The National Treasury is set to seek the approval of MPs to lift the budget for the fiscal year to June by Sh199.9 billion on the back of underperformance in tax collections, pointing to the likelihood of increased borrowing to cover the widening funding gap.
The Cabinet approved the proposed second supplementary budget estimates covering the 2024/25 fiscal year with the top-up set to lift overall expenditure and net lending for the period past the Sh4 trillion mark, up from Sh3.88 trillion currently.
The push to lift overall spending, however, comes against revenue underperformance with National Treasury Cabinet Secretary John Mbadi disclosing the Exchequer had cut its revenue target for the current fiscal year by Sh93 billion- signalling more borrowing and the risk of upward pressure on domestic interest rates.
“Cabinet approved the proposed 2024/25 supplementary estimates No. II authorising an additional Sh199.9 billion. These funds will address government and externally financed projects, personnel emoluments, budget realignments, and revenue adjustments,” the Cabinet said on Tuesday.
The 2024/25 fiscal year budget was originally approved at Sh3.992 trillion before the rejection of the 2024 Finance Bill forced the exchequer’s hand in revising the spending target downward to Sh3.88 trillion.
Total revenue estimates were also revised down to Sh3.06 trillion from Sh3.34 trillion with ordinary revenue, for instance, being expected to come lower from Sh2.91 trillion to Sh2.63 trillion after the withdrawal of tax-raising measures aimed at mobilising Sh344.3 billion.
The exchequer further disclosed that the expenditure target of Sh4.329 trillion for the upcoming 2025/26 fiscal year had been trimmed by Sh153 billion to reflect the lower expected revenue in the period.
CS Mbadi said the revisions are aimed at introducing realism to the Treasury’s projection in the face of a softer economy characterised by reduced private sector activity.
“We have introduced reality in projections at the Treasury…and revised our revenue projections downwards, where we had Sh2.632 trillion as the projection for ordinary revenue and have since revised that to Sh2.538 trillion,” the CS told the Nation Media Group’s Fixing the Nation show on Monday last week.
The final 2025 budget policy statement which is also to be tabled in Parliament sets a Sh4.2 trillion budget for the 2025/26 financial year from the initial estimate of Sh4.32 trillion.
This includes Sh3.09 trillion for recurrent spending, Sh725.1 billion for development Sh436.7 billion in county transfers, and Sh5 billion for the contingency fund.
The counties equitable share of the revenue for the 2025/26 cycle has meanwhile been set at Sh405.1 billion with Sh10.6 billion as the equalisation fund while Sh69.8 billion has been proposed as counties additional allocations including funding from development partners.
The Cabinet has insisted that the fiscal consolidation remains underpinned in the revised fiscal framework even as additional spending pressures and revenue mobilisation misses heighten the risk of fiscal slippages.
“The government’s fiscal policy for 2025/26 prioritises fiscal consolidation to reduce debt vulnerability while ensuring adequate funding for essential public services. This will be achieved through expenditure rationalisation, revenue mobilisation, and enhanced tax compliance,” the Cabinet added.
The fiscal deficit was estimated at 4.3 percent of GDP under the first 2024/25 supplementary budget and at a lower 3.9 percent in the cycle starting July 1, 2025.
