Kenya could soon face spending cuts after the National Treasury admitted that mounting debt obligations and fixed government expenses are consuming nearly all available revenue, leaving the state with shrinking room to fund development projects or respond to economic shocks.
Treasury Cabinet Secretary John Mbadi said the government's financial position has become increasingly constrained, with most of the money expected to be collected in the next financial year already committed to mandatory expenditures such as debt repayment, salaries and county transfers.
Speaking during a briefing on the Finance Bill 2026, Mbadi said the situation has made it difficult for the government to create space for new programmes or inject additional resources into the economy.
According to Treasury projections, the government expects to raise Sh3.63 trillion in revenue in the coming financial year. Out of that amount, about Sh1.5 trillion will be spent on servicing debt while another Sh1 trillion will go towards paying public servants.
County governments are also expected to receive at least Sh420 billion, further reducing the amount available for other priorities.
“That is why I keep saying this budget is rigid. It is inflexible. We have boxed ourselves in,” Mbadi said.
The Cabinet Secretary's remarks provide one of the clearest acknowledgements yet of the financial pressures weighing on the government as it seeks to maintain services while avoiding measures that could place additional strain on taxpayers.
Mbadi noted that increasing taxes is no longer a straightforward option given the strong public resistance witnessed in recent years and concerns over the rising cost of living.
“We are alive to the fact that the options of raising more taxes are limited because Kenyans have complained loudly before of high taxation,” he said.
He added that the borrowing route is also becoming more difficult as debt repayment demands continue to grow while global economic uncertainties remain a concern.
Treasury estimates indicate that close to half of all projected revenue will be used to meet debt obligations, underscoring the pressure created by years of borrowing to finance both development projects and recurrent spending.
Mbadi warned that the situation could worsen if external events affect economic performance. He cited the possibility of higher oil prices arising from tensions in the Middle East, saying such developments could reduce economic growth and weaken revenue collection.
“Revenue projection will come down. And if revenue projection is down, how do you finance the same budget? Either by borrowing or taxation. We have no option to come for more taxes. Borrowing is another no-go zone. That leaves only one option — cutting the budget,” Mbadi posed.
The comments suggest Treasury may increasingly focus on reducing expenditure and tightening spending controls instead of pursuing fresh tax measures that have previously sparked widespread opposition.
At the same time, the government is reviewing how it finances large-scale projects in a bid to reduce pressure on the national budget.
Mbadi disclosed that Treasury intends to move some commercially viable projects away from direct Exchequer support and finance them through public-private partnerships and the proposed National Infrastructure Fund.
The Ministry of Energy has already felt the impact of the new approach after reductions were made to its development allocation.
“Many of the projects being implemented under the Ministry of Energy are commercially viable.”
The strategy is expected to encourage greater participation by private investors, pension funds and development finance institutions in financing infrastructure projects that would otherwise depend on government funding.
Mbadi also said Treasury is seeking to reshape the Finance Bill 2026 into a proposal focused mainly on simplifying tax administration and improving compliance rather than introducing major tax increases.
The latest assessment from Treasury highlights the difficult balancing act facing the government as it works to manage debt obligations, sustain public services and support economic growth within increasingly limited fiscal space.