The National Treasury has outlined the government’s fiscal plans for the 2026/27 financial year, projecting a wider gap between revenue and expenditure. In its Draft 2026 Budget Policy Statement (BPS), the Treasury set out revenue targets, spending priorities and borrowing plans that will shape the national budget and medium-term fiscal framework.
According to the draft BPS, total revenue for the 2026/27 financial year, including Appropriation-in-Aid (A-I-A), is projected at Ksh3.487 trillion, representing 16.7 per cent of Gross Domestic Product (GDP).
Within this total, ordinary revenue is estimated at Ksh2.9019 trillion. The Treasury says revenue mobilization will be anchored on the National Tax Policy and the Medium-Term Revenue Strategy, with a focus on building a more predictable and fair tax system.
Planned measures include simplifying tax laws, rationalizing tax expenditures, expanding the tax base through digitalisation, improving compliance, and strengthening non-tax revenue collection by Ministries, Departments, and Agencies.
“In the FY 2026/27 and over the medium term, the Government will focus on domestic resource mobilization efforts that include continued implementation of the National Tax Policy and the Medium-Term Revenue Strategy to progressively strengthen tax revenue mobilization by simplifying and harmonizing tax laws, rationalizing and targeting tax expenditures, and creating a simple, predictable and fair tax system,” part of the draft reads in part.
“These reforms aim to enhance compliance, reduce administrative complexity, support investment, and move revenue collection toward 20 percent of GDP in the medium term.”
However, the draft acknowledges recent revenue challenges, such as pressure on revenue collection. By October 2025, ordinary revenue in the current 2025/26 financial year had underperformed by Ksh107.7 billion.
2026 budget projects spending at Ksh4.64 trillion
According to the draft, the total expenditure and net lending for FY 2026/27 is projected at Ksh4.6419 trillion, equivalent to 22.2 per cent of GDP.
The spending framework is broken down as follows:
- Recurrent expenditure: Ksh3.4312 trillion
- Development expenditure: Ksh759.1 billion
- Transfers to county governments: Ksh446.6 billion
- Contingency Fund: Ksh5.0 billion
The Treasury says the expenditure plan is aligned with its growth-supportive fiscal consolidation strategy.
Also Read: Ruto’s Govt Allocated Ksh2.8 Trillion as Judiciary Receives Only Ksh29 Billion
Over the medium term, development expenditure is expected to take a larger share of ministerial national government spending, rising from 28.2 per cent in FY 2026/27 to 32.3 per cent by FY 2028/29, signalling a shift toward long-term, productive investments.
Budget deficit projected at Ksh1.1 trillion
The gap between revenue and expenditure leaves a projected fiscal deficit, including grants, of Ksh1.1061 trillion, equivalent to 5.3 per cent of GDP, in FY 2026/27.
While the deficit remains elevated in the coming year, the government projects a gradual decline over the medium term, with the deficit expected to narrow to 3.4 per cent of GDP by FY 2028/29 as revenue reforms take hold and expenditure adjustments are implemented.
Domestic borrowing
To finance the projected deficit, the Treasury plans to borrow domestically and internationally, with a strong emphasis on the domestic market.
Net domestic financing for FY 2026/27 is projected at Ksh1.0066 trillion, equivalent to 4.8 per cent of GDP, while net external borrowing is estimated at Ksh9.5 billion, or 0.5 per cent of GDP.
The draft BPS indicates that external borrowing will focus on concessional and semi-concessional loans from multilateral and bilateral partners.
Also Read: Rironi–Mau Summit Road Set to Unlock Trade and Transform Communities
On the domestic front, the government plans to rely mainly on medium- to long-term Treasury bonds to manage refinancing risks, while limiting short-term Treasury bills to liquidity management.
Public debt service costs are expected to rise to Ksh1.6582 trillion in FY 2026/27, reflecting the growing burden of servicing existing debt.
Revenue reforms key to meeting targets
The Treasury notes that meeting the projected Ksh3.48 trillion revenue target in FY 2026/27 will depend mainly on the successful implementation of administrative and policy reforms, including the use of technology to seal revenue leakages and improve compliance.
The Draft 2026 Budget Policy Statement is open to public participation, with feedback to the National Treasury due by January 9, 2026, ahead of the finalisation of the budget framework that will guide government spending and borrowing in the coming financial year.
Follow our WhatsApp Channel and X Account for real-time news updates.
