National Treasury plans Sh175 billion infrastructure bond to address road sector debts

The National Treasury has scheduled the issuance of a Sh175 billion infrastructure bond for February to tackle a mounting backlog of unpaid bills within the road sector. This move follows a period of stagnation for several major infrastructure projects as contractors halted work due to lack of payment. Government records indicate that the pending bills for road construction have accumulated to over Sh160 billion, creating a liquidity crisis for local and international firms operating in Kenya.

Cabinet Secretary for Roads and Transport Davis Chirchir confirmed the timing of the bond, noting that the funds are specifically earmarked to clear these arrears and provide the necessary capital to resume stalled works. The construction industry has faced significant pressure over the last two fiscal years, with many companies reporting stalled sites and equipment idling as they waited for the state to honor certificates of completion.

The decision to go to the market in February is part of a broader strategy to restructure the financing of the country's transport network. Historically, Kenya has relied on a mix of exchequer issues, external loans, and the Road Maintenance Levy Fund. However, the rapid expansion of the road network under previous administrations outpaced available revenue, leading to the current debt situation. By issuing a dedicated infrastructure bond, the government intends to move these liabilities off its immediate short-term books and provide a predictable payment schedule for contractors.

In addition to clearing old debts, a portion of the Sh175 billion will be directed toward the completion of priority projects that are nearing the 70 percent completion mark. The Ministry of Roads has previously stated its intention to prioritize finishing existing contracts before commissioning new large-scale works. This approach is intended to prevent further escalation of costs associated with site demobilization and remobilization.

Investors in the local debt market are expected to show interest in the bond, given the tax-exempt status usually afforded to infrastructure-related government securities. The National Treasury is currently finalizing the terms of the issue, including the exact tenure and the coupon rate, which will be determined by prevailing market conditions at the time of the auction. Central Bank of Kenya data suggests that while domestic borrowing remains a key pillar of fiscal policy, the sheer size of this particular bond will require significant participation from institutional investors such as pension funds and commercial banks.

The road sector remains a critical pillar of Kenya’s development agenda, with several key corridors currently under construction or expansion. These include the Mau Summit highway and various feeder roads designed to improve connectivity in agricultural regions. Delays in funding have not only affected the physical progress of these roads but have also impacted the wider economy through job losses in the construction and supply chain sectors.

By addressing the Sh160 billion debt floor, the government expects to restore confidence among private sector partners. Many contractors have been struggling with interest payments on bank loans taken out to fund project execution, and the release of these funds is expected to ease the financial burden on the local banking sector as well. The February issuance will be a significant test of the market's appetite for long-term infrastructure debt at a time when the state is also managing wider fiscal consolidation measures.