Cabinet endorses budget cuts and reforms to curb deficit, boost economy

In a move aimed at tightening fiscal discipline and realigning national priorities, the Cabinet has approved major budgetary adjustments in line with the Kenya Kwanza's commitment to fiscal consolidation.

During a Cabinet meeting held Tuesday at State House, Nairobi, and chaired by President William Ruto, ministries and State departments were directed to collaborate closely with the National Treasury to implement various expenditure reviews.

"These adjustments are part of broader austerity measures designed to strengthen fiscal discipline, reduce public debt vulnerabilities, and create the fiscal space necessary to deliver essential public goods and services," the dispatch read in part.

According to the directive, Kenya’s fiscal deficit is supposed to reduce to 4.5% of GDP in the 2025/26 financial year, down from 5.3% in 2023/24 and 5.1% in 2024/25.

The medium-term target is set at 2.7%.

As part of these reforms, the initial KSh4.3 trillion budget will be significantly revised before submission to Parliament.

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Finance Bill, 2025

During Tuesday's meeting, the Cabinet also gave its nod to the Finance Bill, 2025, which focuses on tightening tax administration rather than introducing new tax hikes.

The Bill aims to close long-standing loopholes, particularly those around tax expenditures and inflated tax refund claims.

Key reforms proposed in the Bill include streamlining tax refund processes, closing legal gaps that delay revenue collection, and amending key tax laws—such as the Income Tax Act and VAT Act—to reduce disputes and improve efficiency.

"Small businesses will benefit from provisions allowing full deductions for everyday tools and equipment in the year of purchase, while retirees will now enjoy full tax exemptions on all gratuity payments," it added.

Employers will also be mandated to apply for all applicable tax reliefs during PAYE calculations, removing the burden from employees.

Emergency preparedness and judicial reforms

In response to shortcomings exposed during the 2023 El Niño rains, the Cabinet approved amendments to the Public Finance Management Act requiring counties to establish Emergency Funds.

The move, discussed during last year’s IBEC summit, is expected to bolster disaster response at the county level.

In the judiciary, the Cabinet endorsed the Judges Retirement Benefits Bill, 2025, creating a dedicated pension system for judges.

"The law introduces a defined benefit scheme for current judges and a defined contribution plan for future appointees, offering improved retirement security and reinforcing judicial independence," the brief stated.

Healthcare expansion

As part of its Universal Health Coverage (UHC) agenda, the government will construct two new Level VI teaching and referral hospitals in Bungoma and Kericho counties.

These projects will be developed in partnership with the African Development Bank to improve healthcare access in underserved regions.

In efforts to attract investment and boost financial markets, the Cabinet approved amendments to the Capital Markets Act to lift shareholder limits in regulated institutions.

Agriculture, foreign relations approvals

The Cabinet further approved the Draft Pest Control Products Bill, 2024, which proposes the creation of a new regulatory authority to oversee pest control products.

The legislation is expected to improve food safety, support agricultural exports, and align with international standards.

In foreign affairs, the Cabinet sanctioned the establishment of a Consulate General in Port-au-Prince, Haiti.

The diplomatic post will support Kenya’s role in ongoing international peacekeeping efforts in the Caribbean nation.

"This decision underscores Kenya’s commitment to promoting global peace and security while expanding diplomatic presence in the Caribbean nation," the brief read.