Treasury misses revenue target by Sh136bn as debt crisis stretches past 2030

The government has missed its revenue collection target by Sh136 billion, deepening Kenya’s fiscal strain, even as it emerged that the country’s debt crisis will persist beyond 2030.

Treasury Principal Secretary Chris Kiptoo revealed that the shortfall will force the government back to Parliament to seek approval for a supplementary budget, effectively reopening the current spending plan to cuts and reallocations.

The revenue miss has created funding gaps across key government programmes, compelling the Treasury to realign spending with what it can realistically raise.

“Total revenues amounted to Sh1,500.6 billion, resulting in an underperformance of Sh136.1 billion, mainly due to a shortfall in ordinary revenue of Sh115.3 billion. All major tax heads, except import duty, underperformed,” Kiptoo said.

The shortfall comes as fresh Treasury documents show that Kenya’s debt burden will remain elevated well past the Vision 2030 milestone, the year the country hoped to become a middle-income, industrialised economy.

“There has been persistent underperformance in ordinary revenue collection amounting to Sh115.3 billion by December 2025,” Kiptoo said, attributing it to compliance gaps, administrative challenges and revenue-reducing changes introduced by Parliament in the Finance Act 2025.

He added that the Treasury is already preparing to seek Cabinet and parliamentary approval for a supplementary budget that will involve significant spending realignments.

“Additional expenditure requests have piled pressure on an already constrained fiscal space. We expect to cut spending significantly in the upcoming supplementary budget,” he said.

Kiptoo was speaking on Thursday during the final day of a National Assembly legislative retreat in Naivasha.

Treasury attributes the revenue shortfall to weak tax compliance, rising tax expenditures and faster growth in low-tax-yielding sectors such as agriculture, all of which undermined projections made at the start of the financial year.

And the situation could worsen due to pending and newly negotiated collective bargaining agreements (CBAs) in the public sector.

“The settlement of CBAs is likely to push the wage bill beyond initial budget allocations, limiting fiscal flexibility,” Kiptoo said.

As a result, Treasury will table a supplementary budget seeking parliamentary approval to reallocate funds, slash non-essential spending and prioritise debt servicing, salaries and ongoing development projects.

The debate is expected in the coming weeks as Parliament resumes sittings, with the government racing to stabilise public finances amid tightening economic conditions.

Fresh Treasury data shows there will be no easy escape, even under a new administration, with Kenya’s debt stock closing in on Sh12 trillion.

The implication is fewer new development projects, as a growing share of government revenue is diverted to loan repayments.

President William Ruto has already acknowledged funding constraints affecting major infrastructure projects.

The Kenya Kwanza administration has increasingly turned to public-private partnerships (PPPs) for projects such as the Rironi–Mau Summit highway and the Standard Gauge Railway extension to Malaba, while also moving to dispose of government stakes in key entities.

Most road projects are now financed through securitisation of the fuel levy, underscoring the strain on conventional budget funding.

According to the 2026 Medium-Term Debt Strategy (MDTS) released this week, relief for taxpayers is still years away.

The strategy shows the debt burden will continue to weigh heavily on the economy — and household budgets — until at least 2030.

As of June 2025, Kenya owed Sh11.8 trillion, equivalent to 67.8 per cent of GDP, up from 65.7 per cent a year earlier.

The ratio is expected to remain above 60 per cent until the end of the decade.

“The present value of total public debt as a percentage of GDP is expected to stay above the 55 per cent benchmark until 2029,” the report states.

In simple terms, Treasury’s debt experts are conceding that Kenya will not return to safer debt levels for at least four more years.

Paying interest, not building roads

A growing share of government revenue is now consumed by interest payments, leaving less for roads, hospitals and schools.

The MDTS shows that 5.9 per cent of the entire economy is now spent on servicing interest alone.

Treasury projects debt servicing costs of up to Sh1.66 trillion next year — about 56 per cent of all ordinary revenue.

Treasury admits that debt service costs breached the 18 per cent revenue threshold in the 2024–25 financial year due to heavy loan maturities, even as the shilling remains under pressure.

Controller of Budget Margaret Nyakang’o has painted a stark picture of the squeeze. Her report shows that nearly half of the Sh1.1 trillion spent between July and September went to servicing debt.

“Debt servicing has reduced the resources available for current spending needs,” Nyakang’o said.

Reshuffling, not repayment

Treasury’s strategy is not rapid debt reduction, but restructuring and stretching repayments.

“The government will continue to assess macroeconomic developments and explore opportunities for diversifying sources of borrowing,” Treasury Cabinet Secretary John Mbadi said.

Under the plan, 82 per cent of new borrowing will be domestic, largely through Treasury bills and bonds — a move economists warn could crowd out private sector lending.

Only 18 per cent of new borrowing will be external, focused on cheaper concessional loans, aimed at lengthening maturities and reducing refinancing risk.

The debt, however, remains — just spread over a longer period.

The strategy flags Kenya as facing a high risk of debt distress, leaving the economy vulnerable to shocks such as droughts, global slowdowns and revenue slippage.

It also warns of higher borrowing costs, possible cuts to public services and sustained pressure to raise taxes.

Kenyans are further exposed through Sh83.2 billion in government guarantees to state corporations such as Kenya Airways and KenGen, liabilities that could fall on taxpayers if the firms falter.

Between now and 2030, Treasury concedes that debt servicing will remain one of the single biggest items in the national budget.