Kenya Announces Fiscal Deficit Cap and Budget Revision for 2025/26

It was stated by the Kenyan cabinet on Tuesday that the nation would set a limit on its fiscal deficit at 4.5% of the Gross Domestic Product (GDP) in the fiscal year 2025/26. This figure represents a decrease from the 5.1% recorded in the preceding year. Furthermore, it was indicated that the initial budget of 4.3 trillion Kenyan shillings (equivalent to $33 billion) would undergo a substantial revision.

The decision to revise the fiscal targets and budget followed a period of significant domestic challenges. It was recalled that mass protests in the previous year had compelled President William Ruto to withdraw proposed tax increases amounting to $2.7 billion. These protests also led to the abandonment of plans to reduce the current year’s fiscal deficit to 3.5%, a situation that unfolded amidst what was described as the most significant crisis of the president’s two-year tenure.

In a statement released by the cabinet, it was conveyed that “these adjustments are part of broader austerity measures designed to strengthen fiscal discipline, reduce public debt vulnerabilities, and create the fiscal space necessary to deliver essential public goods and services.” The overarching aim of these measures was understood to be the reinforcement of the nation’s financial stability and the обеспечение of resources for crucial public services.

It was further announced that the cabinet had given its approval to the Finance Bill 2025. The stated focus of this bill was on addressing existing loopholes and enhancing the overall efficiency of the financial system. This legislative step was presented as a key component of the government’s efforts to improve fiscal management.

Market reactions to earlier financial developments were noted. It was reported that financial markets had responded negatively to the announcement in March that Kenya and the International Monetary Fund (IMF) had discontinued the final review of the East African nation’s existing $3.6 billion support program. This discontinuation reportedly raised concerns among investors regarding the country’s financial outlook.

More recently, the IMF had commented on Kenya’s current financial situation. It was conveyed by the international lender that Kenya’s shortage of funds necessitated the formulation of a new spending strategy. Additionally, the IMF confirmed that the Kenyan government had formally requested a new program of support, indicating an ongoing dialogue between the nation and the financial institution to address its economic challenges. The implications of this new requested program and its potential impact on Kenya’s fiscal landscape were yet to be fully determined.