Ruto's sovereign fund plan draws scrutiny over governance gaps

The Kenya Kwanza government’s draft legislation to create the country’s first sovereign wealth fund (SWF) is drawing criticism from financial experts who question its economic rationale, governance structure and vague operational rules.

This has attracted scrutiny of the President William Ruto’s government’s ambition to manage future resource revenues.

The Draft Kenya Sovereign Wealth Fund Bill, 2025, reviewed by Financial Standard, aims to establish a three-component fund to stabilise national budgets, finance infrastructure, and save for future generations. 

A sovereign wealth fund is a State-owned investment fund, typically capitalised by a nation’s excess foreign exchange reserves, revenues from commodity exports like oil or minerals, or other fiscal surpluses. 

Unlike Central Bank reserves, which are managed for liquidity and stability, SWFs are designed for longer-term strategic objectives, such as stabilising the national budget against revenue volatility, saving wealth for future generations, or funding socio-economic development projects. 

These funds invest globally in a diversified portfolio of assets—including stocks, bonds, real estate, and infrastructure to preserve and grow national wealth beyond the lifespan of finite natural resources or cyclical economic booms.

However, experts argue that the proposed fund, as announced by the State, appears designed for political control rather than sound economic management, with poorly defined safeguards against potential misuse. Deepak Dave of Autonomi Capital, a risk and credit analyst, told Financial Standard in an interview that the very concept of a sovereign wealth fund may be inappropriate for Kenya’s economic situation.

“The creation of a sovereign wealth fund is a luxury for rich countries or those whose economies cannot bear an outsized windfall of resource revenue. That is patently not true of Kenya,” Dave said. 

“The revenues that will go into this nebulous initiative are far better dealt with as a windfall distribution to wananchi below a certain income threshold, or a national programme to massively upscale education and health infrastructure.”

Future generations

A clause-by-clause examination of the draft bill reveals multiple areas where critical details are either poorly defined or absent, creating potential loopholes for misuse.

Clause 8(3)(c), which initially suggested a commitment to “provide at least ten per cent savings for future generations,” lacks any definition of what this percentage refers to, rendering the savings target meaningless.

“The term ‘10 per cent savings’ seems to have been dropped without any definition? Savings of what 10 per cent?” Dave questioned, highlighting the ambiguity.

Similarly, Clause 11(7) states that transfers to the Stabilisation Component shall cease when it grows to “ five per cent of the nominal gross domestic product.” 

The bill, however, fails to specify which measure of nominal GDP—previous year, rolling average, or forecast—should be used, a critical omission for determining a multi-billion shilling threshold.

The bill also grants the Cabinet Secretary significant power to initiate withdrawals from the fund’s components for budget stabilisation, with the board and the Central Bank of Kenya relegated to an automatic transfer role.

“I see there is no discretion in (Clauses) 10/11 for the board to refuse the transfer? And nothing about notification to Parliament?” Dave noted, pointing to a significant oversight in legislative oversight that could allow the executive to use the fund as a slush fund for short-term political needs, bypassing parliamentary scrutiny. Beyond governance, experts challenge the core economic logic of using volatile resource revenues for budget stabilisation—a primary goal of the fund’s Stabilisation Component.

“Using resource revenue - itself subject to volatility - to stabilise the State’s budget seems to be the wrong way around,” Dave argued.

“Using those revenues for purely long-term investment e.g an initial five-year accumulation period followed by a 15-year tapered payout/reinvestment cycle, makes more sense.”

This approach, he suggested, would prevent pro-cyclical spending and ensure the temporary nature of resource wealth is transformed into lasting capital for the nation, rather than being used to plug recurrent budget shortfalls.

The proposed governance structure of the Kenya Sovereign Wealth Fund Board has equally raised red flags about its susceptibility to political influence. 

The board’s composition includes a chairperson appointed by the President, the Principal Secretary for the Treasury, the Central Bank Governor, and four members appointed by the Cabinet Secretary. Dave criticised this model, stating it creates “another run-of-the-mill presidential patronage appointment” subject to the country’s five-year election cycle.

County representation

He proposed a more “independent” structure. “The board should have more independent directors, a rolling expiry of terms of seven years, and can only be impeached under severe circumstances, and have strong county representation.”

Such measures would insulate the fund from the political whims of any single administration and ensure its management aligns with Kenya’s long-term intergenerational interests, rather than short-term political goals.

The push for a sovereign wealth fund also appears at odds with Kenya’s current fiscal reality.  The government is concurrently engaged in a domestic borrowing drive to service the massive public debt, which has crossed the Sh11 trillion mark.

Critics argue that in this context, any significant revenue windfalls, including from resources, would be more effectively and immediately used for debt reduction to free up future fiscal space, rather than being locked into a new fund with complex and potentially politicised withdrawal rules.

The draft bill is expected to be tabled in Parliament for debate in the coming days. However, without significant amendments to address the flagged issues of governance, economic logic, and operational clarity, experts warn that Kenya’s first foray into sovereign wealth management could be doomed to ineffectiveness or, worse, misuse.