Kenya’s 2025/26 Budget: What to Expect From the KSh4.23 Trillion Spending Plan

What’s in the KSh4.23 trillion Budget?

A huge chunk of the budget—KSh3.1 trillion—will go towards recurrent expenditure which is the government’s day to day operations. Here’s a breakdown of the major allocations:

• Interest Payments: More than KSh1 trillion will be used to service Kenya’s domestic and foreign debt.

• Pensions and Constitutional Offices: KSh190.3 billion will be allocated to pay pensions and salaries for key constitutional offices.

• Civil Servant Pensions Fund: KSh37 billion will be set aside for the civil service pension scheme.

• Public Sector Salaries: Civil servants’ wages and salaries will consume KSh624.7 billion.

• Development Projects: These will get KSh613.5 billion, a slight increase from the KSh546.4 billion allocated in the current fiscal year.

• County Governments: Counties will get KSh474.9 billion, both equitable share and conditional grants.

How will the government fund the KSh4.23 trillion Budget?

The government expects to raise KSh3.3 trillion in total revenue:

• KSh2.75 trillion from taxes.

• KSh559.9 billion from Appropriations-in-Aid (A-i-A) which includes revenue generated by government ministries and agencies through fees and services.

• KSh46.9 billion from foreign grants provided by development partners.

Despite these sources, there will be a budget gap of KSh876.1 billion. This is the fiscal deficit.

Finance Bill 2025: A Soft Approach to Tax Hikes

Unlike last year’s Finance Bill which sparked nationwide protests and was eventually dropped, Finance Bill 2025 will introduce only minor tax measures to raise between KSh25 billion to KSh30 billion in new revenue.

The changes will be:

• Tax procedure changes

• VAT Act changes to revise zero-rated and tax-exempt items

It seems like a lesson learned from last year’s public backlash.

How Much Is Kenya Borrowing?

The government will bridge the KSh876.1 billion fiscal deficit through borrowing:

• KSh284.2 billion will be from foreign loans, both concessional (low interest) and commercial.

• KSh591.9 billion will be from domestic borrowing.

Sources of Borrowed Funds

To meet its borrowing targets:

• Domestic funding will be through Treasury bills and bonds and possibly an overdraft facility from the Central Bank of Kenya (CBK) if needed.

• Foreign funding will be a mix of:

  • Concessional loans from entities like the World Bank and the African Development Bank (AfDB)

  • Commercial borrowing, issuing Eurobonds or securing syndicated loans

What Happens Before June 12?

Before the budget is presented:

• National Assembly will review the draft budget estimates and prepare a report.

• National Treasury will finalize the figures and submit the Appropriations Bill to Parliament.