Mini-budget tests IMF austerity demands as State spending soars

Treasury CS John Mbadi before the Joint Committee of Energy of the Senate and National Assembly at Hilton Garden Inn in Nairobi on February 16, 2026. [Elvis Ogina, Standard]

The Treasury has unveiled a Sh287.4 billion supplementary budget that appears to contradict International Monetary Fund demands for fiscal consolidation and wage restraint, setting the stage for tense negotiations.

The mini-budget, tabled in Parliament this week, increases gross ministerial expenditure by 11.3 per cent to Sh2.84 trillion, with significant allocations for salary shortfalls in ministries, departments and agencies. 

The total budget, including debt service, now stands at Sh4.62 trillion – a 13.5 per cent increase from original appropriations.

The spending surge comes just weeks before IMF staff are scheduled to conclude talks on a new financing programme, with the global lender having made governance reforms a central condition for any fresh deal.

"We continue to engage in close and constructive dialogue with the Kenyan authorities. A staff visit to Nairobi is scheduled for late February," an IMF spokesperson told The Standard in January. 

The fund has shared a draft Governance Diagnostic Report with Kenyan authorities that assesses structural weaknesses, making the government vulnerable to corruption.

The supplementary estimates reveal tensions with the fiscal discipline the IMF has consistently urged. While the Treasury asserts adherence to fiscal responsibility principles, the numbers tell a more complicated story.

Development expenditure now stands at 29.3 per cent of the ministerial budget, below the legal threshold of 30 per cent mandated by the Public Finance Management Act. 

The National Treasury has promised "expenditure realignments" to address this over the medium term. The government is turning heavily to domestic markets to bridge a widening fiscal gap. 

Net domestic financing is projected at Sh885.9 billion (4.7 per cent of GDP), while external financing is expected to contribute Sh254.8 billion. The overall fiscal deficit, including grants, is projected at 6.1 per cent of GDP, substantially higher than the 2.3 per cent deficit recorded in December.

"Revenue growth is lagging, debt costs are soaring, and the IMF is demanding governance fixes before it opens its wallet," said Ian Njoroge, an independent economist. "The government is caught between its populist promises and harsh fiscal realities."

The spending increases come despite persistent revenue underperformance. 

By the end of December 2025, total revenue collection fell short of the target by Sh111.6 billion, with ordinary revenue missing its mark by Sh110.6 billion.

Treasury attributes the shortfall to slower-than-anticipated adoption of the e-procurement system and emerging expenditure pressures. Despite the gap, total revenue grew by 11.4 per cent compared to the previous year, indicating some positive momentum in revenue mobilisation.

The supplementary budget allocates Sh56.7 billion for development projects, including roads, water, energy, and youth empowerment initiatives, sectors President William Ruto's administration has prioritised for job creation ahead of the 2027 elections. 

An additional Sh44.8 billion addresses recurrent expenditure, including personnel emoluments.

A striking feature of the mini-budget is the Sh144.4 billion channelled through the Consolidated Fund Services, primarily for debt-related obligations, including a buyback and accrued interest at Citibank. 

This allocation highlights the heavy weight of debt service, which continues to consume a growing share of public resources.

Public debt has crossed the Sh12.8 trillion mark, with servicing costs projected to consume Sh1.66 trillion in the coming financial year – a burden that economists warn is crowding out development spending.

Treasury Cabinet Secretary John Mbadi defended the increases, stating the adjustments address "emerging priorities and shortfalls under critical expenditures," including disaster response for droughts and floods affecting millions.