(NAIROBI, KENYA) – Kenya’s budget deficit is expected to widen by KES 143 billion to KES 1.288 trillion. The increase is driven by higher interest payments on domestic debt and possible tax cuts ahead of the 2027 general elections. The deficit figure is equal to about $8 billion or £6.3 billion.
The National Treasury released the projections. A wider budget deficit means the government will borrow more because spending has exceeded revenue by a larger margin than previously planned.
New expenditure and revenue projections show the 2026/27 budget is expected to rise by KES 40.5 billion to KES 4.86 trillion. The June 2026 budget statement had approved KES 4.82 trillion. The higher spending figure is equal to about $30 billion or £23.6 billion. The earlier figure is equal to about $29.8 billion or £23.4 billion.
The government is cutting its projected revenue for the year by KES 101.9 billion to KES 3.529 trillion. This is equal to about $21.8 billion or £17.2 billion. The cut adds to the wider budget deficit.
Income taxes are taking the biggest share of the revenue revision at KES 78.6 billion lower. The new target is KES 2.78 trillion. This is equal to about $17.2 billion or £13.5 billion. The Treasury expects lower collections from businesses and workers. The economy faces growth headwinds from global geopolitical shocks and expected El Nino rains later in the year.
The official targets remain as approved in the June budget. The Draft 2026 Budget Review and Outlook Paper shows the expected changes in the fiscal framework. These changes are usually implemented through supplementary budgets.
Excise duty collections are being revised down by KES 17.4 billion to KES 364.8 billion. VAT collections are being cut by KES 18.3 billion to KES 810.3 billion. Non tax revenue is expected at KES 106.6 billion, down from KES 127.1 billion in the June budget. The excise figure is equal to about $2.3 billion or £1.8 billion. The VAT figure is equal to about $5 billion or £3.9 billion.
The State is raising its import duty target from KES 186.2 billion to KES 220.8 billion. The new target is equal to about $1.4 billion or £1.1 billion.
The Treasury said Kenya’s economic growth outlook for 2026 has been revised down to five percent from 5.3 percent. The revision reflects the adverse effects of the ongoing Middle East conflict on domestic economic activity.
National Treasury Cabinet Secretary John Mbadi is expected to review Pay As You Earn tax bands within the fiscal year. This will further reduce government collections from workers’ salaries. Ahead of the June budget, Mbadi warned that the proposed PAYE cuts would remove KES 35 billion from government revenue. This is equal to about $216 million or £170 million.
The Treasury had already halved VAT on fuel to eight percent in April after a price surge caused by the war in Iran. The National Treasury was forced to pause the payslip tax relief that Mbadi and President William Ruto had been promising since February.
The lower VAT arrangement on fuel was extended for a further three months until October in last month’s fuel price review.
Higher interest charges on domestic debt are set to force a KES 40.5 billion increase in expenditure. The Budget Review and Outlook Paper projects that interest charges on the government’s domestic debt of KES 7.3 trillion will hit KES 1.03 trillion this fiscal year. The June budget estimate was KES 986.7 billion. The domestic debt figure is equal to about $45.1 billion or £35.5 billion. The interest figure is equal to about $6.4 billion or £5 billion.
In the 2025/2026 fiscal year, the government spent about KES 862.7 billion on domestic interest payments. This is equal to about $5.3 billion or £4.2 billion. The figure benefited from a decline in interest rates in Treasury bills and bonds through the year.
The war in Iran has caused a jump in inflation this year due to higher energy prices. This has put upward pressure on interest rates.
To fund the higher budget deficit, the government is expected to borrow KES 1.04 trillion from the domestic market and KES 247.2 billion from external lenders. The domestic borrowing figure is equal to about $6.4 billion or £5 billion. The external borrowing figure is equal to about $1.5 billion or £1.2 billion. The June budget had pegged domestic borrowing at KES 898 billion. External borrowing remains unchanged as per the projections.
Kenya 2026/27 Fiscal Framework: Approved Budget vs Draft Review Projections
| Item | Approved June 2026 Budget | Draft 2026 BROP Projection | Revision | Change (%) |
|---|---|---|---|---|
| Total Expenditure | KES 4.82 trillion ($29.8 billion / £23.4 billion) | KES 4.86 trillion ($30 billion / £23.6 billion) | + KES 40.5 billion (+ $250 million / + £197 million) | +0.8% |
| Total Revenue | KES 3.631 trillion ($22.4 billion / £17.6 billion) | KES 3.529 trillion ($21.8 billion / £17.2 billion) | – KES 101.9 billion (- $630 million / – £495 million) | -2.8% |
| Budget Deficit | KES 1.145 trillion ($7.1 billion / £5.6 billion) | KES 1.288 trillion ($8 billion / £6.3 billion) | + KES 143 billion (+ $884 million / + £695 million) | +12.5% |
| Income Tax Target | KES 2.859 trillion ($17.7 billion / £13.9 billion) | KES 2.78 trillion ($17.2 billion / £13.5 billion) | – KES 78.6 billion (- $486 million / – £382 million) | -2.7% |
| VAT Collections | KES 828.6 billion ($5.1 billion / £4 billion) | KES 810.3 billion ($5 billion / £3.9 billion) | – KES 18.3 billion (- $113 million / – £89 million) | -2.2% |
| Excise Duty Collections | KES 382.2 billion ($2.4 billion / £1.9 billion) | KES 364.8 billion ($2.3 billion / £1.8 billion) | – KES 17.4 billion (- $108 million / – £85 million) | -4.6% |
| Import Duty Target | KES 186.2 billion ($1.2 billion / £910 million) | KES 220.8 billion ($1.4 billion / £1.1 billion) | + KES 34.6 billion (+ $214 million / + £168 million) | +18.6% |
| Non-Tax Revenue | KES 127.1 billion ($786 million / £618 million) | KES 106.6 billion ($659 million / £518 million) | – KES 20.5 billion (- $127 million / – £100 million) | -16.1% |
| Domestic Interest Payments | KES 986.7 billion ($6.1 billion / £4.8 billion) | KES 1.03 trillion ($6.4 billion / £5 billion) | + KES 43.3 billion (+ $268 million / + £211 million) | +4.4% |
| Domestic Borrowing | KES 898 billion ($5.6 billion / £4.4 billion) | KES 1.04 trillion ($6.4 billion / £5 billion) | + KES 142 billion (+ $878 million / + £691 million) | +15.8% |
| External Borrowing | KES 247.2 billion ($1.5 billion / £1.2 billion) | KES 247.2 billion ($1.5 billion / £1.2 billion) | Unchanged | 0.0% |
| GDP Growth Outlook | 5.3% | 5.0% | -0.3 percentage points | -5.7% |