NAIROBI, Kenya – The government has approved an additional Sh199.9 billion in spending under the second supplementary budget, surpassing the revenue shortfalls it reported after withdrawing the Finance Bill 2024.
This move raises fresh concerns over how the administration plans to finance the increased expenditure without widening the fiscal deficit.
According to the 2024/25 Supplementary Estimates No. II, the extra funds will primarily go toward recurrent spending (Sh199 billion), with Sh145.8 billion allocated for development.
A dispatch from State House indicated that the money will be used for government and donor-funded projects, personnel emoluments, and budget realignments necessitated by shifting revenue expectations.
“The approval comes amid economic disruptions, including civil protests in June, July, and August 2024, which led to the withdrawal of the Finance Bill 2024. The bill had initially proposed raising Sh344.3 billion in additional revenues but faced strong public opposition,” the statement from State House noted.
Despite the spending increase, the government has not clarified how it will cover the additional costs.
The Tax Laws (Amendment) Act 2024, which was passed to help offset lost revenue, is expected to generate only Sh174.6 billion—far short of the newly approved spending.
With this gap, analysts warn that unless the government finds alternative revenue streams or cuts expenditure elsewhere, the deficit could further balloon, putting more strain on the country’s debt situation.
National Budget for 2025/26 Set at Sh4.2 Trillion
Meanwhile, the Cabinet confirmed that the 2025/26 national budget has been capped at Sh4.2 trillion, a reduction of about Sh153 billion from initial projections in the Draft Budget Policy Statement (BPS).
The budget, equivalent to 22.1% of GDP, will allocate Sh3.09 trillion for recurrent expenditure, Sh725.1 billion for development, Sh436.7 billion for county transfers, and Sh5 billion for the Contingency Fund.
Under the Division of Revenue Bill 2025, the National Government proposes a shareable revenue of Sh2.8 trillion.
County governments are set to receive Sh405.1 billion as their equitable share, along with Sh10.6 billion for the Equalisation Fund.
The County Allocation Revenue Bill 2025 will determine the distribution of these funds based on the Third Basis Formula.
An additional Sh69.8 billion has been earmarked for county governments, with Sh12.89 billion coming from the National Government and Sh56.91 billion from development partners.
This brings the total county transfers for the 2025/26 financial year to Sh474.87 billion.
Fiscal Policy and Public Finance Management Reforms
Despite the increase in spending, the government insists it remains committed to fiscal discipline.
It plans to achieve this through expenditure rationalization, revenue mobilization, and enhanced tax compliance under its Medium-Term Revenue Strategy.
Key measures include expanding the tax base, leveraging technology for tax efficiency, sealing revenue loopholes, and increasing non-tax revenues from ministries, departments, and agencies.
The administration also aims to strengthen public finance management through zero-based budgeting, a transition to accrual-based accounting, and the adoption of a Treasury Single Account to improve cash flow management.
Additionally, the government plans to fully operationalize the IFMIS asset inventory management modules and scale up public-private partnerships (PPPs) to enhance private sector participation in service delivery.
While these measures seek to ensure sustainable fiscal management, the challenge remains in balancing expenditure pressures with revenue generation, particularly in light of recent public opposition to tax hikes.
