The International Monetary Fund (IMF) has called for stronger legal frameworks to govern sovereign wealth funds, saying countries should strengthen governance, accountability and oversight as the funds continue to expand in size and investment activities.
The lender said sovereign wealth funds have become increasingly important in managing public wealth and supporting long-term economic goals. As governments give these funds broader responsibilities, the IMF said legal structures must clearly define their mandates and how they operate.
According to an IMF article published on July 21, 2026, sovereign wealth funds currently manage more than Ksh 2.07 quadrillion in assets globally, compared to about Ksh 387 trillion in 2008. The institution said the significant growth reflects the increasing role the funds play in national economies.
The IMF noted that sovereign wealth funds were initially created by many countries to stabilise government finances during periods of volatile commodity prices or to save surplus revenues. Over time, however, many have expanded their investment portfolios beyond traditional financial assets.
Today, sovereign wealth funds invest in sectors such as infrastructure, technology, renewable energy, healthcare, private equity and real estate. The IMF said governments are increasingly using them to preserve national wealth, diversify economies and support long-term development while preparing for future economic uncertainties.
The institution warned that the rapid expansion of sovereign wealth funds has made effective governance more important. It said weak legal frameworks, unclear responsibilities and limited oversight could undermine transparency, accountability and public confidence.
The IMF’s remarks come shortly after Kenya enacted the Sovereign Wealth Fund Act, which establishes the country’s first legal framework for managing revenues generated from natural resources.
President William Ruto signed the legislation into law on July 8, 2026. The Act provides for the collection, management and investment of revenues from petroleum, mining royalties, proceeds from government investments in resource enterprises and other approved sources.
Under the law, Kenya’s Sovereign Wealth Fund will comprise three components. The Stabilisation Component will help cushion the economy against fluctuations in natural resource revenues. The Strategic Infrastructure Investment Component will finance national development projects, while the Future Generation, or Urithi Component, will preserve wealth for future generations. The law requires at least 10 per cent of the fund’s resources to be allocated to the Urithi Component.
The Act also requires all revenues to first be deposited into a holding account at the Central Bank of Kenya before they are distributed to the three components. In addition, the law prohibits the use of the fund as collateral for borrowing or lending and limits investments to approved financial instruments.
IMF on legal mandates
The IMF said sovereign wealth funds should have clearly defined legal mandates to ensure investment decisions are guided by their intended purpose. It noted that countries establish sovereign wealth funds for different reasons depending on their economic priorities.
According to the institution, commodity-producing countries often create stabilisation funds to cushion their economies from revenue fluctuations, while others establish long-term savings funds to preserve wealth for future generations. Some governments also use sovereign wealth funds to finance infrastructure development and support economic diversification.
The IMF said countries pursuing several objectives should consider establishing separate funds or ring-fenced sub-funds for each purpose to improve governance and operational efficiency.
It cited Nigeria’s Sovereign Investment Authority, which operates separate stabilisation, infrastructure and future generation funds, and Norway’s Government Pension Fund Global, which focuses on long-term savings under a strong fiscal framework.
The institution also emphasised that governance should be supported by law through clearly defined powers, fiduciary responsibilities, transparent reporting requirements and effective oversight. It said operational independence should be protected through legal provisions governing deposits, withdrawals and accountability to Parliament and the public.
The IMF added that although the Santiago Principles, developed in 2008 with IMF support, remain an important international benchmark for sovereign wealth fund governance, the investment environment has changed significantly. Many sovereign wealth funds now participate in direct investments, private equity, unlisted companies and co-investment transactions, making stronger legal safeguards increasingly necessary.
The IMF said robust legal frameworks will help sovereign wealth funds achieve their objectives while protecting public resources, strengthening fiscal discipline and promoting long-term financial stability.
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