Kenya has revised its 2025/26 budget through the first supplementary estimates to reflect weaker-than-expected revenue performance and rising expenditure pressures.
The adjustments, announced in the latest Budget Policy Statement, show a widening fiscal deficit and increased reliance on both domestic and external borrowing to finance government operations.
According to National Treasury Principal Secretary Chris Kiptoo, the changes are necessary to accommodate the revenue shortfalls and expenditure pressures.
Government Expenditure set to Increase
Total government expenditure has now been revised to Ksh 4.533 trillion, equivalent to 23.9 percent of GDP, marking an increase of Ksh 262.9 billion from the original budget.
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The increase reflects rising demands in key sectors, including
- Infrastructure development
- Social protection programs
- Public sector wages
- Debt servicing
Allocations have also been made to support ongoing development projects and meet statutory needs.
According to the Treasury, the expenditure pressures have been intensified by inflation, exchange rate movements, and higher operational costs across government departments.
Government to borrow more, Both External and Domestic
As a result of the revised revenue and spending figures, the fiscal deficit for 2025/26 is now projected at Ksh 1.141 trillion, equivalent to 6 percent of GDP, which is up from Ksh 901 billion in the approved budget.
To finance the deficit, the government plans to rely on a combination of external and domestic borrowing.
Net external financing is projected at Ksh 254.8 billion (1.3 percent of GDP), while net domestic financing is expected to reach KES 885.9 billion (4.7 percent of GDP).
The increased borrowing is expected to add pressure to Kenya’s public debt levels, raising concerns over debt sustainability amid rising interest rates and repayment obligations.
“In the approved budget, it will be financed through net external financing of 254.8 billion representing 1.3 percent of GDP, and net domestic financing of 885.9 billion, which is equivalent to 4.7 percent of GDP,” added Kiptoo.
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Revenue Projections Revised Amid Collection Challenges
In the revised estimates, total revenue for the 2025/26 financial year is now projected at KES 3.352 trillion, equivalent to 17.6 percent of GDP, an increase of Ksh13.5 billion from the approved budget.
Ordinary revenue that mainly comes from taxes and levies is expected to reduce by Ksh 10.3 billion to Ksh 2.744 trillion, equivalent to 14.4% of GDP.
The decline reflects ongoing challenges in tax collection, subdued economic activity in some sectors, and compliance.
To address the shortfalls, the government has raised its projection for Appropriations-in-Aid AIA) generated and retained by ministries and state agencies to Ksh 607.7 billion, an increase of Ksh 40.8 billion from earlier estimates.
“Given the budget performance during the first half of the fiscal year, there is a need to revise the budget in order to accommodate revenue shortfalls and expenditure pressures,” said Kiptoo.
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