Budget 2025: Kenya targets growth, reality suggests economic headwinds

As Kenyans emerge this week from a fairly quiet and low-key Easter break amid challenging social and economic times, the final stretch of our budget preparation process is now in full swing. At the national government level, April 30, marks the deadline for submission to Parliament of the detailed 2025/26 Budget Estimates, with similar submissions due to County Assemblies at the devolved level.

Kenyans should view the coming month of May as a valuable opportunity for public participation and civic engagement on these budget estimates, ahead of the formal presentation of national and county Budget Statements by the respective Finance Ministers (CS Treasury and CECs Finance) in mid-June 2025. And it’s not just about spending; May also offers citizens a chance to engage with the revenue side of the budget—through both national and county Finance Bills, as well as actual revenue estimates.

This moment could also serve as an opportunity to explore the third piece of our fiscal puzzle—debt. Not the mumbo-jumbo of debt sustainability and the Medium-Term Debt Management Strategy, but meaningful dialogues around debt service (past and existing loans) and new borrowing (new loans as future taxes).

Notably, this year the National Treasury’s top leadership appears to be making a deliberate effort not only to explain the 2025/26 budget process to Kenyans in as many ways as possible, but also to actively engage with the public. Opinion is divided as to whether this fresh approach is a genuine reflection of lessons learnt from the deadly 2024 Finance Bill protests, or simply a cynical public relations stunt.

While Treasury’s new “openness” is commendable, there is a worrying level of confusion when the CS Treasury publicly promises a 2025 Finance Bill filled with new taxes that, by some unknown magic, will simultaneously improve the business environment and protect our purchasing power—even as his PS insists that our “expensive” Constitution is the root of our current debt crisis.

This latter point is particularly exasperating. It amounts to an official admission that we are unable to implement the Katiba. So, is our Constitution politically infeasible (read: broad-based government) and financially not viable too? Why does everyone suddenly want to “become clever” these days?

It is easy to forget that our budget is not just about numbers. It is a signalling instrument—domestically and externally—to Kenyans and businesses, as well as to markets, lenders, investors, and partners. As has been said before, the 2025/26 budget is this administration’s signature budget—much like Kibaki’s 2005/06 mid-term budget was 20 years ago. It sets the basic tone, tenor, and rhythm for the rest of the term.

The signs going into 2025/26 are not encouraging, even as we are fed Treasury’s tales of “liquidity management” (read: we have a cash flow problem), which may in fact be masking rapidly growing solvency issues (read: we have an income—or productive economic activity—problem). Are we now at the point of “can’t pay forever” insolvency, rather than “can’t pay today” illiquidity in our self-inflicted debt crisis?

Probably not—but let’s look at where we are in 2024/25 using the National Treasury’s latest Statement of Actual Revenues and Net Exchequer Issues as of March 28, 2025; essentially, our Q3 funds flow report. The tax take by the end of Q3 stands at 88 per cent of target, with actual collections averaging Sh175 billion per month against a Supplementary II target of Sh200 billion.

To be clear, this is a twice-revised target. Under the original (Finance Bill 2024) estimates, the target was Sh229 billion per month, which was then cut to Sh206 billion in Supplementary I. To meet the downgraded Supplementary II 2024/25 target, Q4 must deliver an incredible Sh274 billion per month—but we’ll probably close the full year around Sh2.4 trillion (Sh200 billion per month). For the record, 2025/26 targets a tax take of Sh212 billion per month. Numbers games?

Let’s simplify the Q3 picture. For every Sh100 collected in taxes, Sh69 went to debt service, leaving Sh31 for the actual running of government. With national and county governments consuming Sh90 and other consolidated fund services taking Sh9, the only way to balance the books was through new borrowing and grants totalling Sh65, plus Sh3 of the Sh8 collected in non-tax revenues, with the remainder going into the closing cash balance of Sh7.

This picture, of course, excludes non-tax revenue in the form of appropriations-in-aid (ministerial revenues from services—read: eCitizen) that do not go directly into the Consolidated Fund.

The big picture here is that our revenue story—both tax and non-tax—is incomplete on many fronts: from economic realism and revenue modelling to transparency and disclosure. But it isn’t the only story that should feature as the 2025/26 budget process is finalised. Here are a few more.

It is often said that spending is the true elephant in our fiscal room. Valid concerns abound regarding corruption, waste, and misuse of funds. The prevailing view is that we pay lip service to austerity and value for money. Indeed, the latest round of “zero-based budgeting” (tried and failed in 2018) has done little to shift the direction or focus of public spending. Less appreciated is the impact of our debt mountain—debt interest has effectively squeezed out spending on service delivery and development. The Institute of Public Finance has aptly called it “our lost spending decade.”

Do we have a double whammy—bad debt crowding out good spending, which is in turn crowded out by bad spending?

What other 2025/26 budget storylines should we be looking at? There are two cases in court. One seeks to halt the budget process until pending bills (Sh700 billion and counting) are settled. The other raises the issue of odious debt—claiming we have no obligation to repay.

Further, does the recent creation of new state departments warrant a budget rethink? Did this government reorganisation invalidate the recently approved 2025 Budget Policy Statement as a guide to these detailed 2025/26 estimates? This is just one of many disrupting questions.

Larger disrupting questions for 2025/26 relate to our external environment. First, the Trump tariffs and their impact—not only on the economy but also on revenue collections. Will we abandon digital services/significant economic presence taxes? Can we continue subsidising agricultural production? Why didn’t we secure that post-AGOA bilateral deal we were pushing with the US?

Second, foreign aid in general—again shaped by Trump administration decisions on the United States Agency for International Development (USAID), which have overshadowed broader reductions or eliminations of aid programmes in the West and Global North. One of the more alarming aspects of impact assessments on this loss of aid is our lack of clarity. Our aid architecture is so opaque that off-budget aid might well exceed on-budget aid. We simply don’t know.

From aid, we move to Bretton Woods and multilateral support. We are walking into the 2025/26 budget cycle with an abruptly ended International Monetary Fund (IMF) programme and reports that the World Bank and other multilaterals are treading cautiously when it comes to funding Kenya. Cue the state visit to China this week, where the talking points might include debt rescheduling, foreign direct investment, parastatal reform, privatisation, and public-private partnerships.

There’s an old adage: “Plan for the best; prepare for the worst.” As we close the 2025/26 budget cycle, this is precisely where we are—planning on assumed order; preparing for assumed chaos.