In brief
- The Cabinet Secretary (CS) for the National Treasury John Mbadi is expected to table in Parliament the FY26 Budget statement. This will be CS Mbadi’s maiden budget speech, having been appointed in August 2024. In line with the PFM Act, this event is coming at the tail end of the budget making process with the FY26 fiscal framework already patched up.
- From our estimates, the total FY26 budget excluding debt amortization amounts to KES 4,291.9bn and within the ceilings approved by Parliament in its consideration of the 2025 Budget Policy Statement (BPS). This notwithstanding, there has been a slight uptick to the spending plan from the estimates tabled at the end of April 2025 by the National Treasury.
- From our assessment of BAC report that was publicized last week, there were KES 235.6bn additional requests that remained unfunded, including KES 33.9bn hole arising from the US funding aid freeze that is affecting the health sector. Furthermore, the potential carryovers from this fiscal year on weak revenue outturn, and the unfunded requests are likely to push upwards the spending plan and trigger a Supplementary budget at the front end of executing FY26 budget.
- Disaggregating the KES 176.0bn targeted ordinary revenue increase, Finance Bill 2025 is targeting to raise KES 40.0bn, whereas the Tax Laws (Amendment) Act 2024 and Tax Procedures (Amendment) Act 2024 that were passed in late December 2024 to yield KES 70.0bn this fiscal year. Absent ramped up tax administrative measures, there should be a funding gap of at least KES 66.0bn in FY26 budget. The possibility of a follow-up Tax Laws (Amendment) Bill 2025 later in the year could be a mitigating wild card, in our view.
- We applaud the authorities’ efforts in recognizing the need to settle the domestic arrears, colloquially pending bills, that comprise outstanding payments to contractors and suppliers, and outstanding unremitted pension contributions. There’s a proposal to increase the per/litre Road Maintenance Levy amount from the initial KES 7/litre to KES 12/litre to settle roads sector domestic arrears. Outside this proposed securitization, there is the proposed privatization that is targeting to yield KES 149.0bn in FY26 budget year. Nevertheless, there is less clarity on the route of privatization, whether direct asset sales or Initial primary offers (primary and/or secondary), which we hope the FY26 budget statement should clarify.
Downloads
Download Full Report