Different take on the 2025-26 budget using amounts needed to run Kenya

Treasury CS John Mbadi during the 2025 Budget reading on June 12th,2025 at Parliament [Elvis Ogina,Standard]

It is instructive that the theme guiding the 2025 Budget Statement was economic recovery, rather than economic turnaround and transformation, or as put by the Head of the President’s Council of Economic Advisors late last year, “navigating turbulence, driving transformation”.

With the 2027 election in two years and only one full budget after 2025/26, where is “bottom-up”?

The two most recent times we had economic recovery as a Kenyan theme were 2003/4 and 2020/21. NARC recovered the stable, but stagnant, economy inherited from Kanu into growth and positive fiscus by their third (2005/6) budget and took us to 7 per cent growth by 2007 before the post-election pogrom.

Jubilee recovered us from the Covid-19 pandemic, but bequeathed their successors, the current administration, an unsustainable fiscal path on which we faithfully remain. When we step back from debating Finance Bill, or resource allocations, it isn’t a pretty picture.

Take the forthcoming 2025/26 budget to understand where we are. As the year begins in July, there’s Sh2.141 trillion in consolidated fund services as a first call on the public purse – including Sh1.902 trillion in total debt service (interest plus principal) – plus a Sh650 billion wage bill to cover.

In the worst case scenario, this means we need Sh2.791 trillion for government to simply exist for a year without any work being done, with no service delivery, development projects or money to counties. In perspective, the total tax collection forecast for 2025/26 is Sh2.555 trillion, which is Sh236 billion short. Even after we throw in Sh200 billion in investment and other revenue (but not appropriations in aid), we get to Sh2.755 trillion, meaning we are still Sh36 billion short.

In simple English, our tax, then ordinary revenue, forecasts are insufficient to get national government to actually work. In the language we always love, Sh2.791 trillion is our irreducible minimum. It’s useful to think about this the next time “empowerment goodies” infect your life.

This is how to better understand our gross Sh5.095 trillion, not net Sh4.291 trillion budget.

Fortunately, we will heroically assume that debt redemption, Sh804 billion in the coming year, will be recycled-as-usual (refinanced, rolled over). The mandarins will advise you governments never actually repay debt, thinking we are equal to the US or Japan with their global currencies.

So our net 4.291 trillion budget only counts debt interest, which will be Sh1.098 trillion next year.

Yet, even after we “fuliza” this Sh804 billion (borrowing from Peter to pay Paul), we still need Sh1.987 trillion to cover the national government wage bill and service debt interest and other consolidated fund services, including pensions and constitutional office holder salaries and perks.

That’s 46 per cent, or almost half, of the Sh4.291 trillion budget before national government work actually starts; long before any cash flows to counties to support their own bloated payrolls.

We’re not yet done. The balance of Sh2.304 trillion isn’t all for national government. First, counties will receive Sh405 billion in their (unconditional) equitable share of national revenues. They will then receive Sh62 billion in conditional allocations from national government, Sh58 billion of which is donor funding. That leaves national government with Sh1.837 trillion for service delivery and development. Oh! But here’s another twist. This doesn’t all go to ministries.

First, there’s the two other arms of government, Parliament at Sh48 billion and Judiciary at Sh27 billion. Then there’s NG-CDF for MPs at Sh58 billion. That leaves Sh1.684 trillion for the national executive on all 10 MTEF sectors to be spent recurrently and developmentally, including (guess what?) Sh26 billion on fuel “price stabilisation” subsidies to finance consumption, not production.

Next, there’s the “A” in MDAs – “agencies” in ministries, departments and agencies. Our magic trick is that most public money isn’t spent in ministries, it’s transferred to agencies to spend. Agencies could be entire departments, like Defence, or semi-autonomous bodies, like KRA.

A quick calculation from the 1,000-plus pages of program-based budget estimates tells us that Sh1.242 trillion, or 70 per cent of what’s left after counties, parliament and judiciary, is dished out in one-line lump sums, from large agencies to struggling parastatals to multiple funds.

This is where Sh438 billion (including NG-CDF) of Sh744 billion in development spend happens. No surprise that this Sh1.242 trillion is as much a “political patronage space” as it is the “financial black hole” in our public finances where 80 per cent of national government pending bills sit.

From all of this national executive - actual ministries – has about Sh442 billion to actually work, of which Sh306 billion is development spending. If these numbers are right, we have a Sh650 billion wage national executive with Sh136 billion for day to day government business (classified as “use of good and services” also known as user item (not capital asset) procurement). When you hear government austerity on travel, it is within this Sh136 billion “cake” at ministry level.

Let’s sum the 2025/26 budget slowly. We have a Sh5.095 trillion budget, from which we will “fuliza” Sh804 billion in debt redemptions. From the “official” Sh4.291 trillion left, we need Sh1.987 trillion simply to open government offices next year, before work begins.

Once offices are open, and after funding counties, parliament and judiciary, we transfer 70 per cent of what’s left to agencies, leaving ministries with a work budget that’s a fifth of the wage bill.

How do we pay for this Sh5.095 trillion? To repeat, by recycling Sh804 billion in debt principal, then using the first Sh1.987 trillion of the Sh2.555 trillion tax take to open offices and pay staff.

We will then scramble to somehow collate the remaining Sh568 billion in tax collections, Sh200 billion in investment and other revenues, the separate Sh567 billion kitty in appropriations in aid (ministerial fees and charges – e-citizen) and the separate Sh47 billion foreign grants kitty into an imaginary Sh1.381 trillion pool to cover the remaining 2.304 trillion in spending.

Since we fall short by Sh923 billion, we will embark on fresh borrowing – Sh288 billion in forex borrowing and Sh635 billion in domestic borrowing banks prefer over risky private sector.

Let’s close with five images. First, we need Sh77 in revenues (including Sh60 in taxes), one shilling in grants and Sh22 in borrowing to cover every Sh100 of the Sh4.291 trillion net budget. Second, every Sh100 in the gross Sh5.095 trillion budget is financed by Sh65 in revenues (including Sh50 in taxes), slightly less than a shilling in grants and Sh35 in new borrowing and debt refinancing.

Then consider – in net budget terms - that, third, the first Sh46 of spending are only enough to open the office, before work begins. Or fourth, that Sh29 of the remaining Sh39 after deducting Sh15 for counties, parliament and the judiciary will be spent outside ministries, leaving the Sh15 ministerial wage bill with Sh3 for actual service delivery. Please make this make sense!

An extra-painful image to consider for 2025/26 is that debt service at 74 per cent and wage bill at 25 per cent will consume 99 per cent of the projected tax target, which we know is ambitious.

One doesn’t need to get to sector allocations to see that the picture for 2025/26 is already bleak.