National Treasury Cabinet Secretary John Mbadi on Monday mounted a detailed defence of the 2026 Budget Policy Statement (BPS) before the National Assembly’s Budget and Appropriations Committee (BAC), outlining the government’s fiscal consolidation plan, macroeconomic outlook, revenue-sharing formula, and sweeping public finance reforms.
Appearing before the committee on March 2, 2026, Mbadi explained that the next phase of transformation will focus on scaling up investments in people, shifting the economy from a net importer to a net exporter, ensuring affordable energy, and expanding transport and logistics infrastructure to strengthen Kenya’s competitiveness.
“In this respect, and in order to capture the progress and the strategic shift underway, the theme for the 2026 Budget Policy Statement (BPS) is ‘Accelerating Gains Under the Bottom-Up Economic Transformation Agenda for Inclusive and Sustainable Growth,’” Mbadi said.
Mbadi told MPs that the Kenyan economy has remained resilient despite domestic and global shocks, reporting that it grew at an average annual rate of 5.1 per cent over the past three years — 4.9 per cent in 2022, 5.7 per cent in 2023, and 4.7 per cent in 2024.
“The Kenyan economy continues to demonstrate strong resilience despite facing multiple challenges arising from both domestic and external environments,” he said, adding, “As a result of this performance, we estimate the economy will grow by 5.0 per cent in 2025.”
Mbadi said the Treasury projects further expansion: “The economy is projected to strengthen and grow by 5.3 per cent in 2026 and 2027. The recovery will be anchored by a robust agricultural sector, steady expansion in services, and a gradual rebound in the industrial sector.”
On price stability, Mbadi noted that inflation remains within the Central Bank’s target range.
“Inflation stood at 4.3 per cent in February 2026, up from 3.5 per cent in February 2025, staying within the 5.0±2.5 per cent target, reflecting the easing of monetary policy, lower energy costs, and easing food prices,” the CS said.
He added that interest rates have declined following the easing of monetary policy, with the Central Bank Rate reduced to 8.75 per cent in February 2026 from 13.0 per cent in August 2024.
On revenue shortfalls and budget pressures, the CS acknowledged significant challenges in the current financial year.
“There has been persistent underperformance in ordinary revenue collection amounting to Sh 111.6 billion by the end of December 2025. This reflects slower-than-projected tax receipts, largely due to compliance gaps, administrative challenges, and the impact of revenue-reducing measures introduced in the Finance Act 2025,” he said.
The ODM expert told MPs that improvements had been recorded in recent months, saying, “Since December 2025, we have seen KRA improve revenue collection, and in some months surpass monthly targets. With the ongoing initiatives, it is expected that this gap will be significantly narrowed going forward.”
For the 2026/27 financial year, the Treasury projects total revenue of Sh 3.533 trillion (16.9 per cent of GDP), including ordinary revenue of Sh 2.901 trillion and Appropriation-in-Aid of Sh 631.8 billion.
Total expenditure and net lending are projected at Sh 4.704 trillion (22.5 per cent of GDP), comprising recurrent spending of Sh 3.457 trillion, development expenditure of Sh 749.5 billion, transfers to counties of Sh 495.5 billion, and Sh 2.0 billion to the Contingency Fund.
The fiscal deficit, including grants, is projected at Sh 1.116 trillion (5.3 per cent of GDP), down from 6.0 per cent in 2025/26.
“In line with fiscal consolidation, the fiscal deficit, including grants, is projected to decline to 5.3 per cent of GDP in FY 2026/27 from the projected deficit of 6.0 per cent of GDP in FY 2025/26. The deficit is projected to decline further to 3.3 per cent of GDP over the medium term.”
Mbadi assured the Samuel Atandi-led committee that the government would stick to fiscal discipline.
“To realise these fiscal outcomes in the FY 2026/27 budget, the government will continue to pursue prudent fiscal consolidation anchored on sustainable domestic revenue mobilisation through targeted tax policy and administrative reforms, rationalisation of non-essential expenditure, strengthened expenditure control, and improved spending efficiency,” Mbadi said.
On vertical revenue sharing, Mbadi proposed a total allocation of Sh 495.7 billion to county governments, explaining that Sh 420 billion will be the equitable share, translating to 21.9 per cent of the most recent audited and approved revenue, while Sh 75.7 billion will be additional allocations.
“In FY 2026/27, we have proposed a total allocation to county governments of Sh 495.7 billion.”
The CS noted that rising debt service obligations are significantly constraining fiscal space, revealing that public debt service in 2026/27 will account for 52 per cent of ordinary revenue, compared to an average of 41 per cent over the past decade.
The Treasury boss disclosed that the Pending Bills Verification Committee had received 115,617 claims valued at Sh 664.8 billion and, by December 31, 2025, had analysed 91,911 claims valued at Sh 637.6 billion — about 80 per cent of the total.
