaid government commitments to businesses and contractors, many of whom have borne the cost of delayed payments for years.
Under both the IMF’s Government Finance Statistics Manual (GFSM 2014) and accrual accounting principles, these are liabilities that should be recognised as debt.
But beyond this, the IMF’s approach risks blurring critical distinctions in public finance.
Take fuel levies. Each litre of fuel in Kenya carries a levy of roughly Sh25-30, generating upwards of Sh80-100 billion every year. These funds are not part of general government revenue. They are ring-fenced and channelled through institutions such as the Kenya Roads Board to finance road projects.
This is not conventional borrowing. It is closer to what economists call shadow tolling-a system where infrastructure is financed through dedicated revenue streams rather than direct user charges or sovereign debt.
Similar models have been used in the United Kingdom under the Private Finance Initiative, and in Spain and Portugal through motorway concession frameworks.
Even within the IMF’s own GFSM 2014 framework, there is recognition that not all obligations should be treated equally.
The framework distinguishes between direct debt liabilities and contingent or conditional obligations, particularly where payments depend on specific revenue streams or project performance.
Likewise, International Public Sector Accounting Standards (IPSAS) differentiate between recognised liabilities and arrangements tied to future events or dedicated financing structures.
Kenya’s fuel levy system fits more naturally into the latter. It is a form of hypothecated taxation, where funds are legally and operationally ring-fenced for a specific purpose. Repayment is supported not only by the levy itself but also by economic returns of improved infrastructure-lower transport costs, enhanced trade, and expanded tax capacity.
The same principle applies, albeit on a smaller scale, to sports levies.
Generating approximately Sh6-10 billion annually, these funds are earmarked for capital investments such as stadiums, which are expected to generate independent revenues through events, sponsorships, and commercial use. While execution risks remain, their financing structure aligns more closely with revenue-backed project finance than with general obligation debt.
By classifying these levy-backed flows as conventional debt, the IMF risks collapsing an important distinction between borrowed money and structured financing mechanisms.
The consequence is not merely academic. Debt ratios shape investor sentiment, influence credit ratings, and ultimately determine the cost of borrowing. An inflated debt profile can raise risk premiums and constrain fiscal space, even where underlying risks are more contained.
This is not an argument against transparency.
Kenya must fully disclose all fiscal exposures, including contingent liabilities and off-balance-sheet commitments. But transparency should not come at the expense of precision. Not every obligation should be treated as immediate debt, particularly where revenues are ring-fenced and projects are designed to be self-financing.
The real issue, then, is not whether Kenya should account for these liabilities, but how. A more accurate approach would distinguish between accrued debt such as pending bills, contingent obligations, and project-financed liabilities backed by dedicated revenue streams.
If Kenya gets this distinction wrong, it risks fighting a debt crisis that is, at least in part, statistical. And in public finance, as in life, how you count often determines what you see-and what you fear.