House team okays Treasury's Sh4.24tr spending plan amid concerns

The National Assembly’s Budget and Appropriations Committee (BAC) has approved the plans by the government to spend Sh4.24 trillion, but also poked holes in the plan.

The committee, which has been gathering views from other parliamentary committees but also the public on the budget estimates for 2025-26 financial year, yesterday noted that the National Treasury has underfunded or failed to allocate funds in some areas that are critical for the government to achieve development plans. 

Additionally, the MPs raised concerns over ambitious tax collection targets, high debt servicing obligations that point to unsustainable debt levels, the planned high borrowing from the domestic market that could crowd out businesses and households and low spending on development projects.

The Sh4.239 trillion budget is expected to be financed through revenues from both tax collections as well as levies and other charges collected by ministries, which are expected to hit Sh3.328 trillion. 

BAC cast doubt on the government’s ambition to grow tax revenues, which are the bulk of the revenue collections at Sh2.76 trillion of the total revenues of  Sh3.328 trillion.

The committee is also wary of further borrowing, with current debt servicing obligations seemingly reaching a crisis level.

Over the next financial year, the government plans to borrow Sh876  billion, a mix of both local and foreign borrowing. 

“The committee observed that the government continues to face the complex challenge of balancing fiscal consolidation efforts with the need to implement supportive policies across critical sectors of the economy,” said BAC in the report that was tabled in Parliament yesterday and is now set to undergo debate.

“Effective policy execution in agriculture, manufacturing and services in anchoring growth.  On the external front, continued growth in export earnings, particularly from agricultural produce and services, coupled with resilient diaspora remittances, is expected to bolster foreign exchange reserves and ease pressure on the exchange rate.”

Among the areas of concern for the committee are tax revenue collections. BAC  noted that  KRA has mostly fallen short of meeting tax revenue collections, which in turn leads the government to resort to more debt for budget support.

“For instance, in the period ending April 2025, total revenue collection stood at Sh2.26 trillion, falling short of the target of Sh2.51 trillion by Sh253 billion… these gaps underscore the need for stronger revenue mobilisation strategies to ensure fiscal sustainability and effective budget execution,” said BAC.

It also raised issue with development budget allocation, which at Sh721 billion is higher than last year Sh707.8 billion, it has been subject to reductions in the past years, as Treasury slashed funds earmarked for infrastructure projects and redirected it to recurrent spending.

“The Committee observed that while development expenditure for the 2025-26 financial year is projected to increase, historical trends show that initial allocations are often front-loaded but later scaled down through supplementary budgets,” said BAC in the report.

“Therefore, it is crucial to ensure that fiscal consolidation measures do not disproportionately impact development expenditure, as it plays a vital role in supporting economic growth and long-term sustainability.”

The committee has also raised concerns about the huge spending on debt servicing, with more than Sh1 trillion set aside for the payment of interest set to cost about Sh1 trillion.

Kenya expects to spend Sh1.9 trillion in repayment of both domestic and foreign debts, of which Sh1.097 trillion will be on interest payments, as another Sh803 billion will be on debt redemption.

This will take 69 per cent of the ordinary revenues for the next financial year, which is expected to be in the region of Sh2.76 trillion, leaving the government with little to spend on essential services, including supporting the public wage bill.

The committee noted the high debt servicing obligations pointed to growing fiscal strain.

“With interest payments projected to surge by 10.2 per cent to Sh1.1 trillion, the growing debt burden could constrain budget flexibility and limit resources for development priorities,” said BAC in its report to Parliament.

“Higher borrowing rates may further exacerbate fiscal pressures, potentially leading to increased reliance on revenue mobilisation or spending adjustments. Addressing these concerns will require strategic debt management, economic growth initiatives will require strategic debt management, economic growth initiatives and policy interventions to ensure long-term sustainability.”

Over the 2025-26 financial year, the government plans to borrow Sh876 billion to plug the budget deficit. It expects to borrow Sh591.8 billion domestically and Sh284.2 billion from foreign lenders.

The increased preference for local borrowing, BAC noted, could result in banks further denying households and businesses loans and continue to lend more to the government. Central Bank has been pushing lenders to advance credit to Kenyans through lowering to the benchmark lending rate – the Central Bank Rate – but this has also been hurt by Treasury’s high appetite for local borrowing through Treasury Bills and Bonds.

“The committee noted that despite the declining interest rates on government securities locally due to the easing of monetary policy stance, continued reliance on domestic borrowing may crowd out the private sector. Conversely, the targeted commercial financing will be subject to global market dynamics, which may necessitate changes in borrowing strategy,” said BAC. 

The Committee also noted that numerous areas have been either underfunded or not given any funds over the next financial year, despite being critical. These include national examination management, which has not been allocated any funds, with the committee noting it is not the first time it has been denied funds.

“The committee noted that no funds had been allocated for examination invigilation and management in 2025/26, raising concerns among education stakeholders,” said the Committee in its report, adding that the government had been taking lightly allocation to exam administration, including during the currency financial year where exam related funding was provided as an emergency through a supplementary budget. 

“The absence of dedicated financial support has led to uncertainty in the education sector, highlighting the urgent need for budgetary intervention.”

It noted key projects that are critical to food security have significantly underfunded. These include the food security and crop diversification project that has a funding shortfall of Sh1.5 billion while the fertiliser subsidy programme has been underfunded by Sh10 billion. 

“These financial gaps could impact agricultural productivity, food availability and overall economic stability,” said BAC.

“To ensure the successful implementation of these initiatives and the realisation of BETA objectives, it is essential that funding allocations are enhanced to adequately support their intended outcomes.”

It added that failure to allocate any funds to the National Livestock Development and Promotion Service (NLDPS) would further contribute to the underdevelopment of the livestock sector in Kenya despite its massive potential.

BAC also noted that the health budget has been grossly underfunded, with few allocations going towards the absorption of Universal Health Coverage (UHC) staff on permanent and pension terms. It noted that addressing employment gaps in the health sector was critical to service delivery and supporting economic productivity.

The committee also noted that despite Kenya being scheduled to host the Africa Cup of Nations (Afcon) 2027 tournament alongside Uganda and Tanzania, the government has not allocated to pay for hosting rights, which it is supposed to make by April next year.

“No provision has been made in the proposed 2025/26 financial year estimates for the payment of hosting rights amounting to Sh3.9 billion ($30 million) which are due by April 2026,” said BAC.