Nairobi — Kenya's fiscal deficit is expected to widen by 10.23 percent in the 2026/27 financial year ((FY), signaling renewed pressure on the country's borrowing plans despite ongoing fiscal consolidation efforts.

According to the 2025 Budget Review and Outlook Paper (BROP) released by the National Treasury, the fiscal deficit will rise to Sh1.017 trillion, equivalent to 4.9 percent of GDP, compared to Sh923 billion in the 2025/26 fiscal year.

"The 2026/27 fiscal deficit is set at Sh1,017.6 billion, equivalent to 4.9 percent of GDP," the Treasury said in the BROP.

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"This represents a 10.23 percent increase in the size of the deficit compared to 2025/26."

The National Treasury plans to finance the gap through a mix of domestic and external borrowing, with a marked tilt toward the local market.

Domestic financing will rise to Sh775.8 billion, up 22.07 percent from the current fiscal year, while external financing will stand at Sh241.8 billion, highlighting the government's growing reliance on local borrowing amid tight global financial conditions and limited concessional funding.

However, there are concerns that increased domestic uptake could, however, heighten competition for credit with the private sector, potentially pushing up interest rates.

Yet, the Treasury maintains that the move aligns with its medium-term debt management strategy aimed at balancing cost and risk while sustaining economic recovery.

The fiscal expansion comes at a time when Kenya continues to face persistent revenue shortfalls, despite new tax measures and expenditure rationalization.

Total expenditure for 2026/27 FY is projected at Sh4.65 trillion, against projected revenues of Sh3.58 trillion, leaving a financing gap that will again test the government's debt sustainability targets.