NAIROBI, Kenya – A government-appointed task force has proposed the creation of a bond-financed trust fund to clear Kenya’s verified pending bills amounting to Sh421.6 billion, in a move aimed at restoring market confidence and easing cash flow pressures in the economy.
The proposal, spearheaded by a task force chaired by Hosea Kiili, President of the Association of Pension Trustees and Administrators of Kenya, recommends the establishment of a Public Pending Bills Liquidation Trust Fund.
The fund would issue securities backed by future government payments, with proceeds used to pay contractors, suppliers, and other creditors.
“The persistent accumulation of verified but unpaid pending bills by public sector entities has created a perceived and growing trust deficit between the government of Kenya and its suppliers, contractors, investors and financial partners,” the report notes.
The plan is the latest in a series of attempts to solve Kenya’s long-standing pending bills crisis, which has eroded confidence among investors and strained the operations of private sector players dependent on government contracts.
Securitisation Model
Under the proposal, investors would purchase bonds tied to the government’s verified payables, essentially providing upfront cash to creditors in exchange for future repayments from the state.
The approach mirrors reverse factoring models used in countries such as Brazil, Mexico, and India, where similar structures have been deployed to stabilise public sector arrears without immediately draining national treasuries.
In Mexico, for example, banks issue bonds based on government payment obligations, giving small businesses access to liquidity while the government continues to manage its cash flow over time.
While the idea of securitising government payables has been floated before, the task force report represents a renewed effort to formalise it into policy.
The authors argue that such a move would “unlock liquidity tied to verified government payables” and inject much-needed cash into the economy.
Gaps and Questions
However, the proposal remains light on critical details.
The report does not specify how the securities would be priced, the maturity period of the bonds, or what safeguards would be in place in case of delays in government repayments—a frequent concern given Kenya’s fiscal constraints.
The absence of these specifics could raise scepticism among market participants already wary of the government’s track record on debt obligations.
Wider Context
The Treasury recently declared Sh270 billion in pending bills invalid, adding to the frustration of suppliers and contractors who say they are owed more than half a trillion shillings.
The Kenya Roads Board is separately working on a Sh135 billion bond to clear arrears in the roads sector, signalling broader interest in market-driven solutions to public debt management.
The pending bills crisis has emerged as a political and economic flashpoint, with county governments, national agencies, and development partners all urging faster resolution mechanisms.
Critics have pointed to the proliferation of task forces under President William Ruto’s administration, questioning their effectiveness amid deepening fiscal strain and growing mistrust from the business community.
If implemented effectively, the trust fund could offer a pathway to stabilise relations between government and suppliers.
But for now, it remains a proposal—one that will depend heavily on political will, market appetite, and the credibility of Treasury to follow through on its payment commitments.
