The National Treasury Cabinet Secretary, CS Mbadi, has officially presented the highlights of Kenya’s Budget for the 2025/26 financial year before the National Assembly.
While the Finance Bill 2025 had already set a tone of complexity over clarity, the budget presentation followed a similar path—lean on narrative, yet heavy on technical detail.
So what exactly stood out in this budget statement?
Key Macro-Level Adjustments
- Increased Budget Size: The overall budget has been revised upwards to Kes 4.291 trillion from Kes 4.239 trillion—a Kes 52.0 billion bump.
- Marginal Revenue Adjustment: Projected revenue is now set at Kes 3.321 trillion, slightly higher than the previous Kes 3.316 trillion, although it still falls short of the Budget & Appropriations Committee’s proposed Kes 3.328 trillion.
- Widening Deficit: The deficit projection has grown to Kes 923.2 billion (4.8% of GDP), up from the earlier Kes 876.1 billion (4.5% of GDP).
- Heavier Domestic Borrowing: GOK plans to borrow Kes 635.5 billion domestically, up from Kes 591.9 billion, and Kes 287.7 billion externally, slightly up from Kes 284.2 billion.
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Finance Bill 2025: The Grey Zones
- Aims to raise Kes 30.0 billion in additional revenue.
- Major proposed amendments to the 1st and 2nd Schedules of the VAT Act remain unclear, especially concerning the exemption status of animal feed inputs.
- Introduction of VAT liability for abuse of exempt/zero-rated supplies raises critical implementation questions—who determines ‘abuse’?
Digital Governance Push
The government has set July 1st, 2025 as the rollout date for mandatory eProcurement across all public sectors:
- Only suppliers listed in the electronic catalogue will be eligible.
- Expected to save about 10% of the procurement budget—roughly Kes 200 billion annually.
- Implementation costs are projected at Kes 700 million.
- This move aligns with the now-defunct IMF US$3.6 billion program, indicating continued commitment to structural reforms.
Basic Education Under Scrutiny
- Vote 1066 (Basic Education) has been allocated Kes 127.5 billion.
- The CS hinted at a thorough review of examination costs and delivery mechanisms.
- Budget & Appropriations Committee had proposed Kes 5.9 billion for examinations, against a requirement of Kes 11 billion.
- There’s a disconnect between Treasury and Parliament on how the examination funding gap will be addressed—via supplementary budgets or audit and reprioritization.
Public Debt & Fiscal Transparency
- The Treasury is integrating the Commonwealth Meridian Debt Management System with IFMIS and CBK’s core banking systems to address debt recording and reporting risks.
- Kenya is also transitioning to accrual accounting and implementing the Treasury Single Account in phases through 2026/27.
- These reforms aim to plug cash leakages and enhance liquidity visibility.
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Exploring Sustainability-Linked Finance
- Kenya is in the process of developing a framework for a Sustainability-Linked Bond (SLB).
- This move comes in the wake of the collapsed IMF program and frozen World Bank funding.
- If structured with step-down coupon mechanisms and performance benchmarks, the SLB could reduce borrowing costs.
- Kenya is following Rwanda’s lead, which launched its debut SLB in 2023.
Public Sector Payroll Reform
- A Unified Payroll System will be launched in July 2025.
- Intended to align with Public Finance Management Act provisions, which cap the wage bill at 35% of total revenue (currently at ~45%).
24/7 Payment Settlement Rollout
- The Kenya Electronic Payment and Settlement System will transition to full-time, 24/7 operations.
- This system facilitates Real-Time Gross Settlement and handled over Kes 45 trillion in transactions (2023-24).
- The move is supported by its recent ISO20022 certification.
Transformer Tariff Tweaks
- Kenya has secured regional support for a tariff split between fully built and unassembled transformers.
- This follows contradictory excise policy moves that affected local assembly incentives.
Controversial Tax Procedures Proposal
- Clause 42(v) of the Finance Bill 2025 seeks to allow KRA to issue agency notices even when a taxpayer is appealing a Tax Tribunal or court decision.
- Treasury insists it’s non-controversial, but many observers disagree.
Final Thought
CS Mbadi’s budget speech and the accompanying Finance Bill point to a government doubling down on fiscal consolidation, structural reforms, and alternative financing—even as traditional multilateral support hangs in the balance. However, several proposals demand clarity, especially on tax policy changes and funding commitments in education.
With July 1st set as the pivot for many of these reforms, all eyes now turn to Parliament’s deliberations and the eventual Finance Act 2025. Will the execution match the ambition?
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