2026 budget aims high but struggles to maintain proper fiscal discipline

Budget reading in Kenya.[FILE]

In making 2026 “a defining year in Kenya’s history”, to quote the President’s New Year address, we begin with the 2026/27 budget process now in full flow. Just before Christmas, the National Treasury released the draft 2026 Budget Policy Statement (BPS) as the latest step in this process.

According to the budget calendar, the BPS is the seventh step in an eleven-stage process, which began in August with the Medium-Term Expenditure Framework (MTEF) guidelines and concludes in June with the passage of the 2026/27 Appropriations and 2026 Finance Bill, the tenth and eleventh steps before enactment into law.

One day, Kenya could have a national budget calendar like Singapore’s, factoring in the Division of Revenue, County Allocation of Revenue, and County Additional Allocation bills to improve predictability in county budget.

In all 47 counties, the equivalent of the BPS—the County Fiscal Strategy Paper (CFSP)—should be tabled alongside their 2026/27 budget processes.

In the future, Kenya could have a 3-in-1 Public Finance Management (PFM) calendar, covering next year’s budget, current-year implementation, and last year’s audited out turns. Or even a 5-in-1 “Policy to Results” calendar that adds monitoring, non-financial reporting, and performance contracting, providing a single, authoritative version of official truth.

Back to the BPS.  Kenyans have until this Friday, January 9th to provide comments on its contents and intents. Even as we compile feedback for Treasury, let’s take an unusual lens: we assume that BPS has not yet been approved by Cabinet, otherwise why invite participation?

In reality, this isn’t the only opportunity for input. Further opportunities will arise when the BPS reaches the National Assembly’s Budget and Appropriations Committee (BAC) and subsequently the Departmental Committees to which BAC forwards it upon receipt from Treasury. 

Kenyans have already participated in step six of the 2026/27 process, through sector hearings held in November 2025 and in step five a  month earlier, by submitting comments on the Budget Review and Outlook Paper (BROP).  What remains unclear is whether the public was involved in step three – programme performance and strategic reviews.

Looking ahead, Kenyans will have another opportunity in step eight this May, when the draft budget estimates and Finance Bill are presented before Parliament (BAC, et al).  For the record, the reading of the 2026 Budget Statement – step nine – is currently scheduled for June 11, 2026.

With multiple opportunities for public participation across the Executive and Legislature, at both national and county levels, one might expect our budgets to reflect high-quality participation input. You could be wrong.

A glance at issues raised and government responses during the step six sector hearings, as recorded in Annex Table 6 of the BPS, suggests that the open-ended nature of public participation may not translate into meaningful outputs, whether by design or not. 

It might sound controversial, but shouldn’t inputs to the BROP, differ from those to the BPS or the actual budget estimates? When public participation lacks context or relevance, it risks becoming “hot air” allowing officials to tick off constitutional compliance boxes without producing substantive outcomes.

Back to the BPS, again. To make public input relevant, think of it as the “budget before the budget”, providing an assessment and outlook on the economy and fiscus, government’s strategic priorities and final expenditure ceilings for MDAs, Parliament and the Judiciary and county allocations. The law requires that actual budget estimates stay within these BPS ceilings.

The BPS also examines two key areas. First, adherence by national and county governments to fiscal responsibility principles and financial objectives and second, fiscal risks to the BPS targets.

Here are a few thought-provoking pointers from the 2026 BPS to guide public participation.

To be fair to this administration, there is a clear flow in successive BPS themes: 2023 was “bottom-up,” 2024 “sustaining bottom-up,” 2025 “consolidating bottom-up gains,” and 2026 “accelerating bottom-up gains.” This reflects the direction of travel presented to the public.

Chapter One sets out the overall BPS theme. Its first section examines the five BETA pillars—agriculture, MSMEs, UHC, affordable housing, and digital/creative—in two ways. First, it outlines priority actions for the medium term, which are reiterated later in the BPS. Second, it highlights achievements over the past three years, though the data appears more aligned with presidential speeches and press statements than with KNBS Economic Survey and MTP IV Annual Reporting data.

Single version of the truth? The same applies to the second part, which reports on BETA enablers.

The third part of this chapter outlines our long-term roadmap. Without repeating recent commentary in this column, it’s worth noting that this section may now reflect our official twin New Year goals—to halve poverty and unemployment, with timelines yet to be announced. While we are not quite there, our “first world vision” is taking shape; it’s about more than just shiny symbols.

The next question is how this roadmap is integrated at the economic policy level into Chapter Two (macro developments and outlook) and the medium-term resourcing and fiscal framework in Chapter Three. Meanwhile, as noted last year, Chapter Four on counties requires a careful lens on their economics, both actual and potential, and on revenue, based on collection efficiency and economic growth.

There’s a strong case for giving the roadmap more prominence in this BPS. The current economic growth projection is fixed at today’s expected 5.3 per cent through 2030—five years into the roadmap. Meanwhile, revenue and spending projections have been revised downward since the BROP, yet the resulting deficit is higher. (Do we need a deficit law?)

Are we now in a twilight zone of ambitious vision and an unstable, unpredictable fiscus?

This brings us to a less-heralded part of the BPS; adherence to fiscal responsibility principles. National government development spending appears well below the legal threshold, while the claim that we are within the wage bill ceiling relies on excluding parastatal and related staff, whom the SRC counts in warnings of a looming wage bill crisis.

Currently, less than a quarter of government borrowing goes to development, with the rest absorbed by recurrent spending. Meanwhile, three of four standard debt sustainability thresholds are breached, and the debt-to-GDP ratio will not fall below the 55 per cent target set to replace the absolute debt ceiling before 2030. Prudent fiscal risk management and a predictable tax regime remain distant.

Turning to counties, many under perform on development spending while overspending on wages. Specifically, 29 of 47 counties spend inadequately on development, and 38 exceed the legal wage bill threshold. In 2024/25, pending bills across all counties totalled nearly 30 per cent of their consolidated budgets, with around half older than three years. And that’s just a basic snapshot.

Perhaps this year’s BPS—and county-level CFSPs—should carry the theme “Toward Fiscal Responsibility.”

Next, we must consider how state corporations, public-private partnerships and devolution interact with public debt, pending bills and climate change in shaping our chilling fiscal risk calculus.