The State is banking on a newly approved Sh175 billion bond facility to raise funds and settle mounting pending bills, particularly debt owed to road contractors.

Parliament has already greenlit the bond, which the government plans to begin issuing within the next 120 days.

According to Roads and Transport Cabinet Secretary Davis Chirchir, the facility is structured to draw 80 per cent of its funding from the international market, with the remaining 20 per cent coming from the domestic market.

It will also unlock access to a $600 million (Sh77.4 billion) loan, which the ministry says will be used to begin clearing the Sh63 billion owed to road contractors starting this week.

How bond will be backed

“The way we’ve structured the facility is, we get a first aid of $600 million now. Then, when we go to the market, we float a Sh175 billion bond, which includes what we’ve already taken. We then use that to pay off whoever gave us the initial support,” said Chirchir in an interview.

The bond will be backed in part by proceeds from the Road Maintenance Levy, from which the government collects Sh25 per litre of fuel. Of this, Sh7 will be securitized to support the bond, creating a dependable cash flow for investors and allowing for immediate settlement of pending bills, especially for institutional lenders.

This initiative is expected to reactivate long-stalled road construction projects across the country, a move that could inject significant momentum into the economy. Chirchir emphasized the direct economic benefits, noting that settling outstanding payments would revive activity in the construction sector, create employment, and ease pressure on banks that have been strained by defaults from contractors despite holding valid government certificates.

“To a very good extent, this is healing to the GDP. Paying suppliers, creating jobs, and stabilizing banks—all of this puts money back into the economy,” he said.

Stalled projects

Roughly 570 road projects had stalled nationwide, with some halted for over a decade due to non-payment. Chirchir revealed that nearly every county has around ten such stalled projects. With the new bond in place and a signed return-to-work agreement, contractors are expected to resume work within days.

Pending bills are expected to be cleared within four months. A key issue had been the hefty interest fees contractors were charging due to delayed payments—some as high as 50 per cent. Under the new agreement, interest has been capped at 35 per cent to ensure uniformity and reduce the strain on the Treasury.

Treasury Cabinet Secretary John Mbadi also addressed the matter during a session with the Budget and Appropriations Committee last month, where he confirmed the return-to-work agreement and the interest rate cap.

“Some contractors were pushing for 30 per cent. The government had initially offered 50 per cent on interest. I’m told the consensus is now around 35 per cent,” he said.

Mbadi added that the government has agreed to settle 40 per cent of the pending bills immediately. The remaining 60 per cent will be disbursed within a month, contingent upon contractors resuming work on the roads.

This development comes at a time when Kenya’s fiscal space remains tight. The Treasury has prioritized debt servicing and recurrent expenditure, leaving little room for new development initiatives. The Sh175 billion bond, therefore, offers a crucial workaround to fund critical infrastructure projects without further straining the national budget.

Kenya’s total pending bills currently stand at over Sh650 billion, casting a long shadow over public finance.