Treasury borrows a record Sh815bn from domestic market

The Treasury is seeking a nod from Parliament to increase its domestic borrowing target by Sh209.9 billion, while cutting the external target by Sh97.2 billion to Sh184.29 billion.

As per the last approved numbers in the March 2025 second supplementary budget, the current domestic borrowing target stands at Sh605.7 billion and the external one at Sh281.5 billion. These are intended to fill a budget deficit of Sh887.2 billion. The Treasury therefore wants an increase of Sh112.68 billion in the deficit to Sh999.9 billion. 

“This shift indicates a heavier reliance on the domestic market to meet financing needs amid tightening external conditionalities,” said the National Assembly’s Budget and Appropriation Committee in a report on the Supplementary Budget III, which is now awaiting approval. 

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Earlier projections from the Treasury and the Central Bank of Kenya (CBK) showed that the government was already ahead of its borrowing target domestically going into June, with some analysts putting the net borrowing so far at about Sh800 billion.

On the revenue side, the third supplementary budget has revised the target for the year downwards by Sh87.4 billion to Sh3.03 trillion, from Sh3.12 trillion in the second mini budget.

It has also raised expenditure by Sh35.7 billion to Sh4.043 trillion, resulting from a Sh39.1 billion increase in recurrent expenditure on public sector salaries and maintenance costs, and a Sh3.3 billion cut in development spending.

This increased spending without a corresponding rise in revenue has led to the rise in the fiscal deficit. 

Overall, the fiscal deficit has gone up by Sh402.9 billion compared to the first approved amount of Sh597 billion in the June 2024 Budget Statement. The initial deficit was to be financed through domestic borrowing of Sh263.2 billion, and external funding worth Sh333.8 billion.

Since then, the Treasury has returned to Parliament thrice for mini-budget revisions, exposing weaknesses in both revenue and spending projections that have in the past drawn criticism from the International Monetary Fund (IMF).

The government was also unable to push through tax measures through the Finance Bill 2024 after protests forced its withdrawal, although many of its proposed measures were later reintroduced and passed through the Tax Laws (Amendment) Act in December 2024.

It has also missed its initial projection of external funding for the year —hence the cut in the target— due to the early termination of its four-year funding programme under the IMF and a delay in disbursement of a World Bank loan.

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In March, Kenya and the IMF called off the ninth and final review of the extended credit facility and extended fund facility (ECF/EFF) programme that was to conclude in April, effectively seeing the country forego the last tranche of $490 million (Sh63.3 billion) from the $3.6 billion (Sh465 billion) programme. The two parties are now in negotiations for a new programme.

The government had also anticipated a drawdown of up to $750 million (Sh97 billion) from a World Bank’s Development Policy Operation (DPO) loan by the end of this month, but a delay in passing the Conflict of Interest Bill 2025 (a key conditionality) meant that the funding is likely to come through in the 2025/2026 fiscal year.  

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