Are you among the millions of Kenyans struggling to make ends meet, battling joblessness, or watching your business teeter on the brink? Prepare for even tougher times. A new budget looms, and the prognosis is grim.
The Parliamentary Budget Office (PBO), in a scathing assessment, warns that the 2025/2026 budget offers little more than a continuation of past policy failures. The burden of a soaring cost of living, ever-increasing taxes, and deteriorating public services will continue to fall squarely on the shoulders of ordinary Kenyans.
Instead of providing much-needed relief, the budget doubles down on heavy taxation, escalating public debt, and unchecked corruption, further tightening the noose on households and businesses already struggling to survive.
“The resource requirements for various initiatives under the health sector reforms are not well defined. These include the Social Health Insurance Fund, the Primary Healthcare Fund, and the Chronic, Critical and Emergency Illness Fund. Failure to determine this at the planning stage implies the need for additional resources midway, which may further impact the fiscal deficit,” the PBO report titled ‘Unpacking of the policy statement for financial year 2025/2026 and the medium plan’ explains.
The PBO’s Stark Warning
The PBO, Kenya’s fiscal watchdog, plays a crucial role in advising Parliament on economic matters. However, Members of Parliament (MPs) often find themselves aligning with President William Ruto’s agenda rather than heeding the PBO’s counsel. The 2025 Budget Policy Statement (BPS), submitted on February 13, 2025, outlines the government’s expenditure limits for various sectors, including the executive, Parliament, the judiciary, and county governments. It serves as a roadmap for budget preparation, the Division of Revenue Bill, and county fiscal strategy papers.
How the new budget in parliament will hurt Kenyans
Treasury CS Jon Mbadi’s budget policy projects revenue at Ksh. 3.39 trillion (17.6% of GDP), a slight rise from Ksh. 3.06 trillion (16.9% of GDP) in the 2024/25 Supplementary I budget, fuelled by tax reforms. Spending is set at Ksh. 4.34 trillion, with recurrent costs taking Ksh. 3.22 trillion and development Ksh. 676.7 billion. Success hinges on policy execution and the Bottom-Up Economic Transformation Agenda (BETA), though PBO remains sceptical.
The PBO’s message to lawmakers is stark: if the government persists on its current trajectory – characterised by excessive taxation, wage stagnation, and neglect of vital sectors like agriculture – millions of Kenyans will face deepening poverty and economic hardship. The PBO contends that the Kenya Kwanza administration’s policies, coupled with relentless taxation, will restrict access to food, credit, and economic opportunities for a vast segment of the population. While the government touts its economic growth agenda, many Kenyans see little evidence of it in their daily lives.
“Total revenue, including appropriation in aid for FY 2025/26, is expected to be Kshs. 3,385.8 billion (17.6% of GDP), compared to Kshs. 3,060.0 billion (16.9% of GDP) projected during the approval of the Supplementary I budget for 2024/25. The revenue projection performance will be underpinned by ongoing reforms in tax policy and revenue administration,” the PBO report states. But is this optimism justified?
Healthcare in Peril
One of the most alarming aspects of the new budget is the lack of clarity surrounding the funding of crucial healthcare reforms, including the Social Health Insurance Fund, the Primary Healthcare Fund, and the Chronic, Critical, and Emergency Illness Fund. This uncertainty casts a long shadow over the future of healthcare access for millions of Kenyans. It says without a clear and adequate budgeting framework, the government risks running out of funds mid-year, leading to shortages of essential medicines and equipment in hospitals. This, in turn, would force patients to bear even greater out-of-pocket expenses.
The situation is further exacerbated by persistent delays in payments to healthcare providers. These delays have already disrupted operations, particularly in rural areas, forcing many facilities to reduce services or even shut down altogether. The consequences are dire, leaving vulnerable patients without access to life-saving treatment.
The PBO warns that without proper resource allocation from the outset, the government may be forced to seek additional funds mid-year, exacerbating the already strained fiscal deficit. The report also highlights the disruptive impact of delays in claim settlements by the Social Health Authority (SHA) on healthcare services, particularly at primary healthcare facilities. This strains service delivery and limits access to essential medical care for those who need it most.
Donor Funding Cuts: A Looming Crisis
The BPS also fails to adequately address the potential impact of shifting donor priorities, including significant funding cuts from USAID. This could leave essential health initiatives – such as malaria, HIV, and TB programmes supported by the Global Fund, and immunisation efforts through GAVI – facing a staggering Ksh. 20 billion shortfall. Without clear and decisive measures to bridge this funding gap, millions of vulnerable Kenyans risk losing access to life-saving treatments and vaccines.
The PBO emphasises that reductions in development aid, particularly from USAID, pose a significant threat to critical health programmes that millions of Kenyans rely on. Without adequate funding, these initiatives could face severe disruptions, leading to shortages of essential medicines, reduced healthcare access, and an increased risk of disease outbreaks. The report warns that if the government fails to intervene effectively, vulnerable communities will bear the brunt, further worsening Kenya’s public health crisis.
Economic growth: A mirage?
Mbadi explains that the government projects an optimistic 5.3% economic growth in 2025, up from 4.6% in 2024, driven by sectors such as agriculture, ICT, tourism, and industry. However, the PBO casts doubt on these projections, citing the slow rollout of key BETA priorities, limited fiscal space for public investments, a slowdown in private sector activity, and the inherent vulnerability of the agriculture sector.
“Given the slow implementation of key BETA priorities, limited fiscal space for public investments, a slowdown in private sector activities, and the vulnerability of the agriculture sector, this growth projection may not be tenable. Consequently, PBO projects a more modest economic growth rate of 4.8 per cent for 2025,” the report states.
Inflationary pressures persist.
While the BPS projects inflation to remain within the 5±2.5 per cent target, largely due to favourable weather conditions and falling global oil prices, the PBO points out that core inflation, which excludes volatile items like food and fuel, has remained stubbornly high since October 2024. This signals rising production costs for other goods and services, potentially offsetting the benefits of lower food and fuel prices.
“It is noteworthy that the cooling effect has largely been attributed to externalities such as favourable weather conditions and declining crude oil prices globally,” the report notes. “Indeed, core inflation, which excludes volatile items like food and fuel, remained elevated, surpassing the headline inflation since October 2024, signifying increasing production costs for goods and services other than food and fuel.”
The PBO warns that the risk of inflation remains elevated due to climate change-related shocks, spikes in global fuel prices, and disruptions in trade and global supply chains. These factors could easily derail the government’s efforts to keep inflation in check.
Job Creation: A dismal reality
The budget office projects that the Medium-Term Plan IV (MTP IV) will create 1.2 million jobs annually. However, the PBO presents a more sobering picture. While employment did grow from 18.1 million to 20 million between 2019 and 2023, the growth rate slowed from 4.9% to 4.4%. Moreover, real wages declined by a staggering 10.7%, with private sector wages falling by 8.4% and public sector wages plummeting by 15.8% between 2020 and 2023.
“While total employment increased from 18.1 million to 20 million between 2019 and 2023, there has been a notable decline in the employment growth rate from 4.9% to 4.4% over the same period,” the report states. “Annual average real wages in the private sector have decreased by 8.4%, while those in the public sector have fallen by 15.8%.”
These figures paint a bleak picture for Kenyan workers, who are seeing their purchasing power eroded by inflation and stagnant wages.
Credit crunch: Businesses suffer
Despite government policies aimed at lowering interest rates, lending to businesses has slowed significantly. Total credit growth dropped from 14.4% in November 2023 to a paltry 4.6% in November 2024. Even more concerning, credit to the private sector shrank from 13.2% to -1.1%. Meanwhile, government borrowing rose from 14.4% to 16.6%, effectively crowding out the private sector and limiting the funds available for businesses to invest and grow.
The PBO warns that low interest rates and reduced private sector activity could trigger capital outflows as investors seek better returns elsewhere. This would further undermine the economy and make it even more difficult for businesses to access credit.
“Credit to the government grew from 14.4% to 16.6%, posing the risk of crowding out the private sector. The low interest rates and reduced private sector activity may lead to capital outflows as investors anticipate lower returns,” the report states.
Revenue projections: overly optimistic?
The PBO expresses serious concerns about the government’s optimistic revenue projections. The government expects total revenue to reach 17.6% of GDP in FY 2024/25 and FY 2025/26 and rise to 18.1% in later years. However, revenue has been declining, dropping from 17.3% of GDP in FY 2021/22 to 17.1% in FY 2023/24, with ordinary revenue falling from 15.1% to 14.5%. In the first half of FY 2024/25, revenue fell short by Kshs 107.7 billion, raising concerns that the government may need to either cut spending or borrow more to bridge the gap.
“Additionally, total revenue fell short of the target by Kshs. 107.7 billion in the first half of the 2024/25 FY. This suggests that both the baseline and projected revenue targets may not be achieved, necessitating either expenditure reductions or additional borrowing,” the report states.
The PBO also questions the effectiveness of the government’s proposed measures to boost revenue collection, noting that similar proposals in the past have failed to deliver the desired results. The report points out that the Treasury has not provided estimates of how much each measure is expected to raise, making it difficult to assess their potential impact.
Spending cuts: Development projects suffer
As part of its fiscal reforms, the government plans to cut spending from 22.8% of GDP in 2024/25 to 22.1% in 2025/26. While overall expenditure has already fallen from 24.6% in 2020/21 to 22.4% in 2023/24, these reductions have disproportionately affected development projects and county allocations. Development spending has dropped from 4.2% to 3.4% of GDP, while county transfers have declined from 2.8% to 2.4%. Meanwhile, debt repayment costs have surged from 4.5% to 5.2% of GDP, raising concerns about stalled projects, mounting unpaid bills, slower project completion, and reduced public investment – all of which ultimately weaken economic growth.
Fiscal Reforms: Unlikely to Deliver?
The Parliamentary Budget Office (PBO) acknowledges that the Kenya Kwanza administration’s budget policy includes plans to consolidate public funds into a Treasury Single Account (TSA), transition to accrual accounting for better financial reporting, and implement zero-based budgeting for more efficient resource use. However, the PBO expresses scepticism about the likelihood of these measures taking effect in 2025/26, given the sluggish pace of public sector reforms and the need for strong political backing. This means that spending patterns are likely to remain largely unchanged, despite the proposed fiscal reforms.
“As such, these measures may not yield an immediate outcome in FY 2025/26, and as a result, the current expenditure trend is expected to continue,” the report says.
The fiscal deficit, including grants, is expected to drop from 5.6% of GDP in 2023/24 to 4.3% in 2025/26, contingent on the successful implementation of revenue policies and controlled spending. However, the PBO warns that potential revenue shortfalls and additional sector expenditures could push the actual deficit above 5% of GDP.
Debt Sustainability: A Distant Dream?
Kenya aims to keep its debt at 55% of GDP by 2029, which would require a budget surplus of 1.4% of GDP in 2025 to prevent further debt accumulation. However, with a projected surplus of only 0.4%, the PBO cautions that debt levels may remain unstable.
To cover a budget shortfall of Kshs. 831 billion, the government plans to borrow Kshs. 684.2 billion locally and Kshs. 146.8 billion from foreign lenders – a decrease from the previous year due to reduced IMF funding. To compensate, it will increase domestic borrowing by Kshs 271 billion, which could further limit funds available for businesses and individuals, driving up the cost of loans and stifling economic growth.
Agriculture: A missed opportunity?
The Budget Policy Statement (BPS) emphasises the need to boost farming through better value chains but lacks a clear plan for supporting extension services that help farmers adopt new technologies. Without sufficient funding for these services, farmers may struggle to improve productivity and sustainability.
The Medium-Term Plan IV (MTP IV) aims to improve farming by developing value chains that help small farmers earn more. However, the BPS still follows the traditional approach, where different farming programmes are planned separately, rather than as an integrated whole.
“Many proposed efforts focus only on providing inputs like seeds and fertilisers but lack a clear plan for production, processing, and marketing farm products sustainably,” the report says.
The PBO warns that the lack of a clear value chain strategy in the BPS could significantly slow agricultural growth, negatively impacting both farmers and the broader economy. Without proper planning for production, processing, and marketing, farmers may struggle to sell their produce at profitable prices, leading to lower incomes. This could reduce food supply, drive up prices, and make Kenya more dependent on food imports. Additionally, weak value chains mean missed opportunities for job creation in agro-processing and related industries, limiting overall economic growth.
Mismanagement and questionable priorities
Highlighting another instance of public resource mismanagement, the PBO noted that President Ruto frequently addresses rallies from the rooftop of an SUV after launching industrial parks. The report also raised concerns about the effectiveness of County Aggregation and Industrial Parks (CAIPs), which were designed to boost farming and manufacturing by setting up industrial parks in all 47 counties for food processing and market access. However, with none from the first phase operational, the BPS still proposes moving to phase two, raising serious doubts about the viability of the project.
Regarding the edible oils value chain, the PBO recommended shifting progress reporting from an input-based to an output-focused approach to ensure accountability and measurable impact. “Additionally, full financing of the entire value chain is necessary to achieve sustainable growth and maximise returns on investment,” the PBO stated.
To address Kenya’s growing import bill, the BPS should prioritise wheat production. However, despite its importance, the BPS lacks specific annual import targets, creating a planning gap. The PBO emphasises that increasing domestic production through irrigation is essential for ensuring food security and reducing reliance on imports.
The PBO also notes that the leather sector requires alignment with industrial policies, clear timelines for infrastructure projects, and sustainable plans. The report warns that exporting live animals may limit the availability of raw materials for local processing, hindering industry growth.
Social Sector Interventions at Risk
The PBO also warned that significant cuts to the State Department for Economic Planning’s expenditure ceiling, including NG-CDF funding, could hinder ongoing social sector interventions, which provide critical support to vulnerable communities.
Flawed assessments: The means testing instrument
The Means Testing Instrument (MTI) is intended to assess household contributions to the Social Health Insurance Fund (SHIF) and categorise students for higher education funding. However, the PBO points out that inaccuracies and incomplete data have led to flawed assessments, affecting fair SHIF payments and HELB loan allocations, ultimately disrupting access to essential services.
