Kenya’s fiscal health for the first half (H1) of the 2025/26 Financial Year presents a sobering picture of a nation caught in a tight balancing act between revenue collection and an ever-growing debt burden.
Latest data by the National Treasury reveals that while the Kenya Revenue Authority managed to pool Sh2.168 trillion in revenue, the distribution of the money highlights a worrying trend: debt servicing continues to significantly outpace investment in development.
In the first six months of the financial year, tax revenue remained the primary driver of the economy, bringing in Sh1.161 trillion, accounting for 54.2 per cent of the total revenue.
However, the “revenue” figure is somewhat deceptive, as it is heavily bolstered by borrowing. To meet its obligations, Kenya took on Sh670.43 billion in domestic borrowing and Sh226.97 billion in external loans and grants.
Combined, borrowing funded nearly 42 per cent of the country’s budget during this period. This heavy reliance on domestic borrowing continues to raise concerns among economists regarding the potential “crowding out” of the private sector from the credit market.
The Expenditure Elephant: Public Debt
The most striking figure from the H1 data is the expenditure on public debt. A staggering Sh941.60 billion, representing 45.5 per cent of the total expenditure, was used to service debt.
To put this in perspective, for every 100 shillings spent by the government, 45 shillings went to creditors. This debt-service ratio is increasingly leaving the government with little room to manoeuvre, especially when compared to other essential spending categories.
The disparity between “keeping the lights on” and “building for the future” is stark. Recurrent spending, which covers government salaries and administrative costs, consumed Sh809.18 billion (39.1 per cent).
In contrast, Development spending, the engine for long-term economic growth, infrastructure, and job creation, received a mere Sh145.04 billion, or 7 per cent of the total pie.
This 7 per cent allocation for development is one of the lowest in recent years, signalling that the government is in “survival mode,” prioritising immediate obligations over capital projects.
Furthermore, County Governments, which are the frontline of service delivery for most Kenyans, received Sh172.22 billion (8.3 per cent). While higher than the development budget, the delay in disbursements to counties has historically hindered the growth of the grassroots economy.
What This Means for the Kenyan Taxpayer
The data suggests a fiscal environment under extreme pressure. With nearly half of the budget going toward debt and another 39 per cent toward recurrent costs, the “fiscal space” for the government to lower taxes or increase social spending is virtually non-existent.
As we move into the second half of the 2025/26 Financial Year, the pressure will be on the Kenya Revenue Authority (KRA) to maintain high collection rates to reduce the need for further borrowing.
However, without a significant shift in the expenditure mix, specifically a reduction in debt servicing or a boost in development investment, the average Kenyan may continue to feel the pinch of a stagnating economy.
