Education, military and aviation are some of the major winners in the government’s expenditure plan for the financial year starting July, even as recurrent spending for the National Assembly and Judiciary were slashed in President William Ruto’s third national budget of close to Sh4.2 trillion.
In the budget books tabled in the National Assembly, the Treasury has increased allocation to the Teachers Service Commission (TSC), the body that employs tutors, which got an additional Sh21.66 billion and pushing its recurrent spending to Sh387.08 billion in the upcoming financial year.
The recurrent budget covers day-to-day operational expenses, such as salaries, utilities, maintenance, and office supplies.
A big chunk of the additional recurrent allocation for TSC was for teacher resource management, an indicator that a lot of money will be set aside for hiring and promotion of teachers.
Teacher resource management was allocated Sh376.9 billion from Sh354.62 billion in the budget estimates.
Allocation for the Ministry of Defence’s recurrent budget has been increased by a tenth, or Sh14.18 billion, to Sh183.8 billion in the latest budget estimates tabled in the National Assembly, with a big chunk of the money going to the Kenya Defence Forces (KDF), Kenya Shipyards and the Kenya Meat Commission (KMC), mostly to cater for salaries and other administrative costs, including maintenance of major systems and infrastructure.
The budget for the KDF has been increased by 8.4 percent to Sh182.8 billion, while Kenya Shipyards, which has not been allocated any funds in the current financial year, got a fresh funding of Sh5.56 billion to cover its current spending.
The KMC, which was transferred to the KDF by retired President Uhuru Kenyatta, has been allocated Sh2.98 billion, having received zero funds in the current financial year ending June.
The newly established State Department for Aviation and Aerospace Development got a fresh allocation of Sh14.15 billion. Another new State Department for Children Welfare Services has been given Sh11.37 billion.
The National Police Service has been awarded an additional Sh8.9 billion pushing its budget to Sh123.7 billion as the Ruto-led government prioritizes security ahead of the 2027 campaigns.
However, allocation to the National Assembly have been cut Sh25.71 billion, Judiciary (Sh21.89 billion), State Department for Transport (Sh12.53 billion) and Basic Education (Sh9.36 billion).
Total recurrent expenditure is expected to increase by only Sh6.4 billion to Sh1.72 trillion, a score for the government which has been keen to cut non-essential spending including travel and hospitality.
Total recurrent and development spending, or spending for capital generating activities, adds up to Sh3.51 trillion while the country’s county governments are set to receive a total of Sh474.87 billion from the exchequer, pushing the country’s budget in the financial year starting July to Sh4.2 trillion.
This budget is to be funded by increased tax collection mostly through administrative measures aimed at catching tax cheats.
In the Finance Bill 2025, Treasury has avoided introducing new punitive tax measures and instead opted to tighten the noose on tax evaders, following the youth-led protests that saw President reject the Finance Bill 2024.
The Bill proposed to introduce a motor vehicle tax at an effective range of between Sh5000 and Sh10,000 per vehicle, value added tax (VAT) at 16 percent on bread and remove income tax exemption on income registered trust scheme, among others.
The botched revenue plans have left the National Treasury with paing holes, forcing it drastically cut back on collection targets.
On the borrowing front, the National Treasury has also adjusted its domestic borrowing costs upwards by Sh180.6 billion to finance its budget amidst flagging tax revenues, the 2025 Budget Policy Statement shows.
Projections in the Budget Policy Statement 2025, or BPS 2025, show that net domestic borrowing was raised to Sh593.7 billion from Sh413.1 billion, as the government takes advantage of the lower interest rates prevailing in the domestic market to borrow cheaply.
Interest rates had risen, with investors lending the government at a high of 18 percent with the Central Bank of Kenya's effort to fight high consumer prices reduced liquidity in the market.
Treasury has however slashed the amount of taxes it expects to collect by Sh55.5 billion to Sh2.575 trillion amid a tough business environment that has already seen it fall short of its target in the first six months of the current financial year.
Besides the contraction of credit to firms and households which has had a knock-on effect on the economy, tax collection has also been hampered by the anti-tax protests that saw President William Ruto suspend the ambitious Finance Bill 2024, which sought to raise over Sh330 billion in additional taxes.
But the government is optimistic that a reduction in interest rates will help it ease its fiscal pressures, by lowering both its borrowing costs and that of businesses.
“Interest rates have begun to decline as a result of easing of the monetary policy, reducing borrowing costs and freeing up fiscal space for growth-enhancing initiatives by businesses,” said Treasury in the BPS.
The decline in interest rates is the reason the global rating agency Moody’s changed Kenya’s outlook for its creditworthiness to positive from negative, citing reduced liquidity risks even as access to the financial market has improved.
A positive outlook means the US-based rating agency is less likely to downgrade Kenya’s rating on its foreign-currency debt in its next review, a major relief to President William Ruto’s government which has been desperate to send signals of fiscal discipline to investors.
“Domestic financing costs have started to decline amid monetary easing and could continue to do so if the government sustains its more effective management of social demand and fiscal consolidation,” said the rating agency.
Fiscal consolidation is policies aimed at reducing the budget deficit by increasing tax revenues and cutting spending, a goal Kenya has been keen to achieve with the help of the International Monetary Fund (IMF).
Total spending is expected to increase by Sh92.4 billion from the Sh3.88 trillion with a big chunk of the increase being in recurrent spending which includes salaries and administrative costs.
Interest rates had risen, with investors lending the government at a high of 18 percent with the Central Bank of Kenya's effort to fight high consumer prices reduced liquidity in the market.
Treasury has however slashed the amount of taxes it expects to collect by Sh55.5 billion to Sh2.575 trillion amid a tough business environment that has already seen it fall short of its target in the first six months of the current financial year.
