Kenya to cap fiscal deficit at 4.5% in FY 2025/26

Kenya Sets Fiscal Deficit Target at 4.5% of GDP for 2025/26
The Kenyan government has announced that it will cap its fiscal deficit at 4.5% of GDP for the 2025/26 fiscal year, down from 5.1% the previous year, as part of efforts to strengthen public-finances and reduce vulnerability to debt.
Finance ministers and the Cabinet revealed that the initial budget for the year, which stood at KSh 4.3 trillion (approximately US$33 billion), will undergo substantial revision to reflect the tighter target.
The move follows a politically charged episode last year when mass protests forced President William Ruto’s administration to withdraw proposed tax hikes worth about US$2.7 billion and abandon an earlier goal to reduce the deficit to 3.5%.
The government emphasised that the adjustment is part of a broader austerity drive focused on closing tax loopholes, improving spending efficiency and protecting essential public services.
Analysts welcomed the target as a step in the right direction, yet warned that the challenge lies in delivering on ambitious fiscal discipline amid weak revenue collection and high debt-servicing costs. The reduction in the planned deficit signals a tightening of conditions for Kenya’s economy — with potential implications for growth, borrowing costs and investor confidence. Markets have noted the move as a response to pressure from institutions such as the International Monetary Fund, which has flagged the country’s cash-flow and external financing needs.
Looking ahead, realising the 4.5% target will depend on several factors: whether the government can secure stronger tax revenues without triggering further protests; whether spending discipline holds throughout the year; and whether external shocks (such as droughts or currency swings) remain manageable. If Kenya meets the target, it could help restore fiscal credibility and ease borrowing pressures — but failure could undermine its financial position and force renewed adjustments mid-year.