By Benadeta Mwaura - Reporter
Kenya , June 11, 2026 - Kenya is staring at a projected KSh1.15 trillion budget deficit for the 2026/27 financial year, highlighting continued pressure on public finances as government expenditure significantly outpaces revenue mobilisation.
The gap, which represents about 5.5% of GDP, will be financed largely through domestic borrowing, even as the Treasury also leans on limited external financing to cushion the widening shortfall.
Treasury Cabinet Secretary John Mbadi, presenting the 2026/27 Budget in the National Assembly on June 11, said the government expects total revenue and grants of KSh3.64 trillion against planned expenditure of KSh4.8 trillion.
“Ordinary revenue is projected at KSh2.95 trillion, equivalent to 14.94% of GDP. Aid is projected at KSh644.8 billion, equivalent to 3.1% of GDP, while grants are projected at KSh43.6 billion or 0.2% of GDP,” Mbadi told MPs.
The budget framework shows that recurrent expenditure continues to dominate government spending, absorbing the bulk of available resources and limiting fiscal space for development priorities.
“Total expenditure in the financial year 2026/27 is projected at Sh4.8 trillion. Of this, recurrent expenditure will amount to KSh3.5 trillion, equivalent to 17.1% of GDP,” he said.
The resulting fiscal deficit of KSh1.146 trillion underscores the structural imbalance between revenue generation and spending commitments, particularly in a year where debt servicing, public sector wages, and government operations continue to exert pressure on the budget.
According to Mbadi, the financing plan relies heavily on domestic borrowing, which remains the government’s primary source of deficit funding amid constrained external disbursements.
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“The fiscal deficit will be financed through net external borrowing of KSh116.2 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.
This heavy reliance on domestic markets signals continued competition for credit between government and the private sector, a dynamic that often influences interest rates and liquidity conditions in the economy.
The Treasury’s fiscal outlook comes at a time when Kenya’s debt sustainability remains under close scrutiny from investors, rating agencies, and development partners, all of whom are closely monitoring the government’s ability to narrow deficits and stabilise borrowing trends.
Recurrent expenditure, which includes wages, debt servicing, and day-to-day government operations, continues to consume the largest share of the national budget, raising concerns about the shrinking space available for development-driven investment.
Treasury has, however, reiterated its commitment to fiscal consolidation through enhanced revenue mobilisation, tighter expenditure controls, and improved public spending efficiency as part of efforts to stabilise public debt over the medium term.
As the 2026/27 fiscal framework takes shape, the central policy challenge remains clear: how to balance rising expenditure needs with limited revenue growth in an environment increasingly defined by debt pressures and constrained fiscal flexibility.