Kenya Government Seeks Additional Sh189 Billion to Address 2024/2025 Budget Shortfalls

The Kenyan government is grappling with significant financial challenges as it seeks an additional Sh189 billion to address budget shortfalls in the 2024/2025 financial year (FY). This development comes as part of the proposed Second Supplementary Budget, which aims to increase overall spending by Sh344.8 billion, pushing the total budget for the current FY to over Sh4.1 trillion, up from the Sh3.8 trillion approved in the first Supplementary Budget. The move has sparked concerns about fiscal sustainability amid economic disruptions and public opposition to previous tax proposals.

The need for additional funding stems from revenue shortfalls triggered by the withdrawal of the Finance Bill 2024, which was met with fierce resistance during nationwide protests in June, July, and August 2024. The bill, which proposed raising Sh344.3 billion in additional revenues through new tax measures, was abandoned following intense public backlash, particularly from youth-led demonstrations. To mitigate the resulting revenue gap, the government initially reduced spending in the first Supplementary Budget, lowering the total budget from Sh3.99 trillion to Sh3.8 trillion, with significant cuts to development expenditure.

However, the recently approved Second Supplementary Budget reverses these cuts, proposing an additional Sh344.8 billion in spending. This includes Sh199 billion for recurrent expenditure, such as personnel costs and operational expenses, and Sh145.8 billion for development projects, including externally financed initiatives. The additional Sh189 billion specifically targets critical areas to ensure the government meets its financial obligations and maintains service delivery.

During a special Cabinet meeting chaired by President William Ruto, the government also approved the 2025 Budget Policy Statement (BPS), which outlines spending plans for the 2025/2026 financial year starting July 1, 2025. The BPS sets a Sh4.2 trillion budget, equivalent to 22.1% of Kenya’s Gross Domestic Product (GDP). This includes:

• Sh3.09 trillion for recurrent spending, covering salaries, utilities, and other operational costs.

• Sh725.1 billion for development projects, aimed at infrastructure and economic growth initiatives.

• Sh436.7 billion in transfers to county governments to support devolved functions.

• Sh5 billion for the Contingency Fund to address unforeseen emergencies.

The BPS, now forwarded to Parliament for approval, reflects the government’s commitment to balancing fiscal stability with development priorities under its Bottom-Up Economic Transformation Agenda. However, the additional spending has raised concerns about increased borrowing, especially given Kenya’s fiscal deficit, projected at Sh768.6 billion (4.3% of GDP) for the current FY, and total expected revenues of Sh3.516 trillion for 2025/2026.

To offset the revenue shortfall from the scrapped Finance Bill, the government has reintroduced some tax measures through alternative legislation passed by Parliament. National Treasury Cabinet Secretary John Mbadi, speaking before the National Assembly Finance and National Planning Committee on November 14, 2024, emphasized the necessity of these measures to stabilize government finances. Additionally, the government plans to implement tax reforms under the Medium-Term Revenue Strategy and scale up public-private partnerships to support infrastructure and service delivery in the coming financial year.

The additional Sh189 billion is expected to address critical areas such as:

• Externally financed projects: Ensuring Kenya meets its commitments to international partners funding development initiatives.

• Personnel costs: Covering salaries and benefits for public sector workers to maintain service delivery.

• Budget realignments: Adjusting allocations to prioritize high-impact projects and address emerging needs.

The decision to increase spending has reignited debates about Kenya’s debt sustainability. The country’s fiscal deficit and reliance on borrowing to bridge budget gaps have been points of contention, particularly after the protests against the Finance Bill highlighted public frustration with rising taxes and economic pressures. Critics argue that the additional Sh344.8 billion in spending, nearly equivalent to the revenue shortfall from the withdrawn bill, could exacerbate Kenya’s debt burden if not accompanied by robust revenue-raising measures.

Makueni Governor Mutula Kilonzo Junior has also raised concerns about the allocation of resources, particularly in devolved functions like healthcare. He criticized the national government’s direct interventions in county health facilities without consultation, arguing that such actions undermine devolution and strain county budgets already impacted by a Sh14 billion cut in 2024/2025.

In addition to the budget approvals, the Cabinet greenlit measures to enhance passenger experience at Jomo Kenyatta International Airport (JKIA). These include exempting African citizens from Electronic Travel Authorization (ETA) requirements, increasing the duty-free threshold for Kenyan travelers from Sh50,000 to Sh250,000, and improving queue management through the installation of E-Gates and additional immigration booths. The government also approved an agreement with Singapore to eliminate double taxation, aiming to boost trade and investment ties.

As the National Treasury prepares to present the Sh4.2 trillion budget for 2025/2026, all eyes are on Treasury Cabinet Secretary John Mbadi, who is expected to deliver his first budget since taking office. The Finance Bill 2025, set to be unveiled on June 12, 2025, may introduce new revenue-raising measures to address potential funding shortfalls, as hinted by Mbadi and National Assembly Finance Committee Chairperson Kimani Kuria. However, Government Spokesperson Isaac Mwaura has urged Kenyans to disregard unverified claims about new taxes, emphasizing that the Finance Bill 2025 is yet to be drafted or tabled in Parliament.

The proposed budget increases and potential tax measures come at a time of heightened public scrutiny, with memories of the 2024 protests still fresh. The government’s ability to balance fiscal discipline with public expectations will be critical in maintaining economic stability and public trust.