Financial experts have raised concerns over the government’s plan to borrow Ksh 635.5 billion from the domestic market to finance the 2025/2026 national budget, cautioning that the move could have adverse implications on the economy.
In its post-budget analysis, PricewaterhouseCoopers (PwC) has flagged the Kenya Revenue Authority’s (KRA) revenue collection target as overly ambitious. According to PwC, the government’s revenue projection of Ksh 3.32 trillion, which includes Appropriation-in-Aid (AIA) and grants, may fall short, potentially forcing a heavier reliance on domestic borrowing.
The 2025/2026 budget tabled by the National Treasury outlines total expenditures of Ksh 4.29 trillion, with Ksh 3.13 trillion allocated to recurrent expenditure covering salaries, debt repayments, and operational costs. This leaves a fiscal deficit of Ksh 923.2 billion, of which only Ksh 287.7 billion is expected to be financed through net external borrowing. The remainder, Ksh 635.5 billion, will be sourced domestically.
Experts caution that such extensive domestic borrowing could crowd out the private sector, drive up interest rates, and strain the already burdened financial markets. This scenario may stifle private investment and slow economic growth, undermining the government’s development agenda.
The National Treasury, however, has defended its fiscal strategy. It emphasizes tax rationalization and reforms aimed at improving compliance and efficiency within the existing tax framework. Treasury officials insist the approach is designed to optimize revenue without overburdening citizens with new or higher taxes.
Instead of imposing new levies, the government plans to close tax loopholes, streamline tax administration, and enhance incentive structures to boost economic activity and broaden the tax base.
Still, analysts argue that unless meaningful reforms are swiftly implemented, the pressure to meet revenue targets could lead to unsustainable borrowing. They urge the government to strike a balance between fiscal consolidation and economic growth to avoid worsening the debt situation.
As the government moves forward, stakeholders will closely monitor whether the promised reforms will deliver the intended results or if Kenya’s fiscal challenges will deepen due to over-reliance on debt.
