The funding of the current budget to June 30, 2025 has encountered further headwinds as the revenue target shortfall at the end of April increased to Sh253 billion, up from Sh139.6 billion in March.
The missed collection target is further exacerbated by the admission from National Treasury Cabinet Secretary John Mbadi that the World Bank will delay the disbursement of Sh96.9 billion ($750 million) to Kenya by at least a month, missing the initial target of early June.
The dual miss on revenue and financing leaves the government in a tight fiscal space and with limited options that include deep spending cuts for the current financial year or raising the domestic borrowing target further.
MPs have raised concerns over the missed revenue targets and have called for stronger tax mobilisation strategies.
Photo credit: File
MPs have raised concerns over the missed revenue targets and have called for stronger tax mobilisation strategies to ensure fiscal sustainability and effective budget execution.
“In the period ending April 2025, total revenue collection stood at Sh2.25 trillion, falling short of the target of Sh2.5 trillion by Sh253 billion,” the National Assembly Budget and Appropriations Committee (BAC) said in a new report.
“This revenue underperformance was primarily driven by a shortfall in ordinary revenue collection amounting to Sh195.3 billion and Sh57.7 billion in ministerial appropriations in aid. The gaps underscore the need for stronger revenue mobilisation strategies to ensure fiscal sustainability and effective budget execution.”
Total revenues for the fiscal year to June 30 were projected at Sh3.06 trillion including Sh2.58 trillion in ordinary revenue or taxes and Sh486.8 billion in collections by ministries.
Net foreign financing is meanwhile projected at Sh281.5 billion including the Sh96.9 billion by the World Bank, which has been delayed after a lag in the passage of a bill to curb graft among public officers. This was a condition to the financing.
Delays in getting the World Bank cash have already prompted the Treasury to consider a third supplementary budget with some State offices already depleting some budget allocations.
“The World Bank funding seems to be going to July because some of the legislations (Conflict of Interest Bill) that was precedent to the release of these funds were delayed,” Mr Mbadi said.
Treasury Cabinet Secretary John Mbadi.
Photo credit: File | Nation Media Group
Churchill Ogutu an economist at IC Asset Managers says the funding gap is likely to result in carryover expenditures into the new financial years, dragging the outcomes of planned fiscal consolidation.
“I think the first line of defence is usually to trim the budget, but if recent budget tweaks are a guide, that is unlikely to materialise. So that leaves carryovers into the next financial year or even some of the programmes will not be fully funded,” he said.
The government could alternatively raise its net domestic borrowing target from the current estimate of Sh605.7 billion to cover the budget hole.
Domestic borrowing is seen as a low-hanging fruit in contrast to seeking additional financing externally.
The government has already found success in borrowing from the domestic market in the current financial year on favourable interest rates with yields on Treasury bills and bonds tumbling.
Analysts have however ruled out the temptation of issuing a new infrastructure bond to plug the budget gap as the government signals interest rates lower.
The government has previously issued infrastructure bonds at the end of fiscal cycles to unlock hundreds of billions in domestic credit as investors rush to lock interest-free returns.
“I think the implicit guidance in the current fiscal year is authorities have shied away from newer issues, which makes more sense from better signalling of lower rates from re-opened issues compared to newer issues. As such, I don’t think they can issue a new paper, more so an infrastructure bond. I think an IFB is their wild card, but the window of utilising it may better present itself in the coming fiscal year,” added Churchill Ogutu.
