By Benadeta Mwaura - Reporter
Kenya, 19 December 2025 - The Kenyan government has paid KSh 123 billion to clear all outstanding road sector pending bills dating as far back as 2005, using funds exclusively raised through short-term commercial bank loans in a move aimed at jump-starting stalled infrastructure work and stabilising contractor operations.
The National Treasury says the hefty payments cover arrears owed to road contractors and suppliers up to December 2024, effectively settling the entire stock of verified obligations in the sector.
Treasury Cabinet Secretary John Mbadi said the repayment was completed in December, noting that government plans to raise a KSh 175 billion roads bond have essentially shifted to a repayment phase that reimburses the banks that front-funded the settlement.
“The bridge financing is almost complete. The money that the bond is going to raise will just pay back the money raised from the various commercial banks,” Mr Mbadi said, explaining that lenders provided short-term facilities so the government could settle long-standing bills without further delays.
“This month, we are clearing all pending bills for the sector up to December 2024.”
The four commercial lenders that participated in the financing are Trade and Development Bank (TDB), KCB Bank Kenya, Absa Bank Kenya and UBA Kenya Bank, according to Treasury documents.
These institutions extended bridge facilities that enabled swift payments to contractors, which government officials say has enabled many stalled road works to resume.
Clearing the backlog is expected to have a ripple effect in the construction sector, reversing a contraction in activity that plagued the industry in recent years due to cash-flow challenges among contractors.
Recent data from the Kenya National Bureau of Statistics (KNBS) shows the construction sector grew by 5.7% in the quarter ending June 2025, rebounding from a 3.7% contraction the year before.
Cement consumption and imports of key materials such as bitumen and steel also rose sharply, indicating renewed activity.
Treasury Strategy and the Roads Bond
The payments have altered the immediate purpose of the proposed roads bond programme.
Originally conceived to raise an estimated KSh 175 billion to settle sector arrears, the bond’s proceeds will now predominantly be used to repay the banks that provided bridge loans.
The government securitised a portion of the Road Maintenance Levy Fund (RMLF), part of fuel levies, as the basis for the bond.
Under the arrangement, approximately KSh 7 of every litre of petrol or diesel sold is earmarked to service bond obligations.
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The securitisation strategy has proved controversial, with a technical dispute between the Treasury and the International Monetary Fund (IMF) over whether the funds should be counted as sovereign debt.
The government maintains that once rights to future RMLF revenues are sold to a Special Purpose Vehicle (SPV), the liabilities do not constitute direct government debt, while the IMF argues they should be treated as sovereign obligations.
Mbadi has said the disagreement is an “accounting matter” that both sides will resolve.
Policy Context and Broader Pending Bills Issue
Kenya’s move to clear road sector arrears comes amid evolving efforts to address the wider issue of pending bills, which have accumulated across government ministries, departments and agencies.
According to past statements by the Controller of Budget and the Treasury, the national government had outstanding verified bills amounting to hundreds of billions of shillings, of which significant portions were linked to states’ liabilities and statutory remittances.
In June 2025, Mbadi told Parliament that a Pending Bills Verification Committee had examined thousands of claims totalling over KSh570 billion, recommending that KSh 229 billion be paid once verified.
The road sector formed a large chunk of that sum. Mbadi characterised clearing these bills as part of strengthening public financial management and restoring confidence among contractors and suppliers that the government would honour its obligations.
Treasury reforms also include moves to tighten public expenditure controls. Earlier in 2025, Mbadi directed that no payment to suppliers would be made unless transactions went through the e-procurement system launched to enhance transparency and curb wasteful spending. “If you supply outside the system, you will not be paid,” he told the Senate Committee on Finance and Budget, underscoring broader reforms aimed at fiscal discipline.
The resolution of road sector pending bills has been welcomed by civil engineers and small and medium contractor outfits that struggled for years amid slow payments.
Financing costs, stretched cash flows and project suspensions hampered many firms. The infusion of cash into the sector has already led to resumed road works and improved deliveries of essential construction materials.
Lenders that extended bridge facilities stand to be reimbursed through the bonds, potentially unlocking billions of shillings in previously non-performing loan portfolios for some banks.
For example, KCB Group has anticipated that the roads bond would enable it to unlock up to KSh 30 billion of previously impaired loans related to government contracts, improving its non-performing loan ratios.
Despite the clearing of these pending bills, the broader challenge of outstanding government obligations persists. Kenya continues to explore mechanisms, including securitised bonds, trust funds and stricter expenditure controls, to manage liabilities owed to suppliers across sectors while maintaining macroeconomic stability.
