Treasury mulls slashing Sh4.8tr budget, tax hikes still an option

Treasury CS John Mbadi says the Finance Bill does not introduce a new mobile phone tax, but consolidates existing charges into a 25% excise duty on activation from 55.5%. [Benard Orwongo, Standard]

Kenya’s Sh4.8 trillion 2026-27 budget might get a haircut as the technical team re-examines the economic headwinds amid a gloomy global outlook. 

The ongoing Middle East conflict has led to fuel shortages across the globe, including in Kenya. 

National Treasury Cabinet Secretary John Mbadi says this trim is inevitable if the outcome is gloomy, given the rigidity of the budget, owing to the government’s current financial obligations. 

Some of these obligations include the Sh1.5 trillion debt repayment, the Sh18 billion fertiliser subsidy, the primary school capitation of Sh7 billion, Sh31 billion for junior secondary school, Sh54 billion for secondary schools, Sh420 billion for counties, and Sh1 trillion for civil servants’ salaries. 

This is dependent on revenues estimated at Sh3.6 trillion for the period. 

“We are praying and working hard to keep the shilling stable. That is why I am saying those calling for the discontinuation of the G-2-G (government-to-government) framework want us to commit suicide with this economy,” said the CS at a press conference on Monday. 

Economic environment

The CS maintained that the G-2-G framework for the supply of petroleum products to the country is instrumental, particularly in the current difficult economic environment. 

Abdicating the deal, he said, would mean Kenya sourcing fuel from the open market, which would put the shilling under strain.

This would then affect the country’s standard obligations, mainly debt repayment, which would skyrocket beyond the Sh1.5 trillion budget. 

President William Ruto initiated the G-2-G deal two years ago to safeguard the shilling, which had put the shilling under immense pressure from the US dollar, the trading currency for oil marketers buying fuel products.

The deal offered the shilling some relief, as the selling entities, Emirates National Oil Company, Saudi Arabian Oil Company, and Abu Dhabi National Oil Company, sell the products on credit. 

“If Saudi Aramco, Adnoc and Enoc cannot find fuel, where will small business people find it?” Mbadi asked.

“Some of our irresponsible leaders are calling on us to discontinue G-2-G; that would be the most reckless decision a government could make at this time.”

He said the problems in the Middle East have affected countries beyond Kenya, and he insisted that while pumps are dry in other markets such as Burundi and Mozambique, the G-2-G deal has kept fuel products flowing locally.

Economic growth

The CS said his office is now in a dilemma about whether the budget should be revised to accommodate these new realities.

“We are monitoring the situation as it is, but obviously, it is going to hit all economies. All economies are revising their projections downwards,” he said. 

Earlier, the Central Bank of Kenya (CBK) revised Kenya’s economic growth for the 2026 period from 5.5 per cent to 5.3 per cent. 

Kenya’s inflation rate currently stands at 5.6 per cent, according to Kenya National Bureau of Statistics (KNBS) figures for April. This is the highest rate in two years. 

The 5.6 per cent rate is an increase from 4.4 per cent in March. The CS said his technical team is relooking at the figures, which would inform another forecast. 

He noted that if the projections are downwards, then it means revenue expectations will also drop.“We have no option but to raise taxes. Borrowing is a no-go zone. What is the other option? Cut the budget. However painful it is, we might go that route, but it is too early to say so,” he said. 

CS Mbadi insisted that the Sh4.8 trillion budget is “so rigid that slashing it would not be feasible. “Where do you even cut? It is inflexible. We have boxed ourselves here, and we must find a way out,” he said. 

The CS explained that this rigidity has also affected some ministries, which have been allocated less than expected. One such is the Ministry of Energy and Petroleum.

He said that if projects undertaken by the agencies under the ministries are commercially viable, they should be funded through other channels, such as the National Infrastructure Fund (NIF) or the public-private partnership (PPP) model.

Mbadi said this is the approach to make money available to support social interventions such as education.

“If you look at the budget, we have cut (the development budget) for the Ministry of Energy and Petroleum. Many of the projects being implemented by various agencies are commercially viable,” he said.