Controller of Budget, Margaret Nyakang’o warned that revenue shortfalls, overspending and mounting debt service costs are undermining public services.
Speaking in Nairobi on Wednesday, she said unplanned expenditures and optimistic forecasts have deepened borrowing needs, even as the Treasury cited economic stability and improved credit ratings.
Speaking at the release of the 2026 Annual Public Debt Management Report in Nairobi, she questioned why the country repeatedly misses its fiscal targets despite careful planning.
“We plan to have a fiscal deficit of 3.6%, but we ended up with 5.8%,” she said, adding that the gap pointed to deeper problems in spending discipline and revenue collection.
“So we should be asking ourselves, how did we land into a deficit that was not what we planned?”
Nyakang’o said overspending on the original budget and underperforming revenues had forced the government to borrow more than anticipated.
She pointed to frequent requests under Article 223 of the Constitution, which allows spending outside the approved budget. “These are additional requests,” she said. “We must borrow to finance those extra requisitions.”
She also criticised what she described as persistent revenue optimism. “Every year we plan to collect so much, but we only collect so little,” she said, warning that tax evasion and a narrow tax base were undermining fiscal stability.
“There are a lot of people doing business using government resources, but they are not giving their contribution.”
The Controller of Budget further raised concerns over pending bills owed to businesses, saying delayed payments were hurting economic activity.
“How can we activate the purchasing power if we cannot get those monies that are owed to the public and give it back to them?” she asked.
Public Debt Management refers to how a government plans, acquires, services and monitors borrowing to finance its budget and development programmes while safeguarding economic stability.
In Kenya, the process is anchored in the Constitution, the Public Finance Management (PFM) Act, and supporting regulations that require transparency, accountability and sustainability in public borrowing.
The National Treasury, through the Public Debt Management Office (PDMO), is responsible for designing the debt strategy and determining how much to borrow, from which sources, and at what cost and risk.
Each financial year, the government identifies a financing gap arising from the budget deficit and decides whether to borrow domestically or externally, guided by the Medium-Term Debt Strategy and debt sustainability analysis.
Before borrowing, proposed loans are subjected to legal, technical and fiscal scrutiny to ensure they are affordable and aligned with national priorities.
Once approved, funds are raised through instruments such as Treasury bills and bonds in the domestic market, or concessional and commercial loans from external lenders.
The PDMO also tracks debt servicing, including interest and principal repayments, and regularly reports to Parliament through the annual Public Debt Management Report.
Oversight institutions, including Parliament, the Controller of Budget and the Auditor-General, play a key role in monitoring compliance and protecting public resources.
Earlier, Institute of Public Finance (IPF) Chief Executive Daniel Ndirangu questioned whether optimistic revenue forecasts were contributing to cash flow constraints and increased borrowing.
“Is it that the revenue forecasting, the revenue optimism on KRA’s side, is impacting borrowing to address these cash flow constraints?” he asked.
Ndirangu warned that the consequences were already visible in service delivery, particularly in healthcare.
“In the last four years, the health sector budget, both the national and the county budget, has been declining,” he said, noting that this was happening as official development assistance was also falling and shifting towards humanitarian responses.
“If the government is reducing its domestic funding to healthcare and also official development assistance is not coming through, what does that mean for the delivery of healthcare?” he asked.
He said out-of-pocket health spending had risen to about 22 per cent of total health expenditure, above the recommended benchmark of 15–20 per cent. “And that’s just one example,” he added, citing similar pressures in education and social services.
Presenting the debt report, Bernard Kibet from the Office of Public Debt Management said the government had projected borrowing of Sh1.03 trillion in the last fiscal year.
“We ended up borrowing Sh170.9 billion from external sources and Sh850.4 billion from domestic sources,” he said.
By the end of the 2025 fiscal year, public debt stood at Sh11.8 trillion, an increase of Sh1.2 trillion from the previous year.
Kibet said multilateral lenders accounted for 55 per cent of external debt, while commercial debt, including Eurobonds, made up about a quarter.
He clarified that while total debt service appeared high, interest payments alone stood at 40.8 per cent of ordinary revenue.
Director General of the Public Debt Management, Raphael Otieno, defended the Treasury’s strategy, pointing to macroeconomic stability.
“Our GDP is growing at about 5 per cent, which is above the average growth in Sub-Saharan Africa,” he said, adding that inflation had remained at 4.5 per cent for three consecutive months.
