The National Treasury has raised its borrowing target for the financial year beginning in July by Sh104.1 billion to Sh1.170 trillion, underscoring intensifying expenditure demands amid growing political pressure to soften the tax burden ahead of the 2027 General Election.
According to the final Budget Policy Statement for 2026 tabled in the National Assembly, the financing gap has expanded from the Sh1.066 trillion earlier projected in the October 2025 Budget Review and Outlook Paper. While increasing the borrowing target, the Treasury simultaneously scaled back its tax revenue ambitions by Sh97 billion compared to the earlier outlook.
For the fiscal year ending next June, the government now anticipates tax collections of Sh2.998 trillion, slightly above the Sh2.902 trillion forecast in the previous review. Treasury Principal Secretary Chris Kiptoo said fiscal policy for 2026/27 will continue to pursue consolidation while supporting economic growth.
The projected deficit will be financed through Sh225.5 billion in net external borrowing and Sh890.4 billion in net domestic borrowing. In the current financial year, the deficit rose to Sh1.18 trillion from the initial Sh948 billion estimate, reflecting mounting spending pressures as President William Ruto’s administration moves to deliver on key campaign pledges ahead of the polls.
Total expenditure for the coming year is estimated at Sh4.7 trillion, up from Sh4.5 trillion this year. Recurrent spending is projected at Sh3.456 trillion, while development expenditure stands at Sh749.5 billion. Counties are set to receive Sh495.5 billion in equitable share allocations, with Sh2 billion earmarked for the Contingency Fund.
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Overall revenue mobilisation is expected to reach Sh3.533 trillion, with ordinary revenue, largely tax-based, contributing Sh2.9 trillion. This leaves a projected shortfall of Sh1.115 trillion.
With the election cycle approaching, the government is keen to advance flagship programmes under the Bottom-Up Transformation Agenda. At the same time, Treasury Cabinet Secretary John Mbadi has signalled caution on returning to the Eurobond market despite improved global conditions and falling yields that have drawn some African sovereigns back to international markets.
Mbadi said any decision to re-enter the market will depend on prevailing conditions and alternative financing options, adding that further liability management could be considered to address costly commercial debt. Kenya aims to narrow its fiscal deficit to 5.3 percent of GDP by June 2027 through continued consolidation measures, including expenditure restraint and efforts to widen the tax base and improve compliance.
