Kenya Moves to Stabilize Road Infrastructure Financing with KSh 93 Billion Arrears Clearance and Planned Road Bond

Kenya’s government has taken a major step toward restoring momentum in its road and transport infrastructure development by settling KSh 93 billion in long-standing arrears owed to contractors across the country. The payments were facilitated through part of a KSh 104 billion syndicated loan sourced from commercial banks, which served as a bridge facility while the government prepares to launch a larger road bond aimed at refinancing the debt and providing sustainable funding for ongoing and future road construction.

The clearance of arrears marks a strategic shift in how Kenya intends to manage infrastructure financing, particularly in a period where public debt sustainability and investor confidence are under heightened scrutiny. The settlement allows the government to unblock numerous stalled and delayed road projects, some of which have been dormant for months, leading to mounting losses for contractors, layoffs among construction workers, and rising frustration among local communities waiting for essential road connectivity.

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The beneficiaries of the arrears clearance include contractors under key agencies: the Kenya National Highways Authority (KeNHA), the Kenya Rural Roads Authority (KeRRA), and the Kenya Urban Roads Authority (KURA). These agencies are crucial in managing national, rural, and urban road networks, respectively.

To secure longer-term financing, the government is in the advanced stages of structuring a KSh 175 billion infrastructure bond, which will be backed by the Road Maintenance Levy Fund—a revenue stream collected through the fuel levy and administered by the Kenya Roads Board. The Board’s mandate and revenue allocation model are outlined under the Kenya Roads Board Act, which ensures that maintenance financing is directly drawn from fuel consumption.

This upcoming bond represents the government’s effort to transition from unpredictable exchequer allocations and short-term borrowing toward a more structured and predictable infrastructure financing model. According to officials at the National Treasury, the arrangement seeks to guarantee investor confidence by tying bond repayments to a reliable and traceable revenue source.

Why Clearing Arrears Matters for the Economy

The settlement of KSh 93 billion in pending contractor payments is already having measurable effects on the economy. Recent financial data referenced by the Central Bank of Kenya indicates a 21.7% increase in lending to construction-related firms, which saw their credit access grow to KSh 159.6 billion. Additionally, cement consumption jumped by 23.9%, signaling strong resumption of physical construction works that had been halted.

The resurgence in road construction activity has spillover economic benefits in areas such as:

• Employment restoration in civil works and construction labor
  
• Increased demand for local manufacturing inputs, including steel, concrete, and bitumen
  
• Improved logistics efficiency for agriculture and manufacturing once roads are completed

These growth indicators also contributed to Kenya’s GDP expanding by 5.0% in the second quarter of 2025, up from 4.6% previously. Improved infrastructure spending generally acts as a catalyst for broader economic improvement, particularly in a country where logistics bottlenecks significantly influence market pricing, access to agricultural hubs, and manufacturing competitiveness.

Strategy Behind the Upcoming KSh 175 Billion Road Bond

The planned infrastructure bond will be secured through revenue collected via the Road Maintenance Levy, which is applied to every liter of fuel sold within the country. The levy was recently reviewed upward to create a stronger revenue base capable of sustaining repayment obligations. Details of this revenue source are documented in periodic fuel levy updates published on the Kenya Roads Board’s revenue reports.

Investors are expected to be attracted to this bond due to:

• Predictable and earmarked revenue streams
  
• The government’s demonstrated commitment through upfront arrears clearance
  
• The historical performance and market appetite for infrastructure bonds in Kenya’s fixed-income markets

However, the bond’s successful issuance will depend heavily on investor sentiment, particularly institutional investors such as pension funds, insurance firms, and international development finance institutions. Should market confidence waver, the government may face higher borrowing costs or limited subscription, which would place further strain on public finances.

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Fiscal Risks and the Importance of Sustained Discipline

Despite this progress, Kenya’s broader public arrears remain substantial, estimated at approximately KSh 526 billion as highlighted in recent expenditure statements reviewed by the Parliamentary Budget Office. These arrears extend beyond infrastructure and affect suppliers and service providers in multiple sectors.

This means that the clearance of road arrears, while significant, does not resolve the systemic fiscal discipline challenges the government faces. To maintain momentum, policymakers will need to:

1. Strengthen planning and scheduling of capital projects
   
2. Adopt stricter procurement controls to avoid scope inflation and contractor claims
   
3. Improve disbursement predictability to minimize project stoppages
   
4. Ensure transparency in the utilization of the Road Maintenance Levy

Failure to sustain these improvements could result in a repeat accumulation of arrears, undermining both contractor confidence and infrastructure delivery objectives.

Broader Policy Context: Restoring Credibility in Public Infrastructure Delivery

The arrears clearance occurs at a time when restoring trust among contractors, financiers, and the public is critical. Many firms have previously reduced operations or slowed mobilization due to uncertainty around government payments. The arrears backlog also posed labor risks, with some companies downsizing workforce numbers or halting trainee and apprentice programs.

Agencies such as KeNHA and KeRRA are also under increasing pressure to adhere to performance metrics, cost-efficiency frameworks, and accountability requirements, especially as the country enhances oversight under the Public Procurement and Asset Disposal Act.

Continued improvement in the governance of project selection and contractor management may help Kenya access more favorable financing in the future, particularly through sovereign infrastructure bonds and structured public-private partnerships.

Conclusion: A Step Forward, With Conditions Attached

Paying KSh 93 billion in road arrears is a decisive move that unblocks stalled construction, stimulates the economy, and signals Kenya’s intention to stabilize its infrastructure project pipeline. However, the sustainability of this effort will depend heavily on the successful issuance of the upcoming KSh 175 billion road bond and the disciplined management of the Road Maintenance Levy fund.

If the government maintains transparency, spends efficiently, and avoids accumulating new arrears, this approach may represent a structural step forward in Kenya’s infrastructure financing strategy. If not, the gains made could easily unravel.

For now, momentum has returned—but continued discipline will determine whether it endures.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

11th November, 2025