Kenya is set to increase its domestic borrowing in the next financial year as government spending pressures rise and revenue targets are revised, highlighting the fiscal challenges ahead of the 2027 General Election.
The National Treasury’s final Budget Policy Statement for 2026, presented in the National Assembly, shows that the government will borrow Sh1.170 trillion for the year starting in July.
This represents an increase of Sh104.1 billion from the Sh1.066 trillion projected in the Budget Review and Outlook Paper released in October 2025. The statement guides the government’s fiscal policy, setting out spending priorities and revenue expectations for the coming year and the medium term.
Alongside higher borrowing, the Treasury has adjusted its tax projections, reducing the target by Sh97 billion from earlier estimates. The government now expects to collect Sh2.998 trillion in taxes for the financial year ending June, slightly above the Sh2.902 trillion forecast in the 2025 Budget Review and Outlook Paper.
“Looking ahead, the government’s fiscal policy for the financial year 2026/27 and the medium term remains anchored on a growth-supportive fiscal consolidation strategy,” Treasury Principal Secretary Chris Kiptoo said.
The budget shows that the deficit will be financed through Sh225.5 billion in net external loans and Sh890.4 billion from domestic borrowing. In comparison, the supplementary budget for the current financial year ending June recorded a deficit of Sh1.18 trillion, up from the Sh948 billion initially projected at the start of the year.
The increased borrowing comes as President William Ruto’s administration works to fund major projects and deliver on key promises as the election draws near. Total expenditure for the next financial year is projected at Sh4.7 trillion, up from Sh4.5 trillion in the current year ending June 2026.
Recurrent expenditure, which covers salaries, operations, and maintenance, is projected at Sh3.456 trillion, while development spending will reach Sh749.5 billion. County governments are set to receive Sh495.5 billion as their share of revenue from the National Treasury, while Sh2.0 billion has been allocated to the Contingency Fund.
The government expects to mobilise Sh3.533 trillion during the review period, with ordinary revenue, largely taxes, contributing Sh2.9 trillion. Despite this, the spending plan leaves a deficit of Sh1.115 trillion.
President Ruto is expected to push forward on key initiatives under the Bottom-Up Transformation Agenda, aimed at benefiting ordinary Kenyans, as the election approaches.
Treasury Cabinet Secretary John Mbadi said Kenya has not yet decided on a timeline for returning to the Eurobond market, despite lower global interest rates and improving market conditions that have attracted other African countries.
“As far as the plan and timing for Kenya to return to the market is concerned, that will be determined by the prevailing market conditions and the status of other expected financing options,” said Mr Mbadi. “Whereas the redemption profile currently looks smooth, there is still room for additional liability management operations, particularly to address other expensive commercial debt instruments in the public debt portfolio.”
The government aims to reduce the fiscal deficit to 5.3 percent of GDP by June 2027. Measures being implemented include trimming non-essential expenditure, improving tax compliance, and broadening the tax base.
