The National Treasury has projected a budget deficit of Sh1.321 trillion for the 2027/28 fiscal year, representing 5.7 percent of Kenya’s GDP. To bridge this gap, the government plans to increase revenue collection, borrow Sh1.085 trillion domestically, and secure Sh235.9 billion through external financing.

According to the Draft 2026 Budget Review and Outlook Paper, total revenue, including appropriations-in-aid, is expected to rise to Sh3.943 trillion in 2027/28, up from Sh3.199 trillion in 2025/26. This growth is anticipated to be supported by ongoing reforms in tax policy and revenue administration.

Implications for Households and Businesses

  • The government’s push for higher revenue may result in increased tax compliance measures, potentially impacting businesses through stricter collection efforts.
  • Households could experience indirect effects if businesses pass on additional tax costs via higher prices for goods and services.
  • Domestic borrowing, which will constitute the largest portion of deficit financing, may tighten financial markets and increase borrowing costs for private-sector entities and individuals.

Government Spending and Fiscal Management

Total expenditure and net lending are estimated at Sh5.323 trillion, with recurrent spending projected at Sh3.887 trillion, development expenditure at Sh958 billion, and county transfers at Sh472.8 billion. The Treasury emphasizes operating within a constrained fiscal environment by applying zero-based budgeting, requiring ministries to justify their spending to prioritize economic growth and employment.

The fiscal strategy focuses on enhancing domestic revenue mobilisation and prudent expenditure management while directing resources to national priorities. Efforts to lengthen debt maturities and deepen domestic debt markets aim to reduce borrowing costs.

This budget outlook comes amid challenges such as missed revenue targets in 2025/26 and financial distress in the private sector, highlighting the delicate balance the government must maintain between fiscal discipline and supporting economic recovery.