The National Treasury Kenya has raised serious concerns over declining revenue collection and increasing spending pressure, warning that the government may struggle to meet its financial obligations in the current fiscal year.
In a report submitted to the Budget and Appropriations Committee, the Treasury revealed that key tax sources such as income tax, VAT, and excise duty have underperformed significantly.
As of February 2026, the government recorded a revenue shortfall of Sh162.6 billion, putting additional strain on public finances.
According to the Treasury, the situation has been caused by weak revenue collection and inefficiencies in tax administration. Officials noted that unexpected spending demands have further worsened the financial pressure.
The warning comes shortly after Members of Parliament approved an additional Sh363.9 billion in spending for the 2025/26 financial year. This move has pushed the total national budget to Sh4.7 trillion, up from the initial Sh4.3 trillion approved in June 2025.
Lawmakers, led by Samuel Atandi, expressed concern that the growing revenue gap could affect the country’s economic stability. The committee noted that although there are signs of improvement in customs revenue, the overall shortfall remains a major risk.
The report further indicated that the fiscal deficit is expected to rise sharply to Sh1.2 trillion, compared to the earlier estimate of Sh933.3 billion. This increase raises concerns about the sustainability of government spending.
To bridge the gap, the government is expected to rely more on domestic borrowing, which is projected to increase significantly, while foreign borrowing is expected to decline.
By February 2026, total revenue collection stood at Sh1.98 trillion, below the target of Sh2.14 trillion. Income tax alone underperformed by Sh103.5 billion, while VAT and excise duty also recorded notable deficits.
The committee has now challenged the Kenya Revenue Authority to improve tax collection, seal revenue leakages, and expand the tax base to avoid further financial strain.
Experts warn that if the trend continues, the country’s fiscal deficit could exceed six percent of GDP, posing a serious challenge to Kenya’s economic stability.
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