Kenya's Budget Paradox: Are we spending too much or too little?

National Treasury CS John Mbadi holds the budget briefcase, June 12, 2025. [Boniface Okendo, Standard]

This Thursday, Treasury Cabinet Secretary John Mbadi will present in Parliament the 2026 National Budget Statement for the 2026/27 fiscal year that begins in about three weeks from today.

We will say more about this statement on the day itself, but the backdrop is far from encouraging. Let us run some basic numbers to paint the picture.

At Sh2.32 trillion, debt service, including repayments and rollovers, will account for 83 per cent of the optimistically projected Sh2.78 trillion in collections from our four main tax heads: income taxes, import/customs duties, excise duties and value added tax.

Debt interest alone, at Sh1.25 trillion, is easily our largest spending item, far exceeding both the national government wage bill at Sh702 billion and actual development spending at Sh851 billion. And we haven’t yet accounted for operations and maintenance, which in a working system would finance service delivery, not just travel and events.

For the record, if we threw in other “first charge on the budget” costs, like pensions and payroll for constitutional office holders, total consolidated fund services (CFS) – where debt resides - at Sh2.56 trillion would gobble up 92 per cent of the pure tax take.

Twisting this around, if we excluded CFS from our calculus, and added other tax revenue, not non-tax revenue, to the four main tax heads, the resultant Sh2.86 trillion in total taxes is insufficient to cover the Sh2.93 trillion cost of national government, recurrent and development, and that’s before we get to counties.

Here is a simplified picture.

Taxes just about cover the cost of the national government. But this is if we exclude CFS costs, including debt service.  Alternatively, these taxes would just about cover CFS costs and counties.  Basically, taxes cannot do both. Even if we throw in other revenues plus grants, about Sh815 billion in total, the numbers fall short by Sh1.18 trillion, the fiscal deficit.  We need new debt to cover the recurrent budget since the recurrent budget is mostly old debt.

There are many ways to slice and dice the 2026/27 budget, but here is one you will not hear.

A gross “outflows” budget of Sh5.91 trillion, including debt repayments and rollovers, with the net “official” budget at Sh4.85 trillion, that is paid for by total revenues, including non-tax revenue and appropriations-in-aid, and grants of Sh3.67 trillion and all manner of debt trickery, new borrowing and old refinancing, of Sh2.24 trillion.

To repeat, only Sh851 billion of that Sh5.91 trillion is going into development, even though we plan to borrow Sh1.18 trillion, while Sh2.56 trillion is consumed by debt service.  Forget the debt treadmill. It is a real casino out there, and that is before our latest policy adventure in off-balance sheet financial engineering and other magic tricks.

To be fair, this state of fiscal stress hasn’t been a one-day event; the mega-borrowing spree that led us here began more than a decade ago. What might be up for debate is how well the current Kenya Kwanza administration has handled the fiscal “booby trap” handed to them by the previous Jubilee one.

Although Treasury points to the Budget’s inflexibility, given the rigidity imposed by CFS costs, the wage bill, counties and constitutionally mandated independent institutions, the perception among fatigued taxpayers concerned about waste, extravagance and corruption is that we have an expenditure, and not a revenue, problem.  There is an argument that it’s both, not either.

It doesn’t help that every successive version of the 2026/27 budget framework, from the Budget Review and Outlook Paper to the Budget Policy Statement to the current Budget Estimates, has raised the spending envelope, as the Budget and Appropriations Committee (BAC) most recently did to Treasury’s initial proposals last week.  Furthermore, consider that the first Supplementary Budget for 2025/26 has higher estimates for the national government than the forthcoming 2026/27, so it is reasonable to assume, in this pre-election year, that the latter estimates are grossly understated.

As we did with revenue last week, in arguing that we need to see a more holistic revenue picture from Parliament than the procedural niceties of the Finance Bill, shouldn’t we expect more from the self-same Parliament – and BAC in particular – on the spending side as well? Here’s how. 

If we look at the 2026/27 budget on a sector-by-sector basis across all 10 Medium-Term Expenditure Framework (MTEF) sectors, we might discover we aren’t spending enough, even allowing for our debt overhang.

Let’s pursue this idea with back-of-the-envelope estimates using global or international spending norms for illustration.  Take Education and the Incheon benchmark of 20 per cent.  We are around 16 per cent of the total (net) budget.  Healthcare and the 15 per cent Abuja benchmark?  We are doing six per cent, including counties.  Agriculture and Malabo’s 10 per cent?  We are not even at three per cent.  Infrastructure and energy at the World Bank norm of five per cent of GDP, effectively 22 per cent of the budget?  We are at half of that at 11 per cent.

Governance, Justice, Law and Order (GJLO) at a UN/World Bank norm of 10 per cent comes out at just over seven per cent. National Security (Defence and Intelligence) using the two per cent of GDP (effectively nine per cent of the budget) SIPRI benchmark falls short at just over six per cent. Public Administration and International Relations (PAIR) overshoots the five per cent Commonwealth benchmark at almost eight per cent.  General Economic and Commercial Affairs (GECA) falls short of the lower end of the three per cent WTO trade capacity benchmark at just over one per cent. 

That leaves us with Social Protection at two per cent against an ILO benchmark of two per cent of GDP (nine per cent of the budget), and Environment and Natural Resources also around two per cent against the UN’s five per cent SDG financing norms.

Untidily, these benchmarks are drawn from different, unharmonized sources, so we end up with a 106 per cent total, Sh5.14 trillion as the “ideal need” before CFS costs (excluding debt repayment) of 30 per cent (Sh1.52 trillion). 

More to the point, what do these norms say about investment, or lack thereof, across sectors?

Of course, there is more to this.

One, our public expenditure system is input rather than output or outcome oriented, and performance metrics reflect completed activities rather than services delivered or improved welfare or wellbeing outcomes.

Second, the silo mentality within government means the innovative value chain approach to the Budget, effectively cross-institutional portfolios sitting above institutional programmes, is incremental, not system-wide.

Yet, even as this rough data illustration suggests, do we need to revisit what our expenditure problem really is, towards quality beyond the quantum?

You might not hear it this Budget week, but could the irony be that we aren’t spending too much, but that we aren’t spending enough?