{"id":17407,"date":"2026-01-11T17:19:09","date_gmt":"2026-01-11T17:19:09","guid":{"rendered":"https:\/\/www.europesays.com\/africa\/17407\/"},"modified":"2026-01-11T17:19:09","modified_gmt":"2026-01-11T17:19:09","slug":"revenue-shortfalls-debt-risks-loom-as-treasury-warns-of-tight-fiscal-space","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/africa\/17407\/","title":{"rendered":"Revenue shortfalls, debt risks loom as Treasury warns of tight fiscal space"},"content":{"rendered":"


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\nNational Treasury CS John Mbadi during a press briefingPublic finances are facing renewed strain as revenue
\nunderperformance, rising fiscal risks and growing exposure to global and
\nclimate shocks threaten to narrow the government\u2019s room for manoeuvre,
\naccording to the Draft 2026 Budget Policy Statement.<\/p>\n


\n
\nWhile the National Treasury projects continued economic
\ngrowth and insists that fiscal consolidation remains on track, the policy
\ndocument reveals a more constrained reality.<\/p>\n


\n
\nIt foresees weaker-than-expected revenue collection,
\npressure for supplementary budgets and heightened vulnerability to debt and
\nexternal shocks.<\/p>\n


\n
\nThis is despite plans to increase the annual expenditure to
\nabout Sh4.65 trillion, an increase of about Sh380 billion from the 2025-26
\nbudget.<\/p>\n


\n
\nBy the end of September 2025, total revenue, including
\nAppropriation-in-Aid, stood at Sh709.6 billion against a target of Sh793.2
\nbillion, leaving a significant shortfall early in the financial year.<\/p>\n


\n
\nOrdinary revenue amounted to Sh573.5 billion, falling below
\nprojections and forcing the Treasury to signal the need for supplementary
\nestimates.<\/p>\n


\n
\nThe policy statement further notes that, based on the
\nprojected revenue and expenditure framework, the fiscal deficit, including
\ngrants, is expected to reach Sh1.1 trillion (5.3 per cent of GDP) in the
\n2026-27 financial year.<\/p>\n


\n
\nThis is from the projected deficit of Sh901 billion (4.7 per
\ncent of GDP) in the 2025-26 financial year.<\/p>\n


\n
\n\u201cThe FY 2026-27 fiscal deficit will be financed through net
\nexternal borrowing amounting to Sh99.5 billion (0.5 per cent of GDP) and net
\ndomestic financing of Sh1,006.6 billion (4.8 per cent of GDP),\u201d it says.<\/p>\n


\n
\nTo fill the gap, Treasury says it will deepen tax policy and
\nadministrative reforms to expand the tax base, minimise tax expenditures,
\nenhance compliance and leverage technology to modernise tax processes.<\/p>\n


\n
\nConcurrently, expenditure management will be strengthened
\nthrough the full operationalisation of e-procurement, adoption of Zero-Based
\nBudgeting principles [justifying all expenses], automation of public investment
\nmanagement, digitisation of pension and payroll systems and accelerated
\ntransition toward accrual accounting, it says.<\/p>\n


\n
\nGiven the constrained fiscal space, Treasury says
\nprioritisation of expenditure will remain essential. Ministries and agencies
\nwill be required to re-examine all existing and proposed programmes and
\neliminate low-impact activities.<\/p>\n


\n
\nThey will also be required to ensure resource allocation
\nfocuses on high-priority, high-return interventions that drive inclusive
\ngrowth, create jobs and increase exports.<\/p>\n


\n
\nThe revenue gap comes at a time when the government is
\nattempting to balance fiscal consolidation with the protection of priority
\nprogrammes under the Bottom-Up Economic Transformation Agenda, the Kenya Kwanza
\neconomic blueprint.<\/p>\n


\n
\nBut beyond immediate revenue challenges, the policy
\nstatement flags deeper structural risks that could destabilise public finances
\nif left unaddressed.<\/p>\n


\n
\nKenya\u2019s ever-increasing debt remains a major concern.<\/p>\n


\n
\nAlthough Treasury maintains that public debt is sustainable,
\nit acknowledges significant exposure to macroeconomic shocks, including
\nexchange rate volatility, tighter global financial conditions and rising
\ninterest costs.<\/p>\n


\n
\nGlobal growth uncertainty, geopolitical tensions and
\nelevated trade-policy risks are expected to hit emerging economies, raise
\nborrowing costs and limit access to concessional financing.<\/p>\n


\n
\nWith the government relying on domestic and external
\nborrowing, this creates a fragile balancing act.<\/p>\n


\n
\nThe policy statement warns that adverse changes in
\nmacroeconomic assumptions, such as slower growth, currency depreciation or
\nhigher interest rates, risk worsening debt dynamics, increasing debt-servicing
\ncosts and crowding out development spending.<\/p>\n


\n
\nAlready, debt servicing remains one of the largest
\nexpenditure items in the budget, limiting the government\u2019s ability to expand
\nsocial spending without raising taxes or borrowing further.<\/p>\n


\n
\nClimate change is explicitly framed not just as an
\nenvironmental threat but as a fiscal risk with direct implications for debt
\nsustainability.<\/p>\n


\n
\nTreasury identifies climate-related shocks such as drought,
\nwhich is already causing havoc in Northeastern region, floods and extreme
\nweather events as potential drivers of unplanned expenditure, revenue losses
\nand increased borrowing.<\/p>\n


\n
\nAgriculture, energy and infrastructure sectors are
\nparticularly vulnerable, exposing the budget to sudden financing pressures
\nduring climate emergencies.<\/p>\n


\n
\nThe BPS further notes that these risks can crystallise into
\ncontingent liabilities for the government, adding that climate shocks may force
\nthe state to intervene through subsidies, reconstruction spending or emergency
\nsupport, which is often outside the original budget.<\/p>\n


\n
\nSuch pressures could further strain fiscal discipline and
\nundermine consolidation efforts, especially if shocks coincide with periods of
\nweak revenue performance.<\/p>\n


\n
\nThe Treasury\u2019s strategy hinges on improving revenue
\nmobilisation, tightening expenditure controls and managing debt prudently,
\nwhile scaling up public-private partnerships to reduce pressure on public
\nfinances.<\/p>\n


\n
\nWithout outrightly saying it, Treasury is painting a
\ndelicate balancing act in efforts to raise more revenue without triggering
\neconomic or political backlash ahead of the 2027 polls.<\/p>\n","protected":false},"excerpt":{"rendered":" National Treasury CS John Mbadi…\n","protected":false},"author":2,"featured_media":17408,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[31],"tags":[8566,80,11008,11010,11011,98,100,101,99,11009],"class_list":{"0":"post-17407","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-kenya","8":"tag-john-mbadi","9":"tag-kenya","10":"tag-mbadi","11":"tag-revenue","12":"tag-shortfalls","13":"tag-star-news","14":"tag-star-news-kenya","15":"tag-the-star","16":"tag-the-star-newspaper","17":"tag-trasury"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/posts\/17407","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/comments?post=17407"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/posts\/17407\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/media\/17408"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/media?parent=17407"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/categories?post=17407"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/tags?post=17407"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}