Mbadi's tough act amid mounting debt, revenue shortfalls and angry Kenyans

The National Treasury and Economic Planning Cabinet SecretaryJohn Mbadi during the launch of Economic Survey 2025 when it was revealed that the economy had registered 4.7 growth at the Kenyatta Convention Center, Nairobi on May 6th, 2025. [Standard, Kanyiri Wahito]

The concerns over mounting debt, underfunding of critical services, joblessness, and failure by the Kenya Revenue Authority to meet revenue targets are among the things National Treasury Cabinet Secretary John Mbadi will address in his maiden budget speech today afternoon.

There is also dejection among Kenyans, 75 per cent of whom, according to a recent TIFA report, feel they are worse off economically today than they were a few years back due to over taxation and not getting value for money in public service delivery.

Mr Mbadi, who has held the Treasury docket for a little under an year, will deliver the budget statement today, the once revered annual ritual that comes at the tail end of the budget making process.

 

The statement will highlight government’s spending over the next year, including the priority areas where the money will be spent on. It will spell out measures the state is putting in place to increase tax revenues but also efforts to reduce budget deficit, with most of the information already in public domain. 

Mbadi will also highlight measures in the Finance Bill 2025, in which the government has shied away from making major tax proposals as has been tradition following last year’s anti-finance bill protests. Instead, it has focused on reforming tax administration, but some proposals have still kicked up a storm. 

Over the 2025/26 financial year, the government plans to spend Sh4.24 trillion. It will finance the budget through revenues collected from tax payers and other sources, which is expected to reach Sh3.36 trillion, with ordinary revenues (which is what KRA collects) of Sh2.75 trillion and Appropriation in Aid (AIA – which is what ministries and other government agencies earn through levies and other charges) of Sh559.9 billion. The Treasury will bridge the gap between revenue and the gap – budget deficit by borrowing Sh876.1 billion from local and international lenders.

“The fiscal framework underpinning the 2025/6 financial year budget estimates aims to support economic resilience by slowing expenditure growth, enhancing revenue mobilsation and ensuring efficiency and effectiveness in public spending,” said National Assembly’s Budget and Appropriations Committee (BAC) in a report on the budget estimates that is set to be debated in Parliament.

“By prioritising fiscal consolidation, the government seeks to reduce fiscal deficit and debt accumulation while fostering investors' confidence and improving economic sustainability. Efficient allocation of resources is envisaged to optimise public service delivery and maximise impact on priority sectors,” it added.

The committee raised concerns about Kenya's debt, noting that the high cost of debt obligations points to growing fiscal strain. Over the next financial year, Kenya expects to spend Sh1.9 trillion in repayment of both domestic and foreign debts, of which Sh1.097 trillion will be on interest payments, and another Sh803 billion will be on debt redemption.

“The committee expressed concerns over the rising expenditure for Consolidated Fund Service (CFS), highlighting the increasing fiscal strain posed by debt servicing obligations. With interest payments projected to surge 10.2 per cent to Sh1.1 trillion, the growing debt burden could constrain budget flexibility and limit resources for development priorities,” said BAC.

“Higher borrowing rates may further exacerbate fiscal pressures, potentially leading to increased reliance on revenue mobilisation or spending adjustments.”

The committee also told Treasury to stick to the projected budget deficit in the financial year and refrain from reviewing it upwards during supplementary estimates. At Sh876.1 billion, the budget deficit translates to 4.5 per cent of GDP and is lower than Sh887.2 billion over the current financial year. At the start of the year, however, Treasury had projected a much ambitious target for the budget deficit at Sh597 billion, which was 3.3 per cent of the GDP, but this was revised in subsequent supplementary budgets to Sh887.2 billion in the second supplementary budget.

BAC also raised concerns Treasury’s plans to mostly borrow from the domestic market, usually done through Treasury Bills and Bonds, is likely to see banks lend more to government. The Sh876.1 billion budget deficit is expected to be financed through Sh589.9 billion that will be borrowed locally and Sh284.2 billion in loans sourced from foreign lenders.

Despite the declining interest rates on government securities locally due to the easing of the monetary policy stance, continued reliance on domestic borrowing may either crowd out credit to the private sector or result in high borrowing costs for the private sector. Conversely, the targeted commercial financing will be subject to global market dynamics, which may necessitate changes in the borrowing strategy,” said BAC.

President William Ruto, who had heavily criticised former President Uhuru Kenyatta’s administration for its appetite for debt, has increased the public debt by Sh2.65 trillion to Sh11.35 trillion from Sh8.7 trillion in September 2022 when he came to power. He, too, has acquired a taste for expensive commercial loans, including Eurobond, plunging the country deeper in debt but also exposing it to the high cost of servicing the loans.

CS Mbadi said in the budget for the next financial year, the government has tried to balance the provision of service to the public while trying to service debt.

“As a country, we have a high debt stock and high debt servicing costs. We spend over Sh1.3 trillion on debt servicing. Much as you want to control debt, you cannot service debt and fail to provide services to the people. Those who are giving you taxes to service your debt expect you to provide services such as education, health, water, security… if you put this in totality, our budget has to go up,” Mbadi said in an interview this week.

“The role of the government is to balance the two – maintain a reasonable service debt and control the debt stock. We accept that there were mistakes made previously that have brought us to where we are at the moment with a high stock of public debt. The best approach is to persistently reduce debt as a percentage of GDP.”

He said deficit to GDP was 8.3 per cent of GDP which has since come down 5.3 per cent 2024/25 and expects to bring this to 5.1 per cent in 2025/26 financial year and further to 2.7 per cent in three years time.

“(Eventually) you will have a debt level desirable at 55 per cent of debt to GDP. This is currently at 63 per cent. At some point, it was 72 per cent,” he said.

Mbadi also said that while Kenya is in a tight fiscal space, the government tried to progressively address what concerns of poor Kenyans. These included higher allocations to agriculture to address food security, health, as it tries to increase universal health coverage and social protection. 

Analysts have noted that key areas of the economy are underfunded or were not allocated any funds at all, noting that while such sectors as education and health had received higher allocations compared to previous financial years, there are specific but critical areas that remain underfunded.

In analysing the Budget estimates, the Institute of Public Finance (IPF) noted that the health sector recorded a modest one per cent increase in allocation. Despite the overall increase, there is underfunding of some critical areas.

Despite this overall increase, the sector has seen a significant cut in its budget from the 2025 BPS (Budget Policy Statement) ceiling. The budget increased by 0.7 billion compared to FY 2024/25 Supplementary budget II, but was reduced by Sh68 billion compared to the 2025 BPS ceiling of Sh205 billion,” said IPF.

“The Curative and Reproductive Maternal New Born Child Adolescent Health (RMNCAH) programme received the highest budget cut of 18 per cent. This will hurt access to quality curative health care services.”

Underfunding of the Health ministry is also at a time when the US is cutting funding for some health programmes.

Some areas within the Agriculture docket suffered lower allocations, casting doubt on aspirations for the Beta Agenda to achieve food sufficiency.

“The Crop Development and Management programme under the State Department for Agriculture received a budget cut of 24 per cent,” observed IPF. 

Allocation to the State Department of Irrigation has dropped to Sh17.43 billion over the 2025/26 financial year from Sh21.07 billion over the current year. While housed by a different ministry away from agriculture, irrigation is critical in increasing agricultural land that is not dependent on rain and in turn improving food security.

The education sector, which gobbles up a significant chunk of the budget, has seen allocations generally go up. There are, however, concerns that key critical areas have been left out, including the administration and invigilation of national exams across secondary schools, junior secondary and primary schools. The National Assembly’s Committee on Education has since proposed reallocation from other areas within the education sector to cater for this.

Basic education also suffered a major cut, with its allocation dropping to Sh126.13 billion from Sh138.86 billion allocated for the 2024/25 financial year.

Despite this overall growth, the budget for some critical programmes within the State Department for Basic Education was reduced. The budget for the Primary Education programme was cut by 17 per cent,” said IPF.

“This is likely going to affect school feeding programmes in primary schools.”

The national examination management has also not been allocated any funds with the committee noting it is not the first time it has been denied funds. It is not the first time as over the current financial year, exam related funding was provided as an emergency through a supplementary budget. 

Despite the underfunding of critical services, civil society groups have queried higher allocations for what they deem as non-essential areas.

These include allocations to the Office of the President of Sh5.43 billion from Sh4.54 billion, as well as State House, which has been given Sh8.58 billion from Sh8.37 billion. Critics note that the two offices should be leading from the front in trimming spending on non-essentials. Some of the money allocated to President Ruto#s office goes to different offices of his advisors, including the one led by economist David Ndii, which has been criticised for not being in touch with realities on the ground and possibly feeding the President advice that could be taking the country in the wrong direction.

The Okoa Uchumi Campaign in a recent report analysing the budget noted that 53 MDAs are receiving an increase over the next financial year and among them is the presidency.

“One would expect the Presidency to lead by example, especially for non-essential expenditures. The budget for state departments within the Presidency has been increased at the expense of public goods and social spending, which is a callous misallocation of public resources. Kenyans have expressed anger about the ballooning expenditures within the presidency,” said the Coalition in the report done together with The Institute of Social Accountability (Tisa) and African Centre for Open Governance (Africog).

The civil rights groups particularly took issue with the President’s large team of advisors. “Since taking office in September 2022, President Ruto has hired 20 personal advisors, a figure just three shy of the constitutional cabinet. None of these advisors were hired competitively, and their remuneration remains secret,” they said in the report titled 'Stealing the Future'.

Past reports indicate the advisors are paid the same amount as either Cabinet Secretaries or Principal Secretaries.

One office of such advisors is the Government Advisory Services housed in the Office of the President whose budget allocation has gone up to Sh1.25 billion in the 2025/26 financial year from Sh1.1 billion.

In the Budget estimates, Treasury has also allocated some Sh2.3 billion for the renovation of the President’s official residences, including State House. The refurbishments of state lodges have been an ongoing exercise that is expected to have gobbled up Sh10.7 billion by 2027, which the lobby said negated the government’s claims of commitment to “fiscal austerity and the reduction of non-essential spending”.

Perhaps the biggest hole that continues to take a huge chunk of Kenyan taxpayers' money and, in turn,n results in the Treasury denying funds to essential services is what the Okoa Uchumi Coalition termed as budgeted corruption.

“The very existence of a fiscal deficit makes budgeted corruption easier to perpetrate. Money approved by parliament materialises on the books, enabling systematic insertion of projects into an unfunded budget under the cover of parliamentary appropriations,” said the civil society lobbies in the report, also accusing Parliament of being complicit in such looting for failure by MPs to exercise their oversight role and check the executive.

“It is the systematic deviation of project choice from public financial management value for money norms to divert the budget into predetermined hands. The failure of the National Assembly to control the appropriation process, and its routine granting of retrospective approval of unbudgeted spending in the order of up to ten per cent of the budget every year – an abuse of Article 223 of the Constitution – perpetuates the ever-rising spending plan.”