Kenya’s fiscal deficit hits Sh252 billion in two months, overshoots target by Sh178 billion

Kenya’s fiscal deficit hits Sh252 billion in two months, overshoots target by Sh178 billion

The widening deficit underscores the pressure on public finances from the combination of underperforming revenue and expenditure commitments that have outpaced initial projections.

Kenya’s fiscal deficit widened to Sh252 billion in the first two months of the 2026/27 financial year, more than three times the planned level.

This, as tax collections fell short and government spending surged beyond projections.

Figures in the 2027/28 Draft Budget Policy Statement, now undergoing public participation, show the deficit for July and August 2026 exceeded the Sh73.5 billion target by Sh178.5 billion, putting pressure on the government’s fiscal consolidation efforts.

The shortfall came as total revenue, including money collected by government ministries, departments and agencies, stood at Sh488.9 billion against a target of Sh516.9 billion by the end of August.

This left collections Sh28.1 billion below target, largely due to weaker ordinary revenue, which underperformed by Sh37.8 billion.

Income tax and value added tax (VAT) were among the biggest contributors to the shortfall, collecting Sh14.4 billion and Sh12.6 billion less than their respective targets.

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Ordinary revenue amounted to Sh383.9 billion against a target of Sh421.8 billion, reflecting the challenge of meeting the government’s revenue ambitions in the opening months of the financial year.

The shortfall was partly cushioned by ministerial Appropriation-in-Aid (A-i-A), which exceeded its target by Sh9.7 billion to reach Sh104.9 billion.

Import duty collections also performed above expectations, bringing in Sh31.7 billion against a target of Sh30.2 billion, while non-tax revenue reached Sh9.5 billion against a Sh8.2 billion target.

On the expenditure side, the government spent Sh746.6 billion, including net lending, against a target of Sh592.6 billion, overshooting the projection by Sh154 billion.

Recurrent expenditure accounted for the largest share of the excess spending, exceeding its target by Sh101.7 billion, mainly due to higher domestic interest payments, pensions and other recurrent obligations.

Development expenditure was Sh26.7 billion above target, while transfers to county governments exceeded projections by Sh25.6 billion, largely reflecting higher disbursements of the equitable share.

The widening deficit underscores the pressure on public finances from the combination of underperforming revenue and expenditure commitments that have outpaced initial projections.

The government financed the deficit through net foreign financing of Sh32.4 billion and net domestic financing of Sh252.6 billion, leaving domestic borrowing as the dominant source of funding during the period.

The Treasury says revised fiscal projections for 2026/27 have accommodated emerging revenue shortfalls and additional expenditure requirements while seeking to maintain the fiscal consolidation path.