Kenya’s National Assembly Sets Sh2.878 Trillion Spending Ceiling for 2026/27 Amid Debt Pressures and Growth Ambitions

Kenya’s National Assembly Budget and Appropriations Committee has proposed a Sh2.878 trillion national government spending ceiling for the 2026/27 financial year, setting the stage for a significant parliamentary debate over the country’s fiscal direction as the government attempts to balance growth investment against a mounting debt burden and persistent structural challenges.

The figure was tabled on March 9, 2026, as part of the committee’s consideration of the Budget Policy Statement — the annual framework document that sets out the government’s economic and financial priorities before the full budget is presented in June. While the proposed national government ceiling stands at Sh2.878 trillion, total projected government expenditure across all arms of government, including the devolved county system, pushes the broader spending picture considerably higher, with total expenditure and net lending projected at KSh 4.7 trillion for the year — equivalent to 22.5 percent of GDP.

Build the future you deserve. Get started with our top-tier Online courses: ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Let Serrari Ed guide your path to success. Enroll today.

How the Sh2.878 Trillion Is Divided

The proposed ceiling allocates resources across the three arms of national government in a breakdown that reflects both constitutional obligations and political priorities. The lion’s share — Sh2.797 trillion — goes to the Executive, covering the operations of national government ministries, departments and agencies across all sectors of the economy. Parliament is allocated Sh50.7 billion to fund its legislative functions, while the Judiciary receives Sh30.4 billion to support the courts and justice system. The Office of the Auditor-General, whose independence is constitutionally protected, is allocated Sh9 billion.

Beyond the national government itself, the committee’s recommendations include an equitable share allocation of Sh420 billion for county governments — the constitutionally guaranteed transfer that funds devolved services in health, early childhood education, agriculture and local infrastructure. An additional Sh75.69 billion in conditional and other supplementary allocations is expected to flow to counties on top of the equitable share. The Equalization Fund, which targets marginalized regions, is proposed to receive Sh9.6 billion, calculated on the basis of the latest audited and approved revenue figures.

Growth Projections and the Economic Case for the Budget

Budget and Appropriations Committee Chairperson Samuel Atandi, who represents the Alego Usonga constituency, framed the proposed framework as one designed to sustain the economic momentum that has been building across several key sectors. He noted that the economy is projected to grow by 5.3 percent in the 2026/27 financial year, up from 4.7 percent recorded in 2024 — a rebound driven by stronger performance across agriculture, construction, transportation, financial services and tourism.

The 5.3 percent growth target is not a new ambition. A parliamentary briefing document on the 2025/2026 budget similarly anchored its projections at 5.3 percent, citing improved performance in agriculture, tourism, construction and ICT. The consistency of the target reflects a government view that the structural fundamentals underpinning growth — a youthful workforce, expanding digital infrastructure and growing regional trade — remain intact even as short-term pressures from debt servicing and fiscal tightening continue to weigh on the economy.

Agriculture is among the priority sectors explicitly identified in the committee’s framework. Kenya’s farming sector, which directly employs more than 40 percent of the working population, is being supported through continued fertiliser subsidies and value chain development investments — with the broader 2026/27 development budget earmarking Ksh 78 billion for agriculture, including Ksh 8.2 billion for fertiliser subsidies and Ksh 10.2 billion for agricultural value chain programmes. Roads also feature prominently in the spending priorities, with the committee highlighting the need to address significant backlogs in pending bills owed to contractors in the infrastructure sector.

The Pending Bills Crisis: A Structural Drag on Growth

One of the most consequential issues raised during the committee’s deliberations concerns the government’s accumulated unpaid obligations to suppliers, contractors and service providers — a problem that has grown quietly over several years and now poses a genuine threat to private sector confidence and economic activity.

Vice-Chairperson Robert Pukose pressed the issue directly, urging ministries, departments and agencies to prioritize the settlement of pending bills, arguing that delayed government payments reduce money circulation in the economy and effectively act as an unplanned contraction of private sector liquidity. When the government owes billions to contractors and suppliers and those payments are delayed by months or years, businesses cannot meet their own obligations, workers go unpaid, and investment plans are shelved.

Treasury Cabinet Secretary John Mbadi, who appeared before the committee to present the 2026 Budget Policy Statement, acknowledged the scale and longevity of the problem. “The pending bills have accumulated over the years,” Mbadi told lawmakers. “This is not something we are going to sort out today because resources are limited and we cannot stop the country from moving while we are still settling pending bills.” He said the immediate focus is on halting the accumulation of new arrears while gradually clearing existing ones in an orderly manner — a position that represents a more modest ambition than some parliamentarians had hoped for, but reflects the constrained fiscal reality the Treasury is navigating.

Revenue Collection: Expanding the Tax Base Through Digitisation

The committee placed particular emphasis on the need to strengthen revenue mobilisation — a perennial challenge in Kenya given the large informal economy, historically weak compliance culture and the political difficulties that have surrounded attempts to introduce new taxes in recent years.

The committee’s recommendation to allocate more resources to the Kenya Revenue Authority to support digitisation and expand the tax base reflects a broader strategic shift underway at the taxman. KRA has been investing heavily in technology-driven compliance tools, including the Electronic Tax Invoice Management System (eTIMS) for business transactions and the Electronic Rental Income Tax System (eRITS), launched in September 2025 to capture rental income that has historically gone largely untaxed.

The scale of the revenue challenge is significant. Kenya is currently engaged in an intensive effort to collect Sh1.7 trillion in the remaining months of the 2025/26 fiscal year after a slow start in the first five months. KRA gathered Sh909.77 billion from July to November 2025 — roughly a third of its annual target of Sh2.63 trillion — leaving a steep hill to climb before June. The authority has cited data analytics, third-party information sharing and expanded use of eTIMS as key tools in its compliance enforcement drive. KRA is also targeting over three million taxpayers in Western Kenya who either fail to file returns or routinely declare nil income despite being economically active, a group the authority estimates is depriving the government of as much as Sh2.2 trillion in potential revenue.

For the 2026/27 year, total revenue inclusive of Appropriation in Aid is projected at KSh 3.5337 trillion, equivalent to 16.9 percent of GDP — a significant ambition that will require both institutional capacity and taxpayer compliance to deliver.

One decision can change your entire career. Take that step with our Online courses in ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Join Serrari Ed and start building your brighter future today.

State-Owned Enterprises: The Call for Rationalisation

National Assembly Majority Leader Kimani Ichung’wah used the budget debate to push for faster action on one of the most politically sensitive elements of Kenya’s fiscal consolidation agenda: the rationalisation of state-owned enterprises. He supported calls for the National Treasury to fast-track the merger or dissolution of non-viable SOEs by October 2026 as a concrete step toward reducing the fiscal deficit.

Kenya’s SOE landscape is broad and expensive. Many state corporations operate at persistent losses, receive regular government bailouts, and maintain bloated workforce structures that are difficult to reform in the face of political resistance. The fiscal cost — in direct subsidies, guaranteed loans and opportunity costs — has long been identified by the International Monetary Fund and the World Bank as a key vulnerability in Kenya’s public finances. With Kenya remaining on an IMF programme and its access to concessional lending tied to progress on fiscal consolidation benchmarks, the pressure to act on SOEs is as much external as it is domestic. The IMF concluded a mission visit to Nairobi in early March 2026 with discussions centred on Kenya’s economic outlook and the imperative to strengthen fiscal discipline.

The Equalization Fund Debate: Are Marginalized Regions Being Served?

The Equalization Fund — a constitutionally established mechanism designed to channel additional resources to historically marginalized communities — came under scrutiny during the committee’s deliberations, with MP Owen Baya raising pointed questions about whether the fund is actually delivering tangible development outcomes in the regions it is meant to serve.

The fund, drawing on one-half percent of nationally collected revenue, is intended to address development disparities across marginalized regions that were historically underserved by public investment. Baya’s concerns touch on a persistent criticism: that the fund’s distribution formula, administrative mechanisms and accountability structures have prevented it from fulfilling its constitutional mandate effectively. In response, Chairperson Atandi indicated that the committee had recommended the Commission on Revenue Allocation review the current formula used to distribute the fund — an acknowledgement that the current approach requires structural reform rather than simply more funding.

Public Debt and the Sh1.1 Trillion Debt Servicing Burden

The shadow hanging most heavily over the 2026/27 budget framework is Kenya’s public debt trajectory. The committee raised explicit concerns about rising debt servicing costs, which are projected to reach about Sh1.1 trillion in the current financial year — a figure that underscores how much of Kenya’s revenue base is now consumed by obligations incurred in previous years rather than available for current service delivery or development investment.

A Parliamentary Budget Office report submitted to the committee painted an even more challenging medium-term picture. Interest payments on Kenya’s public debt are projected to hit Sh1.2 trillion in 2026/27 alone, with the PBO warning that this escalating obligation will crowd out development spending. Kenya’s total gross public debt currently stands at an estimated Sh11.7 trillion — or 67.8 percent of GDP — according to the Controller of Budget, with domestic debt accounting for Sh6.3 trillion and external debt for Sh5.4 trillion. The Controller of Budget has warned that debt servicing has become “a major strain on government finances” and that Kenya will spend more than 70 percent of ordinary revenue on debt service in the current year.

The fiscal deficit for 2026/27, including grants, is projected to narrow slightly to KSh 1.1158 trillion — equivalent to 5.3 percent of GDP — down from a projected deficit of KSh 1.1407 trillion (6.0 percent of GDP) in 2025/26. That gap will be financed through KSh 225.5 billion in net external borrowing and KSh 890.4 billion in net domestic financing — meaning Kenya will continue to borrow heavily from its own financial markets, with implications for private sector credit access and interest rates.

What Comes Next: The Legislative Path Forward

The committee’s report and its proposed spending ceiling represent a critical but intermediate step in Kenya’s annual budget process. The National Assembly is expected to vote on the motion in its next sitting, after which the report will be transmitted to the Senate for concurrence — a constitutional requirement that gives the upper house the opportunity to weigh in on the national resource allocation framework before it becomes binding.

The full budget, including detailed expenditure estimates, will be formally presented by Treasury Cabinet Secretary John Mbadi in June 2026, when the committee’s recommended ceiling will shape the boundaries within which the government must fit its spending plans. Between now and then, departmental committees, stakeholder groups and the public will have further opportunities to engage with the budget framework — a consultative process that the National Assembly Speaker Moses Wetang’ula has urged lawmakers to approach with greater focus on policy coherence rather than mere numerical adjustments.

The broader fiscal challenge for Kenya remains one of squaring an ambitious growth and investment agenda with the disciplined revenue collection, debt management and expenditure rationalisation that Kenya’s IMF programme and its own long-term fiscal sustainability require. As Atandi has previously noted, the budget “must not only support growth but also safeguard the country from debt vulnerabilities” — a formulation that captures precisely the tension at the heart of Kenya’s public finances heading into 2026/27.

Ready to take your career to the next level? Join our Online courses: ACCA, HESI A2, ATI TEAS 7 , HESI EXIT  , NCLEX – RN and NCLEX – PN, Financial Literacy!🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

Track GDP, Inflation and Central Bank rates for top African markets with Serrari’s comparator tool.

See today’s Treasury bonds and Money market funds movement across financial service providers in Kenya, using Serrari’s comparator tools.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

9th March, 2026