Kenya’s Sovereign Wealth Fund Bill: A Promising Initiative or a Fiscal Pitfall?
Sovereign Wealth Funds (SWFs) are typically government-owned and controlled investment funds, used to serve some policy objectives and interests of the sovereign or country. They serve many purposes; stabilising government fiscal and foreign exchange revenues, government finances, and macroeconomic aggregates by smoothing out fluctuations in export prices and demand, or to save for future generations a fraction of the revenues accruing from the sale of non-renewable natural resources, sale of government-owned land, revenue from traded goods, among other purposes. Ownership of SWFs largely rests with the State which is the main beneficiary. SWFs can be classified in three broad categories based on source of capital: commodity-based fund where the source of capital is from natural resource revenues, surplus saving funds accumulated from foreign exchange and pension reserve funds and lastly strategic investment fund whose capital can come from multiple sources including natural resource revenues, sovereign borrowing, privatisation proceeds or allocations from other SWFs. African SWFs are largely driven by stabilisation motives rather than a need to accumulate wealth for future generations with the main source being natural resources revenues.
Globally, the golden standards behind successful SWFs are set out in the Generally Accepted Principles and Practices (GAPP) of SWFs, also referred to as the Santiago Principles, which set out guidelines that provide best practices for operation of SWFs. These 24 principles are grouped into three fundamental aspects: legal framework, objectives and coordination with macroeconomic policies; institutional framework and governance structure; and investment and risk management framework. A sound legal framework leads to a robust institutional framework and appropriate governance structure, which in turn result in formulation of appropriate investment strategies. Among other recommendations, the Santiago Principles provide for: soundness of the legal framework should be sound; clearly defined and publicly disclosed policy purpose of the SWF; clear and publicly disclosed funding, withdrawal and spending operations; clear and effective division of roles to facilitate operational independence; clearly defined accountability framework; public disclosure of relevant financial information; and regular review of the GAPP implementation.
In Africa, SWFs have had varying levels of success. In the case of Angola, The Fundo Soberano de Angola (FSDEA) is managed independently of the Banco Nacional de Angola (BNA) and the Treasury, but with governance oversight from the presidency. The funds do not have specific withdrawal guidelines, and withdrawals are made at the discretion of the Finance Minister In the case of Botswana, the Pula Fund has essentially functioned as a stabilisation fund, cushioning against external shocks, more so than as a savings fund. An expenditure rule developed in 2006 sets maximum government expenditure at 40% of GDP. The remaining non-resource fiscal revenues, as well as all resource revenues, must be allocated between public investments, limited recurrent expenditure, including health and education, and the Pula Fund. Fiscal investments have closely followed national development plans (NDPs). In the 25 years since its establishment, the Pula Fund has not run into any major scandals and on aggregate has invested responsibly and conservatively. The management of the Fund has positively impacted the cost of borrowing; Botswana is currently rated A2 by Moody’s, the highest rating for an African country, and Moody’s cites the Pula Fund as one of the key reasons for Botswana’s fiscal prudence. In Ghana’s case, the Petroleum Revenues Management Act 815 (PRMA Act) was enacted in 2011 in order to ‘regulate the collection, allocation and management by government of petroleum revenue derived from upstream and midstream petroleum operation’. The Act established the Petroleum Holdings Funds, which houses a savings and stabilisation fund as well as a Consolidated Fund, which supports the annual budget. After the discovery of oil, the government embarked on unsustainable borrowing sprees against future revenues while depositing oil revenues into the funds. These two activities counteract each other and the objectives of an SWF. For example, the government borrowed against future oil revenue to finance recurrent expenditure items such as a bloated public sector wage bill, interest payments and fuel subsidies. In the years after oil discovery, Ghana has experienced high inflation and current account deficits that persist to the present as well as lower-than-expected growth. Debt has risen steadily since oil was anticipated in 2007, subsequent to Ghana receiving debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative in the early 2000s. Ghana’s poor fiscal position ultimately led the country to seek IMF assistance in 2015, only four years after the extraction of oil began.
The underlying effectiveness of an SWF depends on the law that governs its existence, as countries that possess strong governance laws, such as Norway and Botswana, attest. The Government Pension Fund Global (GPFG) of Norway is the first lesson on strengthening the legal foundation: the GPFG has constitutional and statutory foundations which means political changes cannot easily alter the purpose of the Fund; independent auditing by the Office of the Auditor General, parliamentary scrutiny, and mandatory public reporting lead to rule of law and oversight; separation of powers, where operational management is delegated to Norges Bank Investment Management and shielded from day-to-day political interference, while strategic directions are set through the Ministry of Finance through defined guidelines; disclosure obligations that have been codified as a matter of legislation, and not merely policy, hence transparency forms a legal principle; and alignment with international financial regulations, ESG standards, and responsible investment norms.
New on the block in SWFs is Kenya. On 24th October 2025, the National Treasury of Kenya published a draft Sovereign Wealth Fund Bill inviting public comments. The publication of this Bill came at a time when public debt had reached historic highs, fiscal space had continued to shirk, and public trust dwindled following austerity measures and protests. Theoretically, the SWF had been proposed at the appropriate time to strengthen long-term savings, provide funds for investment, and improve macroeconomic stability. While the Bill contains a number of progressive provisions, it risks creating a fund that mirrors the very weaknesses that pushed Kenya towards an SWF. Although Kenya’s draft SWF Bill creates three promising components – the stabilisation, strategic infrastructure investment and urithi components – the legal architecture and operations are too discretionary, ambiguous, and insufficiently insulated from political interference.
The first major issue with the Bill is the use of the SWF funds for supporting debt servicing, a provision that seems one of the most contentious in the Bill. Employing the SWF may seem practical in the short-term-since Kenya's debt-to-GDP ratio stands at approximately 70% but it defeats essentially the very rationale of long-term savings and introduces immediate political incentives to resort to the SWF whenever budget pressures intensify. This risks making the SWF an extra-budgetary account. Another structural weakness lies in the lack of integration with the fiscal tools of Kenya, including the Debt Sustainability Analysis, Medium-Term Debt Management Strategy, and budget cycle. The financial flows and investment rules of an SWF need to be aligned with fiscal anchors and revenue forecasts, whose linkages have not been set out in the draft SWF Bill, thereby leaving it susceptible to becoming an off-budget mechanism rather than a strategic component of fiscal policy.
Additionally, the proposal to use proceeds of the SWF for debt servicing presents a loophole for unchecked government borrowing with the SWF acting as a buffer, Instead, the SWF should be a mitigation from excessive borrowing as the country stabilises its revenue base. Experience from Norway and Botswana have highlighted that limiting the amount of funds used for debt servicing is a more sustainable way of utilising the Fund. In Norway’s Government Pension Fund Global (GPGF), the fiscal rule, which is not legally binding but rather a guideline, restricts annual withdrawals to the expected real return (currently 3%) of the Fund's value, which practice has been adhered to since 1990. This withdrawal is not automatic; it must be debated, approved, and integrated into the annual state budget, which is passed by Parliament. Botswana's Pula Fund mandates withdrawals for development spending be subject to clear discussion and agreement between national authorities, including the Minister of Finance and legislative committees. Funds must be used for investments that are explicitly provided for within the budget framework.
Second, the Kenyan SWF Bill places a lot of discretion in the office of the Cabinet Secretary. There are limited safeguards on withdrawals, and without binding parameters on these areas, revenue flows can easily undermine the purpose of the Fund. There is a need to insulate the SWF from political cycles through express legal provisions that include even limits to withdrawal and expenditure. The example of Nigeria remains a case in point since data on contributions and withdrawals from the country's Excess Crude Account showed significant and constant withdrawals irrespective of the economic environment.
Third, despite the Bill establishing a mechanism that will hold public finances, it provides weak Parliamentary oversight. This is contrary to the broader constitutional design which places appropriation power firmly in the Legislature. Further, clause 40 thereof undermines transparency and accountability by making confidentiality the rule rather than the exception, omitting Parliament and the public from the disclosure chain and punishing disclosures without taking into consideration disclosures in the public interest. This is contradictory to Articles 10 and 35 of the Constitution of Kenya 2010 which enshrine transparency, accountability and access to information. Globally, SWFs are encouraged to follow the Santiago Principles, which emphasise public disclosure on various aspects. The clause also lacks whistleblower protection.
The governance provisions of the SWF Bill fall short of global best practice. Kenya does not have to reinvent the wheel since there is a workable model to draw upon. Various reforms are required if Kenya's Bill is to see light. Foremost, Parliamentary oversight over inflows and outflows is crucial, which can be done through quarterly disclosure of withdrawals and transfers, as well as an approval process. Proper funding, including appropriate governance and management, of the SWF from proceeds of mining revenue would boost the country's long-term savings and reduce the need to borrow. Public participation and fiscal transparency can be enhanced by clearly specifying publication and disclosure requirements – information about the SWF must be publicly available and public participation must be expressly stipulated. The success of the SWF will depend on whether the criteria listed hereinabove from the Santiago Principles, as well as lessons from other jurisdictions, are considered in the Bill and overall legal framework.
At the moment, the legal framework requires revisions to incorporate global best practice. Overall, while the SWF is a progressive and promising initiative, global best practice and strong legal foundations remain imperative to ensure that it does not become a fiscal pitfall.
For more information, read our submissions to the National Treasury in Kenya on the SWF Bill.
Afshin Nazir, Diana Mochoge, Catherine Mithia,
Policy Department, AFRODAD