A government borrowing plan meant to stay within approved limits has come under scrutiny after an audit revealed that spending pressures pushed the fiscal gap far beyond what lawmakers had sanctioned, with the National Treasury accused of proceeding without seeking the required green light from Parliament.
Auditor-General Nancy Gathungu has raised concerns over how the National Treasury handled the 2024/25 budget, saying the fiscal deficit climbed to Sh1.26 trillion without approval from the National Assembly, breaching agreed borrowing arrangements.
The report, which was submitted to Parliament, shows that the deficit rose by Sh492.12 billion from the earlier estimate of Sh768.6 billion, translating to about 6.3 per cent of the GDP and going beyond the ceiling set by MPs.
A fiscal deficit occurs when government spending exceeds the revenue collected within a given period, forcing the State to borrow in order to bridge the gap.
According to Gathungu, the approach taken by the Treasury went against the direction set by the Public Debt and Privatisation Committee, whose recommendations had been adopted by the National Assembly.
“In the circumstances, the National Treasury was in breach of the MTDS (Medium-Term Debt Strategy) recommendations of the Public Debt and Privatisation Committee,” the audit reads.
The committee had examined the 2023 Medium-Term Debt Strategy and the annual borrowing plan, recommending that 45 per cent of the deficit be financed through external borrowing while 55 per cent be raised from the domestic market to meet the Sh768.6 billion financing gap for the 2024/25 financial year.
The Medium-Term Debt Strategy provides guidance on how the Treasury should manage borrowing between the 2023/24 and 2025/26 financial years, as outlined in the Budget Policy Statement, with an aim of controlling debt costs and reducing exposure to financial risks.
Under the approved plan, borrowing was capped at Sh355.5 billion from external sources and Sh413.1 billion from the domestic market for the period in question.
However, the audit indicates that by June 30, 2025, the actual borrowing had shifted to Sh374.01 billion externally and Sh886.61 billion domestically, altering the structure to a 30:70 ratio instead of the approved 45:55 mix.
“There was no approval for the deviation contrary to the resolution of Parliament that any deviation from the approved borrowing strategy required approval from the National Assembly,” the audit says.
The Public Debt and Privatisation Committee, chaired by Balambala MP Abdi Shurie, had earlier stressed that any adjustment to the borrowing plan must first be presented to and approved by the National Assembly.
The shift in borrowing patterns contributed to an increase in the national debt stock, which stood at Sh11.74 trillion as of June 30, 2025, up from Sh10.5 trillion recorded at the start of the financial year.
During the same period, external debt rose from Sh5.1 trillion to Sh5.45 trillion, while domestic debt climbed from Sh5.4 trillion to Sh6.3 trillion.
The committee urged the Treasury to align its borrowing practices with the approved Medium-Term Debt Strategy in order to strengthen confidence in government fiscal planning and ensure consistency in policy documents.
It further recommended that deficit levels be kept within set targets over the medium term, proposing a ceiling of 4.4 per cent of GDP for 2023/24, 3.9 per cent for 2024/25, and 3.6 per cent for 2025/26, as part of a broader effort to reduce borrowing.
“Going forward, the MTDS should live up to its expectation as a medium-term document by showing consistency in proposed debt management strategies, including deficit financing on a three-year rolling framework, from one MTDS to another,” the committee’s report, adopted by the House, reads.
The Medium-Term Debt Strategy, developed by the National Treasury with support from the World Bank and the International Monetary Fund, is intended to guide borrowing decisions and debt management by linking them to the country’s broader economic policies while aiming to balance financing needs with cost and risk control.