The National Treasury has cut its tax revenue target for the current fiscal year by Sh93 billion amid a tough economic environment for businesses and households, signalling higher borrowing by the exchequer and a risk of upward pressure on domestic interest rates.
Treasury CS John Mbadi disclosed on Monday that the government is set to cut its ordinary revenue target (taxes) from Sh2.631 trillion to Sh2.538 trillion. The borrowing target for the 2025/2026 fiscal year is also set for a Sh180 billion cut, from the earlier projection of Sh3.018 trillion to Sh2.838 trillion.
John Mbadi || Fixing The Nation
The current targets are themselves a result of a downward revision done via the Supplementary Budget I 2024/25, which was passed in August to reflect the fiscal changes the government introduced after the youth-led protests of June and July. In June’s 2024 Budget statement, the government had set an ordinary revenue target of Sh2.917 trillion for the current fiscal year.
Mr Mbadi said the changed targets will reflect in the final version of the 2025 Budget Policy Statement (BPS) that will be presented to Parliament in coming days. The Treasury put out the draft of the budget document last month for public debate.
He also disclosed that the Draft BPS expenditure target of Sh4.329 trillion for the 2025/26 fiscal year will be cut by Sh153 billion in the final version, to reflect the lower expected revenue in the period.
However, he did not announce any expenditure reduction for the current fiscal year, raising the prospects of the budget deficit going up by at least Sh93 billion from the current Sh768.6 billion, or even higher should the anticipated second supplementary budget raise spending to cover emerging demands such as settlement of pending bills.
The current deficit is meant to be funded by net domestic borrowing of Sh413.1 billion, and external borrowing of Sh355.5 billion. In the initial budget statement of June 2024, the Treasury had projected a deficit of Sh597 billion, of which Sh263.2 billion was to be financed by local lenders.
Any further upward revision of the domestic borrowing targets will therefore put domestic interest rates under renewed upward pressure, at a time when they have come down by a relatively wide margin in line with the Central Bank of Kenya (CBK) cutting its policy rate from 13 per cent to 11.25 per cent.
Treasury bills are currently yielding between 9.5 and 11.3 per cent across the three tenors of 91-days, 182-days and 364-days, down from highs of 16 to 16.99 percent in August last year.
The CBK’s monetary policy committee will be sitting later today (Wednesday) for its first rate setting meeting of the year, with analysts saying that the regulator has room to cut rates further due to lower inflation and a stable exchange rate over the last few months.
