Borrowing to finance budget not sustainable, PS Kiptoo says

The National Treasury Principal Secretary Chris Kiptoo has insisted on the need for Kenya Revenue Authority (KRA) to broaden the tax bracket, saying that borrowing to finance the country’s budget is not sustainable.

Given the fiscal performance so far in the 2025-26 financial year, the higher-than-anticipated expenditure pressures and the revenue shortfalls, the PS said it has become necessary to propose adjustments through a supplementary budget even as he called for fiscal consolidation to save the country from financial crisis, as loans mature gradually.

He said that the fiscal framework underpinning the FY 2025/26 Supplementary Estimates No 1 includes revenues projected at Sh3.3 trillion or 17.9 per cent of Gross Domestic Product (GDP) from Sh3.32 trillion or 17.2 per cent of GDP in the original budget estimates.

Similarly, Dr Kiptoo said that the expenditures are projected at Sh4.5 trillion or 24.1 per cent of GDP from the approved budget estimates of Sh4.26 trillion or 22.2 per cent of GDP and fiscal deficit including grants for the FY 2025/26 is therefore projected at Sh1.11 trillion or 6.1 per cent of GDP, up from Sh901.0 billion or 4.7 per cent of GDP in the budget estimates.

He said the fiscal deficit is expected to be financed with net domestic financing of Sh924.5 billion and net foreign financing of Sh229.8 billion, with the PS saying that the net foreign financing comprises disbursement of Sh903.5 billion, inclusive of commercial loans Sh540.1 billion, program loans Sh130.9 billion and project loans of Sh224.1 billion as well as principal repayments of Sh673.8 billion, inclusive of 135.7 billion liability management payments.

“We want the burden of taxation to go to everyone not to only those who are complying, those who are bearing the burden are the compliant ones but many are not yet all this must be paid by everyone. KRA is supposed to broaden the tax bracket so that everyone is there,” the PS said.

He added, “And if we were to help one another to make sure that everybody is in it, it becomes easy to balance the book so that we borrow less. Borrowing is not sustainable, I can assure you going forward. We are working hard but without achieving fiscal consolidation it is going to be very difficult going forward.”

The PS made the remarks when he appeared before the Public Debt and Privatization Committee of the National Assembly on Consolidated Fund Services (CFS) expenditures under Supplementary Estimates No 1 for Financial Year 2025/26.

At the same time, there are domestic risks that could affect revenue performance, scale up expenditure pressures and worsen public debt sustainability, which include potential slower economic growth, which could reduce revenue collections and widen the fiscal deficit and public debt vulnerabilities in the event of exchange rate fluctuations.

Other risks the PS mentioned are contingent liabilities from State Corporations and Public-Private Partnerships through government guarantees and long-term contractual commitments, high pending bills and elevated wage expenditures and climate-related shocks: droughts and floods, which affect agricultural output, infrastructure, inflation, and overall fiscal performance.

“To manage the risks, the Government will continue to monitor developments in the Middle East and take appropriate response measures to cushion the economy. The Government will continue to strengthen domestic revenue mobilization, maintain fiscal consolidation and expenditure discipline, enhance prudent debt and liability management and improve fiscal coordination with County Governments among others,” Kiptoo explained.

According to the PS, the enhanced borrowing, obtained from the local and foreign markets, will see the country’s debt stock rise to Sh12.8 trillion, including Sh7.1 trillion in local borrowing and Sh5.8 trillion in foreign loans.

The PS has also said that the external debt service (interest and redemptions) increased from Sh586.46 billion in the printed estimates to Sh916.53 billion in Supplementary I.

He said that drivers of increased redemptions include the liability management operations, where the National Treasury executed a buyback of Sh85 billion on the 2028 Eurobond in October 2025, which increased redemption expenditures.

There was also a proposed debt swap provision of USD 1,000 million (approximately Sh135 billion) is included for planned debt swap operations and prepayment of the Trade Development Bank Syndicated Loan of Sh58.02 billion was projected in FY 2024/25 but was not effected in that fiscal year.

On the other hand, he said the drivers of reduced interest payments was currency conversion, with the PS saying that converting some of the USD-denominated loans to Yuan-denominated terms, National Treasury has reduced the cost of servicing that debt.

At the same time, the PS told the committee that the budget allocation for Salaries and Allowances for Constitutional Office holders is projected at Sh5.09 trillion, an increase of Sh431.33 million from the approved budget estimates of Sh4.6 trillion.

“The increase is primarily attributed to the enhanced remuneration and benefits for State Officers arising from the implementation of the Third Remuneration Review Cycle. Additional expenditures are also attributed to service gratuity for exiting State Officers and the anticipated expenditure on the appointment of Judges in the Judicial Department,” he explained.