A bigger share of government borrowing is now going into development, but the Treasury still used Sh207.7 billion in loans to cover recurrent expenses in the financial year that ended in June, keeping the government in breach of a key borrowing rule.
The draft 2026 Budget Review and Outlook Paper shows that the government raised Sh983.7 billion through borrowing in the 2025/26 financial year. Of this amount, Sh776 billion was spent on development, leaving Sh207.7 billion to meet recurrent expenditure.
The figures mean 78.9 per cent of the money borrowed was directed towards development, while 21.1 per cent went towards recurrent needs.
Although the proportion going to recurrent expenditure has declined compared with earlier years, the use of debt to meet routine government costs remains contrary to the Public Finance Management Act, 2012.
Section 15(2)(c) of the law states that national government borrowing should, over the medium term, be used only to finance development expenditure and not recurrent costs.
The latest figures show the challenge facing the Treasury as it tries to meet rising government expenses at a time when revenue collections remain below target and debt-servicing costs continue to take up a large portion of available funds.
Treasury has accepted that the borrowing pattern has not fully met the requirements of the law and has promised to improve its compliance in coming budgets.
"Over the medium term, the government will ensure adherence to the fiscal responsibility principles," Treasury officials wrote in the review paper.
The latest borrowing data also comes against an earlier commitment by President William Ruto to end the use of loans to pay for regular government expenses.
Speaking in September 2022, shortly after taking office, the President said borrowing should be reserved for purposes that would benefit the country over the long term.
"The government should never borrow to finance recurrent expenditure. It is not right, it is not prudent, and it is not sustainable. It is simply wrong. We must bring ourselves and our country to sanity," the President said.
He further set a three-year goal of bringing government spending under control and ensuring that ordinary revenue could cover recurrent costs.
"Over the next three years, we must reverse this and go back to a situation where the government contributes to the national savings effort by keeping recurrent expenditure below revenue levels."
The latest Treasury figures indicate that the government has made some progress towards that objective, with the amount of borrowing used for recurrent expenditure falling over the past three financial years.
In 2023/24, the government borrowed Sh766.4 billion, but Sh415.7 billion of the amount was used to finance recurrent expenditure. This meant more than half of the loans raised that year went towards meeting regular government costs.
The position improved in 2024/25 when total borrowing increased to Sh854.5 billion. Of this, Sh604.1 billion was allocated to development while Sh250.4 billion went towards recurrent expenditure.
The development portion therefore accounted for 70.7 per cent of borrowing during that financial year.
In the latest financial year, the development share rose further to 78.9 per cent. However, the Sh207.7 billion still directed to recurrent expenditure shows that the government has not yet managed to fund all its routine expenses from taxes and other ordinary revenue.
The Treasury has maintained that its borrowing programme is increasingly focused on infrastructure and other projects intended to support economic activity.
Development spending can go towards projects such as roads, which create long-term assets and can support future economic activity and revenue collection. Recurrent spending, on the other hand, goes towards expenses required to keep government operations running.
Treasury Cabinet Secretary John Mbadi has previously said the government was working to restore fiscal discipline and strengthen compliance with the Public Finance Management Act after years of high borrowing and growing debt-servicing costs.
The pressure on the recurrent budget is also reflected in the rise in government spending. Recurrent expenditure increased to nearly Sh3.29 trillion in the year to June, up from Sh2.95 trillion in the previous financial year.
The expenditure includes salaries for public servants, pensions, interest payments on government debt, transfers to State agencies and county governments, as well as operations and maintenance costs across ministries and departments.
Debt payments remain one of the largest demands on the recurrent budget, forcing the government to commit an increasing portion of its revenue towards interest and principal repayments.
At the same time, the BROP shows that development expenditure has continued to increase, giving the Treasury grounds to point to a growing focus on investment.
Even with that shift, however, the latest figures show that Kenya continues to use part of its borrowed funds to meet immediate government needs, as the Treasury seeks to balance spending obligations with limited revenue and heavy debt costs.