Kenya deficient of conditions needed for viable Sovereign Wealth Fund - Institute of Economic Affairs
Experts from the Institute of Economic Affairs (IEA) argue that while the idea is well-intentioned, Kenya’s macroeconomic realities raise concerns about its necessity and timing.
Kenya’s newly approved Sovereign Wealth Fund (SWF) has sparked debate among economists, with analysts questioning whether the country has the fiscal capacity and economic conditions to sustain such a vehicle.
Experts from the Institute of Economic Affairs (IEA), for instance, argue that while the idea is well-intentioned, Kenya’s macroeconomic realities raise concerns about its necessity and timing.
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A sovereign wealth fund is a state-owned investment vehicle typically financed from fiscal surpluses, natural resource revenues or foreign-exchange reserves.
Globally, SWFs are used to stabilise budgets during economic shocks, save wealth for future generations and finance strategic development investments.
Successful examples such as Norway and Singapore were reportedly built on large, predictable revenues, strong institutions and a clear separation between politics, saving and spending.
Under Kenya’s proposed Sovereign Wealth Fund Bill, 2025, the fund would be legally owned by the National Treasury in trust for citizens, with accounts held at the Central Bank of Kenya (CBK).
It would comprise three pillars: A stabilisation component to cushion fiscal shocks, a strategic infrastructure investment window, and a future generations fund dubbed “Urithi,” intended to preserve wealth over the long term.
However, IEA warns that Kenya lacks the core preconditions that have underpinned successful SWFs elsewhere.
“Kenya is not a major resource-rent economy,” the institute said.
It points out that mining, for instance, contributes less than one per cent of GDP and that petroleum revenues remain uncertain and long-dated, making funding flows volatile and unpredictable.
The analysis shows that countries with effective SWFs typically enjoy persistent fiscal surpluses and strong state capacity.
Kenya, by contrast, continues to run budget deficits and faces rising public debt, with debt-servicing costs consuming a growing share of ordinary revenue.
These pressures, economists argue, reduce the space to lock away funds in long-term savings vehicles.
IEA also highlights global and African experiences where weak governance undermined SWFs.
Cases such as Angola and Libya were cited as cautionary tales, where elite capture, opacity and poor oversight led to losses rather than stabilisation or development gains, underscoring the risks for countries with fragile fiscal institutions.
IEA thus proposes alternative policy options, including using revenue windfalls to reduce public debt, strengthening fiscal rules and budget discipline, and prioritising investments with demonstrably positive economic returns.
The economists also call for greater transparency in using development banks rather than creating parallel financing structures.
Nevertheless, they note that instruments alone do not guarantee development, stressing that sovereign Wealth Funds are powerful tools in the right context.
“For Kenya, the evidence suggests that fiscal discipline beats financial saving, development returns beat portfolio returns, and institutions matter more than instruments.”
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