The Cabinet has approved a Ksh4.2 trillion budget for the 2025/26 financial year, reducing the initially projected allocation by Ksh153 billion. This decision aligns with the government’s broader strategy of fiscal consolidation and economic sustainability.
According to a Cabinet dispatch released on Tuesday, February 11, the approved budget allocates:
- Ksh3.09 trillion for recurrent expenditure
- Ksh725.1 billion for development projects
- Ksh436.7 billion for county transfers
- Ksh5 billion for the Contingency Fund
The National Treasury had initially projected a Ksh4.485 trillion budget for 2025/26, which was significantly higher than the Ksh3.94 trillion allocated in 2024/25. However, the Cabinet has opted for a more conservative approach, emphasizing fiscal responsibility while ensuring adequate funding for priority areas.
Budget Priorities and Revenue Distribution
The Division of Revenue Bill 2025 outlines the national government’s shareable revenue at Ksh2.8 trillion. Key allocations include:
- Ksh405.1 billion earmarked for county governments as an equitable share
- Ksh10.6 billion allocated to the Equalisation Fund
This allocation represents 25.8% of the most recent audited revenue, amounting to Ksh1.57 trillion from the 2020/21 financial year, aligning with constitutional mandates. The County Allocation Revenue Bill 2025 will distribute these funds based on the Third Basis Formula.
Additionally, the County Government Additional Allocation Bill 2025 proposes an extra Ksh69.8 billion, including:
- Ksh12.89 billion from the National Government
- Ksh56.91 billion from development partners
This brings the total county transfers for 2025/26 to Ksh474.87 billion.
Economic Outlook and Growth Projections
The 2025 Budget Policy Statement (BPS) outlines the government’s commitment to economic growth, fiscal stability, and inclusive green development.
Under the Bottom-Up Economic Transformation Agenda (BETA), the economy has shown signs of recovery, with GDP growth rebounding to 5.6% in 2023—up from 4.9% in 2022—mainly driven by a resurgence in the agricultural sector after two years of severe drought.
Projected Economic Growth Rates
- 2025: 5.3% growth
- 2026: 5.3% growth
These projections are anchored on increased agricultural productivity, a resilient services sector, and strategic government interventions.
The government’s six key economic priorities are:
- Reducing the cost of living
- Eradicating hunger
- Creating jobs
- Expanding the tax base
- Improving foreign exchange balances
- Fostering inclusive economic growth
Fiscal Policy and Debt Management
The Cabinet emphasized the need for fiscal consolidation to reduce debt vulnerability while ensuring adequate funding for essential public services. The 2025/26 fiscal framework will be guided by:
- Expenditure rationalisation to eliminate wasteful spending
- Revenue mobilisation to boost tax compliance
- Enhanced tax collection measures
The Medium-Term Revenue Strategy (MTRS) will guide tax reforms, ensuring:
- Efficiency and fairness
- Progressivity in tax policies
- Balancing revenue generation with social protection
Key tax policy measures include:
- Expanding the tax base
- Leveraging technology for tax efficiency
- Sealing revenue loopholes
- Maximising non-tax revenues from ministries, departments, and agencies
Public Finance Management Reforms
To improve public finance management, the government will implement:
- Zero-based budgeting to ensure funds are allocated based on actual needs
- A transition to accrual-based accounting for better financial reporting
- Full operationalisation of the Treasury Single Account (TSA) for improved cash flow management
The government will also enhance the Integrated Financial Management Information System (IFMIS) by incorporating:
- Asset inventory management modules
- Stronger financial controls
To bridge infrastructure and service delivery gaps, the government is scaling up public-private partnerships (PPPs), allowing for greater private sector participation in public projects.
Conclusion
The Ksh4.2 trillion budget for 2025/26 reflects the government’s commitment to fiscal discipline, economic recovery, and inclusive development. By focusing on agricultural productivity, tax efficiency, and strategic government interventions, the Cabinet aims to sustain growth and reduce economic vulnerabilities.
The scaled-down budget will now move to Parliament for deliberation, where lawmakers will scrutinize its priorities and determine final allocations.
