Kenya dedicated more than half of its tax revenue in the 2025/26 fiscal year to servicing public debt and paying pensions, significantly reducing funds available for critical government programs such as infrastructure and healthcare.
According to the National Treasury, 51.8% of ordinary revenue was absorbed by Consolidated Fund Services (CFS), which covers debt repayments and pension obligations. This marks an increase from 49.8% the previous year and a sharp rise compared to 18% in 2013/14.
Rising Debt and Pension Costs
- Interest payments consumed 42.7% of ordinary revenue, with Sh1.067 trillion spent on debt servicing, including Sh862.7 billion for domestic debt and Sh205 billion for external debt.
- The government’s reliance on domestic borrowing remains high, with Sh1.135 trillion borrowed locally to finance a Sh1.34 trillion deficit.
- Pension payments accounted for 9.1% of ordinary revenue, totaling Sh206.3 billion, a significant increase from Sh15 billion in 2002.
The Treasury attributes these growing expenditures to increased debt servicing costs, revenue shortfalls, and expanded financing needs. Despite reforms introduced in 2021 requiring public servants to contribute to a pension fund, it will take years before these changes lessen the pension burden.
Fiscal Deficit and Revenue Challenges
Kenya’s fiscal deficit stood at 7.1% of GDP in 2025/26, driven by lower-than-expected revenue collection and rising debt costs. Ordinary revenue as a share of GDP has declined from 18.1% in 2013/14 to 14.2% currently, with projections showing only modest improvement by 2028.
The National Treasury warns that continued revenue shortfalls and increased borrowing could constrain fiscal space for development priorities. Strengthening domestic revenue mobilization and improving tax compliance remain critical to reversing this trend.
