The ongoing debate between the International Monetary Fund (IMF) and the Kenyan government over the true size and definition of public debt is no longer a technical accounting matter. It is a fundamental question about how sovereign debt itself should be understood, measured, and managed in developing economies.
At the centre of this debate is a recent IMF position that Kenya’s public debt should be recalculated to include securitised borrowing linked to major infrastructure projects such as the standard gauge railway (SGR), as well as pending bills and liabilities held outside the traditional government balance sheet.
If adopted, this approach could push Kenya’s total public debt beyond Sh13 trillion, up from the currently reported Sh12.3 trillion, significantly altering the country’s fiscal outlook and risk profile.
Traditionally, Kenya has defined its public debt within a relatively narrow perimeter comprising external loans, bilateral and multilateral obligations, and domestic instruments such as Treasury bonds and bills.
This framework reflects a conventional, cash-based view of sovereign obligations, where only explicit, legally binding borrowings are recognised as debt.
However, the IMF’s evolving stance reflects a broader, more comprehensive interpretation. It argues that financing arrangements tied to future revenue streams, such as those used in the SGR through securitisation structures are in substance liabilities of the State, even if they are legally structured off the government’s balance sheet.
In addition, the IMF is calling for the inclusion of pending bills owed to suppliers and contractors, as well as non-guaranteed borrowings by State corporations, on the basis that these obligations ultimately represent claims on public resources and therefore affect fiscal sustainability and investor confidence.
This position is rooted in the IMF’s overarching mandate to safeguard macroeconomic stability. From its perspective, the key issue is not merely the legal classification of debt, but the economic reality of obligations that the government is likely to honour, either directly or indirectly.
Securitised debt, for instance, may be structured through Special Purpose Vehicles (SPVs) and backed by ring-fenced revenue streams such as railway income or fuel levies, but if those revenues under-perform or if the strategic importance of the asset necessitates State intervention, the government may still bear the ultimate burden.
Similarly, pending bills, often accumulated through delayed payments to suppliers, represent a form of implicit borrowing, effectively shifting financing costs onto the private sector while masking the true fiscal deficit.
The Kenyan government, however, has strongly pushed back against this expanded definition.
Its argument is grounded in legal form and fiscal sovereignty. Once revenues are transferred to SPVs and used to service securitised obligations, associated liabilities are no longer considered part of the government’s debt stock. From this standpoint, including such obligations would amount to double counting or misrepresenting the fiscal position.
The Treasury also emphasises that not all state corporation debt is guaranteed by the government, and therefore should not automatically be classified as sovereign debt.
Broadly, the government’s position reflects a development-oriented philosophy that innovative financing mechanisms, including securitisation, are essential tools for funding large-scale infrastructure without overburdening the sovereign balance sheet.
What emerges from this disagreement is a deeper conceptual divide over the definition of sovereign debt itself. The IMF advances a substance-over-form approach, in which sovereign debt encompasses all liabilities, explicit and implicit, that could reasonably fall on the State and affect its ability to maintain macroeconomic stability.
Ultimately, the issue is not whether Kenya’s debt is Sh12 trillion or Sh13 trillion; it is whether the country has a clear, transparent, and economically meaningful understanding of its obligations. The real constraint facing Kenya today is not merely the size of its debt stock, but the growing burden of debt service relative to government revenues.
The path forward lies in bridging these perspectives by adopting a comprehensive definition of sovereign debt that captures the full spectrum of fiscal risks, while also ensuring that debt is used productively to generate the growth needed to sustain it.
Only then can Kenya move beyond the debate over numbers and toward a more resilient and credible fiscal framework.
This dynamic underscores the importance of both accurate measurement and effective management. In this context, the IMF’s push for recalculation should not be viewed solely as an external imposition, but as part of a broader effort to align fiscal reporting with economic reality.
At the same time, the government’s emphasis on growth and innovative financing highlights the need for a balanced approach that supports development while safeguarding sustainability.
This includes not only direct borrowings, but also contingent liabilities, off-balance-sheet financing, and arrears such as pending bills.
The Government of Kenya, by contrast, adopts a more formalistic and growth-oriented definition, limiting sovereign debt to legally recognised obligations while viewing other liabilities as separate from the core fiscal framework, particularly where they are linked to commercially viable projects or ring-fenced revenue streams.
A more complete and analytically sound definition of sovereign debt, especially in the context of emerging economies like Kenya, must reconcile these two perspectives.
Sovereign debt should be understood as the total stock of financial obligations incurred or effectively borne by the state, whether directly or indirectly, whose sustainability depends not only on their legal classification but also on the government’s capacity to service them through revenue generation, economic growth, and prudent fiscal management, without triggering macroeconomic instability.
This definition acknowledges that while legal structures such as SPVs and securitisation can redistribute and manage risk, they do not eliminate it, particularly where the underlying assets are strategic or politically sensitive.
The implications of this debate are profound. If Kenya adopts the IMF’s broader framework, its reported debt levels will rise significantly, potentially affecting credit ratings, borrowing costs, and investor perception.
More importantly, it would force a more transparent and holistic assessment of fiscal risks, including those that have traditionally been deferred.
On the other hand, maintaining the current approach allows the government greater flexibility in financing development projects, but at the cost of potentially understating fiscal vulnerabilities and accumulating hidden liabilities that could crystallise in the future.