CS Mbadi’s Plan to Bridge a Ksh 876 Billion Deficit
Treasury Cabinet Secretary John Mbadi is set to present Kenya’s ambitious Ksh 4.2 trillion budget for the 2025/26 financial year today at the Parliament buildings in Nairobi. This budget is a critical milestone for the Kenya Kwanza administration under President William Ruto, as it seeks to address fiscal challenges while stimulating economic growth. For Mbadi, it marks his first budget as the second finance minister in the administration, a task that comes with high stakes and significant expectations.
Key Highlights of the 2025/26 Budget
Total Expenditure and Revenue Projections
The government’s proposed spending for the 2025/26 fiscal year is pegged at Ksh 4.2 trillion. This substantial figure underscores the administration’s commitment to funding priority areas such as infrastructure, healthcare, education, and economic transformation. However, funding this budget presents a significant challenge:
- Tax Revenue Target: Ksh 2.7 trillion, representing 64% of the required funding. This ambitious target relies on improved compliance and expanded tax bases.
- Appropriations-in-Aid: Ksh 560 billion, derived from levies and fees for government services.
- Grants: Ksh 46.9 billion, expected from development partners.
Collectively, these measures are projected to raise Ksh 3.3 trillion, leaving a budget gap of nearly Ksh 900 billion.
Addressing the Deficit
The Ksh 876 billion budget deficit will be financed through borrowing:
- Domestic Borrowing: Ksh 592 billion, which forms the bulk of the funding gap.
- External Borrowing: Ksh 284 billion, sourced from international lenders.
The government’s strategy to rely heavily on domestic borrowing raises concerns about crowding out private sector investments, a recurring issue in Kenya’s fiscal landscape.
Fiscal Consolidation and Debt Management
One of the budget’s core goals is fiscal consolidation—reducing the fiscal deficit and managing public debt sustainably. Kenya’s debt-to-GDP ratio currently hovers at 66%, exceeding the 55% threshold considered sustainable for developing economies. The Treasury aims to reduce the deficit to 4.5% of GDP, down from 5.1% in the previous year, signaling a commitment to fiscal discipline.
The Parliamentary Budget Office (PBO) has flagged potential risks, noting that a primary surplus of 0.4% of GDP, as projected, may not be sufficient to stabilize the debt. Achieving this fiscal goal will require strict expenditure controls and robust revenue collection.
Budget Allocations
The proposed budget prioritizes both recurrent and development spending to drive Kenya’s economic transformation agenda:
- Education: Approximately Ksh 701 billion, reflecting the government’s focus on human capital development.
- Recurrent Expenditure: Ksh 1.79 trillion, which includes salaries, operational costs, and maintenance.
- Development Expenditure: Ksh 725 billion, allocated to infrastructure, energy, healthcare, and other key sectors.
- County Allocations: Ksh 436 billion to support devolved functions.
- Contingency Fund: Ksh 5 billion, earmarked for emergencies.
Revenue-Raising Measures
The Treasury’s revenue strategy hinges on enhancing efficiency in tax collection and broadening the tax base. Key measures include:
- Strengthening the Kenya Revenue Authority (KRA) to clamp down on tax evasion and increase compliance.
- Leveraging technology and data analytics to identify untapped revenue sources.
- Streamlining the collection of levies and fees through digital platforms.
Notably, the government has avoided introducing major new taxes, opting instead to focus on improving the performance of existing revenue streams. This approach reflects lessons learned from last year’s public backlash against abrupt tax increases.
Challenges and Risks
While the 2025/26 budget outlines an optimistic roadmap, it faces several hurdles:
- Revenue Shortfalls: Meeting the Ksh 2.7 trillion tax revenue target requires significant improvements in collection efficiency.
- Rising Debt Servicing Costs: Debt repayments continue to consume a substantial portion of the budget, limiting funds available for development.
- Global Economic Conditions: Fluctuations in global markets could impact external borrowing terms and grant inflows.
- Execution Risks: Delays in project implementation and misallocation of resources could undermine the budget’s objectives.
Read: Finance Bill 2025 Tax Reforms and Economic Implications
Why This Budget Matters
The 2025/26 budget is a litmus test for Kenya’s ability to balance growth and fiscal discipline. By focusing on strategic investments and prudent debt management, the government aims to lay the foundation for sustainable economic growth. However, the success of these measures will depend on effective implementation and transparent governance.
For the average Kenyan, this budget impacts critical services such as education, healthcare, and infrastructure development. It also signals the government’s broader economic priorities and its commitment to addressing the fiscal challenges facing the nation.
Conclusion
As CS John Mbadi presents the 2025/26 budget, the focus will be on how well the government’s plans address Kenya’s pressing economic challenges. The Ksh 4.2 trillion budget reflects a delicate balancing act between fiscal responsibility and the need to invest in the country’s future. Whether this ambitious plan succeeds will depend on the government’s ability to translate policy into tangible outcomes for the Kenyan people.
