Kenya’s fiscal gap has widened to 6.4% of GDP, translating to about Sh1.199 trillion, prompting the Treasury to roll out tighter tax controls and stricter spending measures as pressure builds on public finances from weak revenue performance, rising wage costs, and emergency spending needs.
Treasury Cabinet Secretary John Mbadi, while presenting the Budget Highlights and Revenue Raising Measures for the 2026/27 financial year in Parliament on Thursday, said the government is responding with wide-ranging reforms targeting tax administration, public spending efficiency, and digital systems to stabilize the budget and improve service delivery.
He noted that revenue collection has been affected by slower tax receipts and economic pressures, while spending demands have continued to rise, especially from wage obligations and crisis interventions.
“The revenue front performance has fallen short of target in the financial year 2025/26. This is due to slower-than-expected tax receipts, largely driven by administrative constraints, and a slowdown in economic activity,” he explained.
On the spending side, he pointed to growing obligations linked to salary reviews and emergency allocations, saying this has added strain to the fiscal framework.
“At the same time, expenditure pressures have been testified, the implementation of pending and newly negotiated collective bargaining agreements has raised the public sector whistle beyond initial projection,” Mbadi noted.
He further revealed that supplementary budgets amounting to Sh368.6 billion were introduced to address emerging financial needs, while Sh17 billion was set aside for the Kenya Revenue Authority to strengthen compliance systems and revenue collection capacity.
To improve revenue performance, Mbadi said the government is accelerating the use of digital tools and automation in tax administration, aimed at widening the tax base and reducing leakages.
“The Kenya Revenue Authority has intensified reforms to modernize tax administration, enhance compliance, and improve service delivery through technology and innovation,” he elaborated, adding that over 655,000 taxpayers are now onboard under the electronic tax invoice management system.
He also highlighted the deployment of artificial intelligence tools and non-intrusive scanning technologies to detect illicit trade and curb revenue losses at entry points and within the domestic market.
On public spending, Mbadi said reforms are being rolled out to improve efficiency and ensure better value for money, including full digitisation of procurement and payroll systems across government.
“These reforms include the full rollout of e-government procurement, completion of key treasury single account reforms, and transition to accrual-based accounting to strengthen cash management, fiscal oversight, and financial reporting,” he highlighted.
He added that the government will expand public-private partnerships to reduce reliance on borrowing and support infrastructure financing, as part of a broader fiscal consolidation plan.
Mbadi said the fiscal strategy remains anchored on the Bottom-Up Economic Transformation Agenda, which seeks to balance economic growth with debt sustainability.
“Fiscal policy is not merely about balancing budgets. It is about creating conditions for sustainable growth, protecting the vulnerable, and securing prosperity for the future generation.”
He emphasized that future reforms will focus on disciplined spending, stronger revenue mobilisation, and improved efficiency across government systems to stabilize public finances and support long-term growth.