NAIROBI, Kenya – Kenya plans to borrow a record Sh1.006 trillion from the domestic market in the 2026/27 financial year as weak revenue collection and rising spending pressures push the budget deficit wider, according to the draft 2026 Budget Policy Statement (BPS).
The proposed domestic borrowing marks a sharp increase from the Sh918.1 billion projected in September’s Budget Review and Outlook Paper (BROP), underscoring the government’s growing reliance on local credit to finance its spending plans.
The National Treasury says the borrowing target has been revised upwards by Sh88.5 billion as revenue inflows continue to underperform expectations, while expenditure cuts remain limited.
The deteriorating outlook signals mounting fiscal stress and could complicate efforts to keep interest rates stable as the State competes more aggressively for domestic funds.
Under the draft BPS, total revenue for the year ending June 2027 is projected at Sh3.487 trillion, a downward revision of Sh96 billion from earlier estimates.
Although total expenditure has also been marginally trimmed to Sh4.642 trillion, the adjustment has been insufficient to prevent the deficit from widening.
As a result, the fiscal gap for 2026/27 has been revised to Sh1.106 trillion, equivalent to 5.3 per cent of GDP, up from Sh1.018 trillion projected in September.
The deficit will be financed mainly through domestic borrowing of Sh1.006 trillion, alongside external borrowing of Sh99.5 billion.
“Based on the projected revenue and expenditure framework, the fiscal deficit, including grants, is expected to reach Sh1.106 trillion (5.3 per cent of GDP) in the 2026/27 fiscal year,” the Treasury said, compared with a projected deficit of Sh901 billion (4.7 per cent of GDP) in 2025/26.
The outlook comes as the government struggles to rein in borrowing in the current 2025/26 financial year.
For the year ending June 2026, the Treasury had initially set domestic borrowing at Sh613.5 billion and external borrowing at Sh287.4 billion.
However, these targets are expected to be revised upwards in the next supplementary budget, tentatively scheduled for February, following continued revenue underperformance.
In the first quarter of the current financial year, the government recorded a revenue shortfall of Sh83.6 billion, while expenditure exceeded targets by Sh5.9 billion.
This pushed the quarterly budget deficit to Sh280.4 billion, or 1.5 per cent of GDP, against a target of Sh189.5 billion.
The Treasury acknowledged that persistent revenue shortfalls and limited flexibility to cut spending have entrenched a pattern of revising borrowing targets through supplementary budgets.
That trend was evident in the 2024/25 financial year, when the budget deficit was initially set at Sh597 billion in June 2024.
The target was revised three times, eventually reaching Sh997.5 billion in the Supplementary III Budget of June 2025, with net domestic borrowing nearly tripling to Sh815.6 billion.
The final outcome exceeded even that revised target, with the deficit closing at Sh1.034 trillion, financed through domestic borrowing of Sh854.5 billion and external borrowing of Sh179.7 billion — reinforcing concerns about Kenya’s rising dependence on local debt to plug persistent fiscal gaps.
