By Benadeta Mwaura - Reporter
Kenya, July 28, 2026 - The International Monetary Fund (IMF) has called on governments across the world to strengthen the legal and governance frameworks guiding sovereign wealth funds (SWFs), warning that their rapid expansion into strategic sectors such as infrastructure, technology and private equity demands greater transparency and accountability.
The advisory comes at a time when sovereign wealth funds have become some of the world's largest institutional investors, collectively managing more than KSh2.07 quadrillion ($16 trillion) in assets, a dramatic increase from approximately KSh387 trillion ($3 trillion) in 2008, according to the IMF.
The Fund noted that sovereign wealth funds have evolved beyond their traditional role of cushioning governments against commodity price shocks or saving surplus revenues for future generations. Increasingly, countries are using the funds to finance strategic infrastructure, industrial development, technology investments and economic diversification.
However, the IMF cautioned that this growing influence also exposes countries to greater governance risks if legal mandates remain vague or institutions lack adequate oversight.
"Vague and overlapping mandates can weaken accountability and weigh on performance," the IMF warned, adding that weak governance has contributed to high-profile failures in some sovereign wealth funds globally.
The institution argues that clearly defined legal mandates should anchor every sovereign wealth fund by specifying its objectives, powers and investment limits while ensuring operational independence and accountability to legislatures and the public.
According to the IMF, robust legal frameworks help prevent political interference, strengthen fiscal discipline and ensure that national wealth benefits both current and future generations.
The IMF's recommendations come just weeks after Kenya enacted the Sovereign Wealth Fund Act, providing the country with its first legal framework for managing revenues generated from natural resources, including petroleum income, mining royalties and returns from government investments in resource enterprises.
President William Ruto assented to the legislation on July 8, paving the way for the establishment of three separate funding windows designed to balance short-term economic stability with long-term wealth creation.
The law establishes:
- A Stabilisation Fund to cushion the economy against revenue fluctuations;
- A Strategic Infrastructure Investment Fund to finance priority national development projects; and
- The Future Generation (Urithi) Fund, where at least 10 per cent of revenues will be preserved for future generations.
Under the Act, all qualifying revenues will first be deposited into a holding account at the Central Bank of Kenya before allocation to the three components. The legislation also bars the government from using the fund as collateral for borrowing or extending loans, while limiting investments to approved financial instruments.
Speaking shortly after the law was enacted, Interior Principal Secretary Raymond Omollo described the legislation as filling a long-standing policy gap.
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"The president has now made this a reality. As a country, we must ensure that the wealth generated from our natural resources benefits our people today while also securing the future of generations to come," Omollo said.
The IMF says countries establish sovereign wealth funds for different reasons depending on their economic structure.
Commodity-exporting nations such as Chile often prioritize stabilization funds to shield national budgets from volatile commodity prices, while countries including Norway and New Zealand use long-term savings funds to preserve wealth for future generations.
Others deploy sovereign wealth funds to finance infrastructure development and diversify their economies.
Where governments pursue multiple objectives, the IMF recommends separating mandates through distinct funds or ring-fenced sub-funds to improve governance and operational clarity.
It points to Norway's Government Pension Fund Global, widely regarded as one of the world's best-managed sovereign wealth funds, alongside Nigeria's Sovereign Investment Authority, which separately manages stabilization, infrastructure and future generation funds under clearly defined legal structures.
The Fund also urged governments to update governance practices in line with modern investment models, arguing that the Santiago Principles, developed in 2008 with IMF support, remain an important foundation but require stronger operational guidance as sovereign wealth funds increasingly venture into private equity, direct investments and co-investment arrangements.
As governments increasingly rely on sovereign wealth funds to finance development while safeguarding national wealth, the IMF says legal clarity must remain at the centre of fund management.
The institution argues that clearly defined governance structures, transparent reporting requirements, enforceable fiduciary responsibilities and strong parliamentary oversight are essential to maintaining public confidence and protecting state assets.
With Kenya now joining a growing list of African countries establishing sovereign wealth funds, the challenge, according to the IMF, will not only be mobilizing revenues but ensuring that the institutions entrusted with managing those resources remain transparent, accountable and insulated from political influence.