Treasury’s KSh5.4trn 2027/28 budget plan pushes recurrent spending past KSh4trn for first time

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The government’s day-to-day spending is set to cross KSh4trn for the first time in the 2027/28 financial year, according to the National Treasury’s Draft Budget Policy Statement 2027, which puts the total proposed budget at KSh5.416trn.

Recurrent spending, which covers salaries, pensions, interest on debt and the running costs of ministries, is projected at KSh4.021trn. That is up from KSh3.887trn in the Treasury’s estimates published about two months ago. Development spending, the money that goes into roads, dams and other projects, is cut to KSh915.8bn from KSh958bn.

More revenue, but a wider gap

The Treasury expects to collect KSh4.004trn in total revenue in 2027/28, up from KSh3.943trn in the earlier projection. Ordinary revenue, mostly taxes collected by the Kenya Revenue Authority, is pencilled in at KSh3.249trn, from KSh3.208trn.

Spending is rising faster than income. The budget deficit is now projected at KSh1.353trn, or 5.9% of gross domestic product, compared with KSh1.321trn (5.7% of GDP) in the earlier numbers, as first reported by Capital FM.

Borrowing shifts abroad

The biggest change is in how the gap would be filled. Domestic borrowing is cut to KSh929.1bn from KSh1.085trn, while external borrowing almost doubles to KSh423.8bn from KSh235.9bn.

Less local borrowing would ease pressure on banks and on interest rates for Treasury bills and bonds, which have been the government’s main source of funds. Kenya’s gross domestic debt stood at KSh7.822trn on October 16, according to CBK’s weekly bulletin. More external borrowing raises exposure to the exchange rate: the shilling traded at KSh129.91 to the dollar on October 22. The Treasury has said it is in talks with the World Bank and African Development Bank on budget support (our earlier report).

Why it matters to taxpayers

The Budget Policy Statement sets the ceilings that ministries and counties use to prepare their budgets, and it guides the tax measures that end up in the Finance Bill. It comes in the same week that Treasury Cabinet Secretary John Mbadi said he would ask Parliament to exempt monthly pay of up to KSh32,333 from PAYE, while higher earners pay more. That proposal is separate from the BPS but feeds into the same revenue numbers.

The 2027/28 budget will be the last full budget before the August 2027 General Election.

How to comment

The Treasury has invited the public to send comments on the draft by November 16. The final statement is then tabled in Parliament, and the Finance Bill process follows in the first half of next year. Our Finance Bill 2027 explainer sets out the timeline and how to take part in public participation.

What the numbers mean

Put simply, about three in every four shillings the government plans to spend in 2027/28 would go to running costs and debt service rather than new projects. Rising interest payments on existing debt are a large part of that. The cut in development spending matters for contractors, suppliers and counties waiting on stalled projects, while the higher revenue target means the Kenya Revenue Authority will be under pressure to collect more, whether from new measures or tighter enforcement. Analysts will look closely at whether the revenue projection is realistic, since past targets have often been missed and the gap filled with extra borrowing during the year.