The National Treasury has proposed a Ksh 5.323 trillion budget for the 2027/28 financial year, taking Kenya’s annual spending above the Ksh5 trillion mark for the first time.
The proposal is contained in the Draft 2026 Budget Review and Outlook Paper released in August 2026 as the government prepares its medium-term spending plans.
Treasury expects the budget deficit to fall to Ksh1.321 trillion, equivalent to 5.7 per cent of Gross Domestic Product (GDP), from the projected 6.2 per cent in the 2026/27 financial year.
The lower deficit target is part of the government’s efforts to reduce borrowing and improve its financial position. However, the government will still need to borrow heavily to cover the gap between revenue and expenditure.
Treasury has projected total revenue, including Appropriations-in-Aid, at Ksh3.943 trillion, while ordinary revenue is expected to reach Ksh3.208 trillion.
“The FY 2027/28 and medium-term fiscal framework will continue to focus on enhancing domestic revenue mobilisation, prudent expenditure management and continued public financial management reforms,” Treasury said.
Recurrent spending takes largest share
Of the proposed Ksh5.323 trillion, Ksh3.887 trillion will go towards recurrent expenditure, accounting for about 73 per cent of total spending.
Development expenditure is projected at Ksh958 billion, while county governments are expected to receive Ksh472.8 billion in transfers.
The figures mean most government resources will continue to go towards recurrent obligations and the day-to-day running of government, leaving a smaller share for development projects.
Treasury also plans to strengthen zero-based budgeting, requiring ministries, departments and government agencies to justify their spending requests instead of relying mainly on previous allocations.
The approach is intended to ensure limited resources are directed towards programmes that can create jobs, support businesses and deliver measurable benefits.
Treasury plans Ksh 1.3 trillion borrowing
The Ksh1.321 trillion deficit will be financed through domestic and external borrowing.
The government plans to borrow Ksh1.085 trillion from the domestic market and Ksh 235.9 billion from external sources. Domestic borrowing will therefore account for about 82 per cent of the planned deficit financing.
Heavy domestic borrowing could affect the availability and cost of credit as the government competes with businesses and individuals for funds from local financial institutions.
Debt remains a major concern, with Treasury projecting the present value of public debt at 65.6 per cent of GDP in 2026, above the government’s long-term benchmark of 55 per cent.
Treasury has said Kenya’s debt remains sustainable but carries a high risk of debt distress, making deficit reduction an important part of its medium-term plans.
The government recorded a fiscal deficit of Ksh 1.265 trillion, equivalent to 6.8 per cent of GDP, in 2025/26.
Public participation on the proposed budget is expected to continue until August 19, while Kenyans have until August 31 to submit views on tax proposals. The final proposals will inform the 2027 Budget Policy Statement and national budget ahead of the August 2027 General Election.
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