When Kenya’s debt numbers jump, the world flinches. Lenders tighten. Austerity hawks sharpen their knives. But what if the next spike is not new borrowing — but a change in how the country is forced to count?

Opinion | By Martina Scott | Tax  Expert

That question is now quietly detonating inside Kenya’s engagement with the International Monetary Fund (IMF). The Fund is pushing Nairobi to adopt a broader definition of public debt — one that would fold in liabilities tied to fuel levies, sports levies, import duties, and the sprawling mountain of pending bills.

The immediate effect? A ballooning debt-to-GDP ratio, already hovering between 68 and 72 percent, could blast further past Kenya’s self-imposed 55 percent sustainability ceiling. The result, critics warn, may be a statistical crisis with real-world consequences: higher risk premiums, downgraded credit ratings, and even tighter fiscal space.

But is the IMF’s math accurate — or misleading?

The Sh500 Billion Elephant: Pending Bills

Let’s start where the two sides agree. Kenya’s pending bills, now estimated at over Sh500 billion, represent genuine government obligations. Contractors built roads. Suppliers delivered goods. The State did not pay. Under both the IMF’s Government Finance Statistics Manual (GFSM 2014) and international accrual accounting standards, those are liabilities. They should be recognised as debt.

No serious economist disputes that. If the government owes money, count it.

But the IMF’s push goes much further — and that is where the trouble begins.

The Fuel Levy: Tax or Debt?

Every litre of petrol or diesel sold in Kenya carries a levy of roughly Sh25 to Sh30. That generates upwards of Sh80–100 billion annually. Crucially, these funds do not disappear into the general revenue pot. They are ring-fenced by law, channelled directly to institutions like the Kenya Roads Board, and legally dedicated to financing road infrastructure.

This is not conventional borrowing. The government did not sign a loan agreement. It did not issue a bond. It simply collects a specific tax for a specific purpose — a mechanism economists call hypothecated taxation.

In fact, the model closely resembles “shadow tolling,” a financing system used in the United Kingdom under its Private Finance Initiative, and in Spain and Portugal through motorway concessions. A road is built using a dedicated revenue stream, not sovereign debt. Repayment depends on usage or levy collection, not on general government guarantees.

Even the IMF’s own GFSM 2014 framework distinguishes between direct debt liabilities and contingent or conditional obligations — especially where payments hinge on specific revenue streams or project performance. Similarly, International Public Sector Accounting Standards (IPSAS) separate recognised liabilities from arrangements tied to future events or dedicated financing structures.

By classifying fuel levy-backed infrastructure as conventional debt, the IMF risks erasing a critical distinction between borrowed money and structured financing. The consequence is not merely academic. It is political and economic.

The Sports Levy: Stadiums as Assets

On a smaller but still significant scale, the same principle applies to sports levies. Kenya generates an estimated Sh6–10 billion annually from this source, funds earmarked for capital investments — stadiums, sports complexes, training facilities.

These assets, once built, are expected to generate independent revenues: event ticket sales, sponsorships, naming rights, commercial leases. The financing structure aligns more closely with project finance, where future cash flows back the investment, than with general obligation debt.

Are there execution risks? Absolutely. Kenya has a poor track record of completing and maintaining such projects. But risk is not the same as debt. Conflating the two obscures more than it reveals.

The Real Danger: A Statistical Debt Crisis

If the IMF succeeds in reclassifying these levy-backed flows as conventional debt, Kenya’s debt-to-GDP ratio could spike — perhaps by 5 to 10 percentage points or more, depending on how pending bills are phased in. That would push the country firmly past its 55 percent threshold, triggering automatic spending limits, frightening off investors, and raising the cost of future borrowing.

In short, Kenya could be forced to fight a debt crisis that is, at least in part, statistical — not real.

This is not an argument against transparency. Kenya must disclose every fiscal exposure: contingent liabilities, off-balance-sheet commitments, public-private partnership obligations, everything. But transparency should not come at the expense of precision. Not every obligation should be treated as immediate debt, particularly where revenues are legally ring-fenced and projects are designed to be self-financing.

A Smarter Way Forward

The real debate, then, is not whether Kenya should account for these liabilities — but how. A more accurate framework would distinguish between:

• Accrued debt (pending bills, unpaid supplier invoices) — recognise immediately.

• Contingent liabilities (state guarantees, potential court awards) — disclose separately.

• Project-financed obligations (fuel levy roads, sports levy stadiums) — treat as structured financing with clear disclosure of revenue streams and risks.

Kenya and the IMF are not enemies. Both want sustainable public finances. But if Nairobi accepts a one-size-fits-all debt definition without nuance, it risks surrendering its fiscal narrative to a spreadsheet error.

In public finance, as in life, how you count often determines what you see — and what you fear.