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A proposal to borrow Ksh 635.5 billion locally to fund the 2025/2026 budget could push up the cost of credit in the country as the government crowds out the private sector and other borrowers from the credit market, experts have warned.
PricewaterhouseCoopers (PwC) in its post budget analysis projects that the tax collection target given to the Kenya Revenue Authority (KRA) is high and could see the government opting for more additional domestic borrowing to fund the budget.
The 2025/2026 budget tabled by the National Treasury indicates that recurrent expenditures are projected at Ksh 3.13 trillion, representing the largest portion of the total projected expenditure of Ksh 4.29 trillion.
On the other hand, total projected revenue collection, including Appropriation-in-Aid (AIA) and grants, is projected at Ksh 3.32 trillion.
The fiscal deficit for FY2025/26, including grants, is projected at Ksh 923.2 billion. This deficit is planned to be financed through Ksh 287.7 billion in net external borrowing with the balance being net domestic borrowing.
In the 2025/26 budget, the government emphasizes raising funds through tax rationalization, reforms, and improved compliance rather than introducing significant new taxes or rate hikes.
This approach aims to ease the burden on citizens while addressing the country’s fiscal challenges.
The National Treasury has insisted that its approach to tax rationalization in the 2025/2026 budget is about optimizing the existing tax framework rather than imposing new burdens with the focus being on improving efficiency, closing loopholes, enhancing compliance, and strategically adjusting incentives to stimulate economic activity and broaden the tax base.
