Cabinet Approves Sweeping Reforms to Bolster Fiscal Discipline, Social Welfare, and Global Presence

In a Cabinet meeting chaired by President William Ruto at State House, Nairobi, the Kenyan government has unveiled a series of transformative decisions aimed at strengthening fiscal discipline, enhancing social welfare, and expanding the country’s diplomatic footprint. The resolutions, detailed in the latest "Cabinet News" release, underscore the administration’s commitment to living within its means while addressing pressing national and international challenges. Key among the decisions is a resolve to cap the fiscal deficit at 4.5% of GDP for the 2025/26 financial year, down from 5.3% in 2023/24 and 5.1% in 2024/25, with a medium-term target of 2.7%. This move will see the initial budget estimates of KSh4.3 trillion undergo significant revisions before being tabled in Parliament, aiming to reduce public debt vulnerabilities and create fiscal space for essential public goods and services.

The Cabinet also approved the Finance Bill, 2025, which seeks to overhaul Kenya’s tax system by closing loopholes, enhancing efficiency, and tackling inflated tax refund claims that have long drained public coffers. The Bill introduces measures to streamline refund processes, seal legal gaps delaying revenue collection, and reduce tax disputes through amendments to the Income Tax Act, VAT Act, Excise Duty Act, and Tax Procedures Act. In a boost for small businesses, the Bill allows them to fully deduct the cost of tools and equipment in the year of purchase, eliminating delays in accessing tax relief. Meanwhile, under the Bottom-Up Economic Transformation Agenda (BETA), retirees will benefit significantly as gratuity payments—whether from public or private pension schemes—will now be fully tax-exempt, ensuring dignity for senior citizens. Employers will also be required to automatically apply eligible tax reliefs when calculating Pay As You Earn (PAYE) taxes, reducing the burden on employees seeking refunds from the Kenya Revenue Authority (KRA).

In a bid to enhance emergency preparedness, the Cabinet gave the nod to the Public Finance Management (Amendment) Bill, 2024, mandating all county governments to establish County Emergency Funds. This decision, informed by the devastating 2023 El Niño rains and consultations at the 24th Ordinary Session of the Intergovernmental Budget and Economic Council (IBEC) in August 2024, aims to equip counties to respond swiftly to future crises, protecting lives, livelihoods, and infrastructure. On the judicial front, the Judges Retirement Benefits Bill, 2025, was endorsed to establish a dedicated pension framework for superior court judges, moving them away from the general Pensions Act. The Bill introduces a Defined Benefit system for serving judges and a Defined Contribution system for new appointees, offering enhanced benefits like monthly pensions, gratuities, medical coverage, and diplomatic privileges for retirees and their spouses, reinforcing judicial independence.

Healthcare and agriculture also received significant attention, with the Cabinet approving the construction of two Level VI teaching and referral hospitals in Bungoma and Kericho counties, in partnership with the African Development Bank, to advance Universal Health Coverage (UHC) and improve access to quality healthcare in underserved regions. Additionally, the Draft Pest Control Products Bill, 2024, was greenlit to modernize the regulation of pest control products, establishing the Pest Control Products Authority to align with constitutional and international standards, enhancing food safety, environmental protection, public health, and agricultural exports. On the financial front, amendments to the Capital Markets Act were approved to remove shareholder limits in regulated institutions, aiming to deepen financial markets and attract investment, though the Cabinet Secretary retains discretion to impose limits on specific license categories if necessary.

Internationally, Kenya reaffirmed its commitment to global peace by approving the establishment of a Consulate General in Port-au-Prince, Haiti, a move that underscores the country’s growing diplomatic presence in the Caribbean and its leadership role in restoring law and order in the crisis-hit nation. These decisions collectively reflect a government striving to balance fiscal responsibility with social and developmental priorities, though their success will hinge on effective implementation, transparency, and public engagement. As Kenya navigates these reforms, the administration’s ability to address potential challenges—such as resource constraints and bureaucratic inefficiencies—will be critical to delivering on its promises and fostering a more inclusive and resilient future.