Kenya: Treasury Projects Sh1.15tn Budget Deficit As Spending Hits Sh4.8tn

Nairobi — The National Treasury has projected a Sh1.15 trillion budget deficit for the 2026/27 financial year, with the financing gap set to be bridged largely through domestic borrowing as government spending continues to outpace revenue collections.

Presenting the 2026/27 Budget in Parliament, Treasury Cabinet Secretary John Mbadi said the government expects to raise Sh3.64 trillion in revenue and grants against planned expenditure of Sh4.8 trillion.

"Ordinary revenue is projected at Sh2.95 trillion, equivalent to 14.94 percent of GDP. Aid is projected at Sh644.8 billion, equivalent to 3.1 percent of GDP, while grants are projected at Sh43.6 billion or 0.2 percent of GDP," Mbadi told MPs.

The Treasury estimates total expenditure at Sh4.8 trillion, equivalent to 23.2 percent of GDP, with recurrent spending continuing to consume the largest share of the budget.

"Total expenditure in the financial year 2026/27 is projected at Sh4.8 trillion. Of this, recurrent expenditure will amount to Sh3.5 trillion, equivalent to 17.1 percent of GDP," he said.

The resulting fiscal deficit, including grants, is projected at Sh1.146 trillion, representing 5.5 percent of GDP.

According to the Treasury, the deficit will be financed through a combination of domestic and external borrowing, with domestic debt accounting for the bulk of the funding.

"The fiscal deficit will be financed through net external borrowing of Sh116.2 billion, equivalent to 0.6 percent of GDP, and net domestic borrowing of Sh1.03 trillion, equivalent to 4.9 percent of GDP," Mbadi said.

The budget highlights the continued dominance of recurrent expenditure, including public sector wages, debt servicing and government operations, which continue to absorb a significant share of national resources and limit fiscal space for development spending.

The fiscal outlook comes amid heightened scrutiny of Kenya's debt sustainability, with investors and development partners closely monitoring the government's efforts to reduce borrowing and narrow budget deficits.

Treasury has reiterated its commitment to fiscal consolidation through enhanced revenue mobilisation, tighter expenditure controls and improved efficiency in public spending as it seeks to place public debt on a sustainable path over the medium term.

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