The 2027 election may be months away, but Treasury is already spending for it

Audio By Vocalize

We are often told that politicians are temporary, but government is permanent.  Yet we live in a country of almost permanent political campaigns, including current events leading into 2027.  In the resulting cacophony, it has been easy to miss the first public milestone in the 2027/28 budget season, publication of the 2026 Budget Review and Outlook Paper (BROP) on August 11th. 

Kenyans were invited to offer comments on this document within a short eight-day period, by August 19th.  Welcome to our “Treasury as usual” mindset, completely ignoring the established practice of 14 days for public participation which is now set out in law, and which should have ended today.  According to the budget calendar, BROP is expected to go to Cabinet tomorrow (August 26th), to be approved by August 30th and submitted to Parliament by September 1st. 

Surprisingly, unlike the Budget Policy Statement (BPS) or Budget Estimates, Parliament does nothing with, or to, BROP in debate or amendment, it is a passive recipient like the rest of us.

Before we delve into its detail, the 2026 BROP reminds us that we have an accelerated budget calendar for 2027/28, owing to the 2027 election.  Public hearings to discuss sector budget proposals will be held from October 12th to 14th, the draft BPS should be ready by October 30th, draft Budget Estimates for 2027/28 should be available from next January 20th, with the draft 2027 Finance Bill available a week later, the Budget Statement will be read on March 18th, and hopefully, both the Appropriations and Finance bills will be passed by Parliament by March 31st,three months earlier than usual. Yes, government is perpetual, but we still need to close shop for elections.  I have never been convinced by this lazy rationale, especially since, technically, early approval does not mandate early spending, the 2027/28 financial year will still begin on July 1st, not April 1st

The other way to look at this early approval is it locks in the 2027/28 fiscal framework for the incoming administration, even if it’s the current one. So, in the four months and a bit before we actually vote, we have a chance to interrogate electoral competitors not just on promises in their rosy manifestos but on their realism in the face of 2027/28 budget, and wider economic, realities.  For the Kenya Kwanza incumbents, it is also a chance to reflect on their fiscal management record since they assumed office, away from political rallies, social events and sunroof announcements.

Let’s take a step back.  What is BROP?  In simple terms, it is a three part document; the first part offers a previous year (2025/26) review of the fiscus; the second presents a review and outlook on the macro-economy, and the third teases out a next year (2027/28) fiscal projection. As is recent practice, the draft describes a resource allocation framework in the third part, including ten criteria for resource prioritization within sectors without specifying sectoral budget ceilings.

However, we continue to avoid the harder task of specifying criteria for prioritizing and allocating these resources, even at the margin, between sectors (e.g. education vs security, or health vs environment).  Zero-based budgeting is no fix without zero-based programming and planning. 

What does the 2026 BROP tell us?  Revenue in 2025/26 fell short of its Sh3.26 trillion target by Sh60 billion, largely driven by a shortfall in investment revenue (missing Safaricom dividends?), but was 9.4 per cent higher than 2024/25.  Instructively, total revenue and grants fell from 18.3 per cent to 17.3 per cent as a percentage of GDP (the missing dividend accounting for half of this), although all tax heads were slightly above or below target, but A-in-A (e-citizen) fell short.

Going into 2027/28, revenue is projected at Sh3.94 trillion (but only 17.1 per cent of GDP), even though the current 2026/27 has been slashed by Sh100 billion from the original budget of Sh3.63 trillion to Sh3.53 trillion (17.4 to 17 per cent of GDP).  As said last week, a culture of revenue over-optimism persists among our macro-planners, yet the greater concern here might be that revenue extraction from the economy is on a downward trend.  Are we at the Laffer curve limit? Or are we over-projecting the actual size of the economy?  Answers on a postcard, please!

Turning to expenditure, the 2025/26 target of Sh4.66 trillion fell short by Sh172 billion to Sh4.48 trillion, with a recurrent shortfall of Sh115 billion (domestic and foreign interest, operations and maintenance (i.e. service delivery) and pensions) and a development miss of Sh39 billion on weaker than expected absorption of funds (i.e. less development).  Not to worry, though, because 2027/28 spending is set at Sh5.32 trillion, almost Sh400 billion higher than the estimates in the 2026 BPS, and Sh460 billion higher than the latest 2026/27 projection of Sh4.86 trillion, which is itself a Sh40 billion increase from the original Sh4.82 trillion budget passed in June.  Debt service alone cannot account for this huge increase, and we wait to see what the sector allocations show.

Which brings us to a Sh1.38 trillion deficit (6 per cent of GDP excluding grants), of which Sh1.09 trillion will be domestically financed, even as latest projections show an almost equal Sh1.04 trillion for current 2026/27 (up from the budgeted Sh898 billion given a larger projected deficit).

Just for the record, this follows deficits of 6.2, 6.9 and projected 6.4 per cent in 2024/25, 2025/26 and 2026/27.  The deficit projections from 2028/29 to 2030/31 are Sh1.42 trillion, Sh1.35 trillion and Sh1.28 trillion.  In public debt terms, we are looking at 13.01 trillion in June 2026, Sh14.3 trillion in June 2027 to Sh19.4 trillion in June 2031.  As we project the economy, in nominal GDP terms, at Sh18.6 trillion in June 2026 (it was Sh17.6 trillion in December 2025), Sh19.7 trillion in December 2026, Sh20.8 trillion in June 2027 all the way to Sh31.3 trillion in June 2031.

Surprisingly, there is an overall sense of almost deliberate policy vagueness with this BROP, but even with the lowered 2026 growth projection from 5.3 per cent to 5 per cent, one gets the feeling that the fiscus could be running out of control as the 2027 election looms, some might argue that the administration is now in survival mode.  Even with falling extraction from the economy, the revenue targets seem optimistic, but it is the spending side that should concern us.  Barely two months into the current fiscal year, revenue has been revised downwards and spending upwards, at a net of Sh140 billion before we see the Supplementary I Budget Estimates. 

As the politics heats up, expect more downward and upward revisions.  And don’t be surprised, with that Sh400 billion jump, if we get some front-loaded 2027/28 spending (outside IFMIS which then comes on-books as pending bills amid “empty coffers”).  This might be speculative given the BROP’s thin detail, and I might be completely wrong, but the tell-tale signs are not very good!