Kenya's National Treasury projects a fiscal deficit of KES1.353 trillion ($10.4bn) for the 2027/28 financial year, equivalent to 5.9% of gross domestic product (GDP), as rising debt obligations and persistent revenue shortfalls constrain public finances.

The deficit would widen from a projected KES1.145 trillion, or 5.5% of GDP, in 2026/27, according to the draft 2027 Budget Policy Statement, published in October.

The Treasury forecasts total revenue, including appropriations-in-aid collected by government departments but excluding grants, at KES4.004 trillion ($30.8bn), against expenditure and net lending of KES5.416 trillion ($41.7bn).

The projected deficit includes grant receipts, which reduce the gap between revenue and expenditure. The Treasury plans to finance the remaining shortfall through net domestic financing of KES929.1bn ($7.1bn) and net external financing of KES423.8bn ($3.3bn).

Ordinary revenue, comprising tax and other non-earmarked receipts, is projected to rise 8.8% to KES3.249 trillion from KES2.986 trillion in 2026/27. Total revenue is forecast to increase 10.3%.

Recurrent expenditure is projected at KES4.021 trillion, with development spending reaching KES915.8bn.

Debt servicing absorbs growing revenue share

The Treasury projects principal repayments and interest payments on public debt rising to KES1.918 trillion in 2027/28 from KES1.797 trillion in 2026/27.

Interest payments alone are expected to absorb 42% of ordinary revenue in 2026/27, compared with 14.7% in 2013/14. Unlike interest, principal repayments are financing transactions rather than ordinary budget expenditure.

The present value of public debt stood at 65.6% of GDP in June 2026, exceeding the upper 60% limit of the government's medium-term debt anchor range.

The Treasury plans to use refinancing, debt buybacks and other liability-management operations to smooth repayments and contain refinancing risks.

Revenue shortfalls complicate fiscal plans

The projections come amid continued difficulties meeting revenue targets.

Ordinary revenue was KES58.2bn ($448mn) below target by the end of September 2026, according to the draft statement.

The Treasury acknowledged that revenue repeatedly fell short of approved targets in previous financial years, while expenditure also remained below plan because of implementation constraints.

After widening to 5.9% of GDP in 2027/28, the fiscal deficit is projected to narrow to 5.4% in 2028/29, 5.1% in 2029/30 and 4.9% in 2030/31.

The Budget Policy Statement sets the government's spending priorities, proposed expenditure ceilings and financing assumptions ahead of the annual budget.

Under an accelerated timetable ahead of Kenya's August 2027 general election, public comments on the draft are due by October 28, with Cabinet consideration scheduled for October 30 and submission to Parliament planned for November 16.