Kenya’s budget strain is deepening, with the Treasury revealing a widening financing gap now standing at 6.4% of GDP, as pressure from weak revenue intake, rising salary commitments, and unplanned spending forces government to tighten both tax collection and expenditure management.
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 moving to reinforce revenue systems and lock in tighter controls on public spending to stabilise the fiscal position.
He said the shortfall in revenue collection has been driven by slower tax inflows and a softer economic environment, which has left the government below its targets in the 2025/26 financial year.
“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.
At the same time, he noted that expenditure demands have continued to rise, mainly due to salary adjustments and emergency funding needs that were not initially planned for.
“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 disclosed that the government had introduced supplementary spending worth Sh368.6 billion to respond to emerging obligations, alongside Sh17 billion directed to the Kenya Revenue Authority to strengthen compliance and enforcement systems.
To reverse the revenue slowdown, Mbadi said the government is accelerating the use of technology in tax administration, aimed at widening compliance and sealing loopholes.
“The Kenya Revenue Authority has intensified reforms to modernize tax administration, enhance compliance, and improve service delivery through technology and innovation,” he elaborated, noting that more than 655,000 taxpayers are now registered under the electronic tax invoice management system.
He added that artificial intelligence tools and non-intrusive inspection systems are being deployed to improve detection of illicit trade and reduce revenue leakage across key collection points.
On spending controls, he said the government is pushing reforms aimed at improving accountability and efficiency, including full digitisation of procurement processes and payroll systems.
“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.
Mbadi also pointed to increased reliance on public-private partnerships as part of efforts to reduce pressure on borrowing while sustaining infrastructure development.
He said the fiscal framework remains anchored on the Bottom-Up Economic Transformation Agenda, which aims to balance growth priorities 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 the government’s next phase of reforms will focus on tighter discipline in spending, stronger revenue mobilisation, and improved efficiency across state systems.