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Kenya's FY 2025/26 Budget: Six Structural Vulnerabilities

A review of Kenya's FY 2025/26 Financial Statement reveals revenue that is insufficient, a deficit financed largely domestically, and expenditure that is structurally rigid.

"81.5% of spending is recurrent, while only 18.5% goes to development."

By Stephen Omukoko Okoth·26 January 2026

#Budget#Public Finance#Fiscal Policy#Domestic Debt#Kenya Economy

A review of Kenya's FY 2025/26 Financial Statement reveals six structural vulnerabilities:

Revenue is diversified but insufficient. Income Tax and VAT dominate collections, supported by excise, import duties, and investment income; yet overall revenue growth remains too weak to ease fiscal pressure.
Deficit financing is largely domestic. Net domestic financing (KSh 591.9bn) is more than twice net foreign financing (KSh 284.2bn), placing the adjustment burden on local debt markets.
Foreign inflows overstate available fiscal space. Of KSh 624.4bn in foreign disbursements, 54% is absorbed by principal repayments, leaving less than half as net new financing.
Domestic borrowing is highly concentrated. 98% of domestic financing comes from government securities, creating significant concentration and rollover risk.
Expenditure is structurally rigid. 81.5% of spending is recurrent, while only 18.5% goes to development, limiting room for growth-enhancing investment.
Debt interest is the dominant fiscal constraint. Total debt interest (~KSh 1.1tn) exceeds pensions by more than 4× and is driven mainly by domestic interest (77.5%).

Data source: National Treasury of Kenya. Questions: info@leadafrik.com

Data source: Central Bank of Kenya — Commercial Banks Weighted Average Interest Rates, 1991–2025.