A Quick Overview of the 2026/2027 Budget and Finance Bill 2026
The total spending of the July 2026 to July 2027 budget is projected to reach Kshs 4.7 trillion, as shown by Chart 1 below. It is worth noting that the total budget figure does not include payments due on existing public debt, as it is assumed they can be rolled over through refinancing in the money markets. The largest portion of the Kshs 3.45 trillion budget (73.49%) will be spent on salaries, loans, pensions, and expenses to keep the government running. Spending on development infrastructure (roads, railways, bridges, airports, seaports, energy, ICT, water, sanitation) will reach Kshs 749.5 billion (15.93%). National government money transferred to counties as an equitable share of revenues, an equalization fund, or conditional and unconditional grants will reach Kshs 495.5 billion (10.53%). The allocation for emergency is set at Kshs 2 billion.
The Finance Bill 2026 targets raising a total of Kshs 3.53 trillion from Kenyan citizens and businesses. The share of tax revenues from income taxes by corporates and Pay as You Earn (PAYE), sales excise taxes, Value Added Tax (VAT), import and export customs duties will top Kshs 2.76 trillion (78.3%).
The share from fees charged by government ministries, departments, agencies and semi-autonomous government agencies is estimated at Kshs 631.8 billion (17.88%). The share on non-tax revenues from dividends or sale of state-owned enterprises is estimated at Kshs 134.5 billion (3.8%).
To balance the equation and the difference between the estimated budget expenditure of Kshs 4.7 trillion and the total revenue of Kshs 3.53 trillion, the government intends to borrow and therefore add new debt of Kshs 1.11 trillion. Borrowing of new debt from Kenyans is expected to reach Kshs 890.4 billion (79.8%).
Borrowing new debt from foreigners is estimated at Kshs 225.5 billion (20.2%). Below are the alternative ways that the budget and Finance Bill 2026 can increase your borrowing costs for both existing and new loans.
Proposed Size of Government Borrowing from Kenyans
Borrowing new additional debt from Kenyan citizens and businesses by selling them treasury bonds and bills is expected to reach Kshs 890.4 billion. This is equal to 4.25% of GDP, Kshs 20.94 trillion; 18.93% of the total estimated budget expenditure, Kshs 4.7 trillion; and 79.8% of the new additional debt, Kshs 1.11 trillion.
What this means for you is that the high amount of new additional borrowing by the government may push everyone out of getting loans from banks, as the competition for the scarce money will cause interest rates to rise.
Proposed Size of Government Borrowing from Foreigners
Borrowing new debt from foreigners (loans from foreign banks, investors (Eurobonds from Eurodollar markets, Sukuk Bonds from the Middle East, Samurai bonds from Japan, Panda bonds from China), governments, IMF, World Bank, African Development Bank, European Investment Bank, loans for projects and imports) is expected to reach Kshs 225.5 billion.
Also Read: Mitumba Tax, Rental Tax Among Contentious Proposals Dropped in Finance Bill 2026
This is equal to 1.1% of GDP, Kshs 20.94 trillion; 4.8% of the total estimated budget expenditure, Kshs 4.7 trillion; and 20.2% of the new additional debt, Kshs 1.11 trillion. If global inflation continues to rise due to hikes in Middle East oil prices and supply chain disruptions, global central banks will be forced to snuff out the inflation by increasing their interest rates.
This will force the Kenyan government to avoid external borrowing and instead substitute it with borrowing from Kenyan businesses and citizens. What this means for you is that competition for bank loans between government, private sector and households may push up interest rates on your existing and new loans.
Debt Repayment Pressures on the Current Local and Foreign Debt
Kenya’s Medium Term Debt Strategy (MTDS) report for 2026/2027 to 2028/2029 showed Kenya has a high debt burden because, as at June 2025, the debt to GDP ratio of 67.8% surpassed the target of not more than 60%, and the present value of debt to GDP at 65.3% was way above the national parliament ceiling of existing debt of 55%.
The country is put in the class of countries with high risk of stressful debt. This means Kenya is highly vulnerable to being pushed off the cliff by external shocks, including rising global oil prices, interest rates, and the strengthening of the Dollar, as well as the resulting downgrades of Kenya’s credit score by Moody’s, S&P, and Fitch. If this happens, the government will be forced to borrow at high interest rates both domestically and externally, thereby raising borrowing costs for you and everyone else.
The 2027 Elections Big Government Requires Big Budget Problem
Politicians are going to be demanding ‘’development’’ from government for them to stand a chance of being elected in August 2027. To win over voters, the government lacks the political will and motivation to cut budgets and instead bows to pressure to maintain this large budget (Kshs 4.7 trillion, 22.4% of the GDP estimated at Kshs 20.94 trillion), thereby maintaining a big government.
The problem stems from the government’s failure to tighten its belt by growing the economy to increase tax revenues and/or cutting unnecessary expenditure.
Additionally, inflation from the money politicians will spend on their 2027 campaigns may increase inflation and force the Central Bank of Kenya to hike interest rates, thereby raising borrowing costs for you and everyone else.
Financing the Kshs 5 Trillion National Infrastructure Fund by Borrowing from Kenyans
The National Infrastructure Fund is expected to be financed through pension funds, collective investment schemes, sovereign wealth funds and climate finance. Should this fail and the government is forced to look for money by borrowing the money while still financing the budget shortfall with borrowings from Kenyans, the interest rates may skyrocket and thus raise borrowing costs for you and everyone else.
Rise in factors determining interest rates charged by banks
The various factors that banks take into account while declaring interest rates on loans include the costs of deposits, the cost of borrowing foreign loans, operational costs, the rate at which borrowers fail to repay their loans, and the Central Bank Rate (CBR).
Also Read: Mbadi Revives Debate to Merge Counties as CBK Downgrades Kenya’s Economic Growth
Any medium to large increase in these factors will occasion a rise in borrowing costs for you and everyone as the banks hike up their lending interest rates.
Tips on How You Can Protect Yourself in a High Borrowing Costs Environment
- Take lessons and read books which sharpen your financial knowledge.
- Maintain excellent credit scores to benefit from lower risk-based rates.
- Maintain proactive loan repayment behavior to maintain a clean loan history.
- Avoid multiple borrowings and being over-indebted.
- Compare lenders and always avoid high-interest-rate loans.
- Avoid diverting your loans to wrong purposes.
- Talk with your bank to reduce your monthly repayment by prolonging your loan period.
Frequently Asked Questions (FAQs)
- Is Kenya stressed with a high debt burden? The present value of debt-to-GDP at 65.3% is above the parliament’s approved ceiling of 55%.
- Has Kenya been disciplined enough to reduce new debt over time? Not really. The budgeted new debt of Kshs 1.11 trillion is 5.3% of the Kshs 20.94 trillion GDP, which means that tightening belts to reduce expenditure or growing GDP to increase revenues has not managed to reduce the budget shortfall to the ceiling of less than 3% of GDP.
- What are the top most [primary drivers of the cost of borrowing in Kenya? High interest rates stemming from the high cost of living (inflation) and the government’s high appetite for borrowing from banks.
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