National Treasury Cabinet Secretary John Mbadi displays the budget briefcase at Parliament Building in Nairobi on June 12, 2025.
The country’s fiscal consolidation efforts will be at play as National Treasury Cabinet John Mbadi presents the Sh4.82 trillion budget highlights and revenue-raising measures for the fiscal year 2026/27. The National Assembly approved budget estimates on June 4.
The budget highlights, Mbadi’s second as CS National Treasury following his appointment to the Cabinet in August 2024, are coming at a time when the country is saddled with mounting public debt, debt service, depressed revenues that have led to a punitive taxation regime and the government’s increased expenditure projections.
The current challenging global economic environment, characterised by heightened geopolitical tensions, rising energy prices and persistent uncertainty in international trade and financial markets, is likely to exert pressure on domestic economic performance and fiscal outcomes.
Kenyans, frustrated by punitive taxation and depleted payslips, among other earnings caused by enhanced statutory deductions, will be keen to see how the government will strike a balance in financing the budget that exceeds revenue projections of Sh3.63 trillion in ordinary revenue and Appropriations in Aid (A-I-A), and a deficit of Sh1.2 trillion.
Previously, the Kenya Revenue Authority (KRA) has missed targets, meaning that should the targets fall short, the government will have to borrow more money.
Also causing CS Mbadi sleepless nights is the Sh2.31 trillion in public debt service due in the fiscal period 2026/27 and the escalating Middle East conflict, which has disrupted global supply chains and skyrocketing fuel costs that have hit Kenya’s revenue streams.
The Finance Bill 2026, which seeks to raise Sh120 billion in additional revenue to finance the budget, adds another strain to the already overtaxed Kenyans.
The National Assembly Committee on Budget and Appropriations (BAC), chaired by Alego Usonga MP Samuel Atandi, says that Kenya is not immune from the global economic outlook that remains uncertain and vulnerable to downside risks.
“This includes prolonged geopolitical tensions, volatility in commodity prices, elevated debt levels, weakening business environment and subdued global demand, which could affect economic growth, revenue mobilisation and the implementation of the budget,” the BAC report to the House reads.
The committee paints a grim picture, revealing that Kenya's economy expanded at a slightly slower pace in 2025, with real GDP growth easing from 4.7 percent in 2024 to 4.6 percent, reflecting mixed performance across the key sectors of the economy.
The Parliamentary Budget Office (PBO) reveals that domestically, climate-related shocks, the high cost of doing business and debt vulnerabilities are expected to weigh on economic performance.
Details from the Central Bank of Kenya (CBK) show that the country’s public debt is almost crossing the Sh13 trillion mark, occasioned by increased borrowing, largely from the local market, to plug budget deficits on account of revenue shortfall.
The increased debt service exposes the government to the threat of defaulting unless sound fiscal consolidation proposals, which regrettably have been ignored by mandarins at the National Treasury, are implemented.,
National Treasury Cabinet Secretary John Mbadi.
At a meeting with the National Assembly Committee on Budget and Appropriations (BAC), CS Mbadi ruled out the possibility of rationalising the country’s expenditure plans for the 2026/27.
“There is very little to cut in the budget,” said Mr Mbadi as he dismissed a section of MPs’ demands to reduce the expenditure projections.
The country’s planned expenditure in the next financial year is an increase compared to the Sh4.6 trillion budgeted for the current fiscal year and exceeds the Budget Policy Statement (BPS) expenditure projections as approved by the National Assembly in March this year, by Sh64 billion.
The depreciation of the Kenyan shilling, especially against major foreign currencies like the Sterling Pound and the Euro, as the dollar remains relatively constant, has further increased the cost of servicing external debt in local currency terms.
A report of the House Committee on Public Debt and Privatization, notes that Consolidated Fund Services (CFS) expenditures remain central to Kenya's fiscal sustainability framework.
According to the committee chaired by Balambala MP Abdi Shurie, they are direct charges on the Consolidated Fund (CF) and directly affect fiscal space, budget flexibility and the resources available for development priorities.
For instance, the next financial year, CFS expenditures are estimated at Sh2.56 trillion, with public debt service accounting for the largest share at Sh2.31 trillion, about 90 percent of total CFS expenditures. Of the sums allocated for public debt service, Sh1.25 trillion relates to interest payments, while Sh1.06 trillion relates to redemptions.
“This means that more than half of debt service expenditure will be applied towards the cost of borrowing rather than repayment of principal,” the public debt committee report on the 2026/27 estimates says.
Further, the committee says, interest payments are estimated at 6 percent of GDP, “compared to development expenditure at 3.6 percent of GDP.”
“This highlights the need to progressively shift fiscal policy towards growth-enhancing expenditure that will push the real growth of GDP towards the 10 percent target,” reads the committee’s report.
The Shurie-led committee notes that to finance the budget deficit, domestic borrowing at Sh995 billion, about 90 percent of the fiscal deficit, is expected to account for the largest share of the government’s borrowing for the year.
Net external borrowing is projected at Sh116.1 billion, which is 10 percent of the deficit.
“While borrowing from the domestic market provides a degree of stability and predictability in budget financing, among other benefits, the heavy reliance on domestic borrowing is likely to increase refinancing and interest payment pressures,” warns the committee.
“This is particularly notable given that domestic debt service is projected to account for about 71 percent of total debt service expenditure in the 2026/27 period.”
National Treasury Cabinet Secretary John Mbadi displays the budget briefcase at Parliament Building in Nairobi on June 12, 2025.
The members of the National Assembly Committee on Finance and National Planning, at the budget estimates hearing for the National Treasury, noted that failure to scale down the budget would throw Kenyans under the weight of enhanced borrowing.
“It is possible to have a budget that reacts to the reality of life,” said Molo MP Kuria Kimani, who chairs the House’s Finance and National Planning Committee.
This, as the National Treasury revealed that it has scaled down its economic growth forecast for the 2026/27 period from 5.3 percent, before the Middle East tension, to 4.8 percent after the Gulf situation showed no signs of easing.
Butula MP Joseph Oyula, a former Financial Secretary at the National Treasury before briefly serving as acting Permanent Secretary in May 2004, noted that the National Treasury has no choice but to relook into the budget.
“The situation in the country is gloomy. We cannot pretend by budgeting as usual,” the Butula MP added.
Details from the National Treasury and CBK reveal that in the last 13 years, KRA has never hit the right targets in terms of revenue mobilisation.
Mr Oyula and his Homa Bay Town counterpart Peter Kaluma note that KRA is unlikely to meet the revenue targets this year and the next fiscal period, “given the global economic shocks that have affected Kenya.”
“On the two days of strike occasioned by transport operators withdrawing their vehicles, the government did not collect revenue because people did not go to work,” says Mr Oyula, adding that, “the National Treasury needs to come up with a budget proposal, which the country can manage.”
Mr Kaluma noted, “I don’t understand this ambitious expenditure plan.”
“Despite the global constraints, the National Treasury still increased the budget estimates compared to the BPS that we approved in the House,” said the Homa Bay Town legislator.
The Strait of Hormuz, a key transit point that transits 20 percent to 25 percent of the world’s fuel supply, is experiencing an acute crisis with shipping traffic reduced to a trickle following its blockade by Iran.
The blockade, which has skyrocketed oil prices, was a response to the US-Israel military action prompted by the killing of Iran’s supreme leader, Ali Khamenei, on February 28, 2026.
The International Monetary Fund has revised its global growth forecast for 2026 downward from 3.3 percent in January 2026 to 3.1 percent in April 2026.
Mr Musa Kathanje, the Director, Macro and Fiscal Affairs at the National Treasury, says that before the situation in the gulf region erupted, leading to the blockade on the Strait of Hormuz, the economic growth had been projected at 5.3 percent.
Taking a cue from the IMF, Mr Kathanje says this was later revised to 5 percent reflecting the increased uncertainty in the global economic environment, specifically after the war in the Middle East erupted, but with the hope that the situation would ease.
However, with no indication that the war will end any time soon, the economic growth projection was further reviewed to 4.8 percent.
“The revision in economic growth is largely dependent on the activities in the Strait of Hormuz,” said Mr Kathanje, adding, “CBK was forecasting inflation would rise to 6.4 percent then come down.”
Controller of Budget Dr Margaret Nyakang’o notes that high debt servicing obligations will “significantly” constrain fiscal space, limiting the government’s ability to finance development and social programmes – health, education, social protection, and other critical investments.”
Dr Nyakang’o observed that fiscal deficits have become a moving target due to over-projected revenue collection that has not been met, forcing the government to increase expensive borrowing, largely from the local market, to support budgetary operations.
“The high debt servicing heightens fiscal vulnerability, indicating substantial near-term repayment pressure,” Dr Nyakang’o says adding; “the skew towards short-term maturities exposes the government to refinancing and rollover risks.”
The rising share of debt service relative to revenue, Dr Nyakang’o says, presents a debt sustainability risk, as increasing resources are required to service existing obligations.
She also revealed that the concentration of domestic debt in short-term instruments “creates liquidity and refinancing risks, while reliance on market-based borrowing exposes the government interest rate risk, particularly in a high-interest environment.”
The short-to medium-term maturity profile of domestic debt and sovereign bonds has also necessitated frequent refinancing, exposing the government to rollover pressures.”
The Sh2.31 trillion debt repayment is part of the Sh5.5 trillion external debt stock, due in the next 10 years.
The others include Sh197.72 billion due in the next two years, Sh7.74 billion due in the next three years, Sh134.03 billion due in the next five years, and Sh393.51 billion due in the next 10 years.
There is also the Sh1.41 trillion, about 26 percent of the external debt due, that matures in slightly over 10 years.
Dr Nyakang’o said that poor budget planning by mandarins at the National Treasury, which has seen government Ministries, Departments and Agencies (MDAs) exploit Article 233 of the constitution as well as the payment of commitment fees on undrawn loans, put the country in a difficult position.
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