The Treasury borrowed Sh207.7 billion to pay salaries, debt repayments and other recurrent expenditure in the year ended June, in continued breach of the public finance management law.

The draft 2026 Budget Review and Outlook Paper (BROP) shows the President William Ruto administration borrowed Sh983.7 billion in the financial year 2025/26.

The Treasury, however, says that only Sh776 billion was spent on development, leaving Sh207.7 billion to fund recurrent expenditure.

The disclosure means more than one in every five shillings borrowed in the year to June did not go into building roads, dams, schools, hospitals or other long-term assets, but instead financed the ordinary cost of running government.

Kenya faces severe fiscal pressures and cash constraints driven by high debt-servicing costs and below-target revenue performance, prompting the Treasury to tap loans for recurrent spending.

The Treasury’s figures show that 78.9 percent of borrowing financed development expenditure while 21.1 percent financed recurrent expenditure, highlighting the gap between Kenya’s legal borrowing rules and actual budget financing.

Section 15(2)(c) of the Public Finance Management Act, 2012 requires that national government borrowing should, over the medium term, be used only for development expenditure and not recurrent expenditure.

The Treasury has acknowledged the breach and pledged full adherence in future budgets.

“Over the medium term, the government will ensure adherence to the fiscal responsibility principles,” Treasury officials wrote in the review paper.

The continued breach contrasts with President Ruto’s pledge shortly after taking office in September 2022 that borrowing would no longer be used to keep the government running and meet obligations that recur every year.

“The government should never borrow to finance recurrent expenditure. It is not right, it is not prudent, and it is not sustainable. It is simply wrong. We must bring ourselves and our country to sanity,” the President said at the time, adding that his administration would restore fiscal discipline over time.

“Over the next three years, we must reverse this and go back to a situation where the government contributes to the national savings effort by keeping recurrent expenditure below revenue levels.”

The latest figures suggest progress toward that goal, but they also reveal that the government remains unable to fully finance its recurrent budget from tax revenue and other ordinary income.

The Treasury data shows that Kenya has gradually reduced the share of borrowing used for recurrent expenditure.

In the financial year 2023/24, the government borrowed Sh766.4 billion but more than half, or Sh415.7 billion, financed recurrent expenditure -- making that year one of the clearest examples of debt funding government consumption.

In the financial year 2024/25, borrowing rose to Sh854.5 billion, of which Sh604.1 billion went to development and Sh250.4 billion to recurrent spending, lifting the development share to 70.7 percent.

Last financial year marked a further improvement, but the remaining Sh207.7 billion still represents a substantial reliance on debt to finance consumption rather than investment, a practice economists have long argued weakens future economic growth.

The Treasury has repeatedly defended the government’s borrowing programme by arguing that debt is increasingly being directed toward infrastructure and productive investment rather than recurrent expenditure.

Treasury Cabinet Secretary John Mbadi has previously said the government was seeking to restore fiscal discipline and improve compliance with the Public Finance Management Act after years of heavy borrowing and rising debt servicing costs.

Read: Mbadi seeks planning law after Sh203bn budget jump

Borrowing for development creates assets such as roads that can raise future productivity and tax revenues, while borrowing for recurrent expenditure leaves taxpayers servicing debt long after the money has been spent.

Kenya’s recurrent expenditure—which hit nearly Sh3.29 trillion in the year to June from Sh2.95 trillion a year earlier — includes wages for public servants, pensions, debt interest payments, transfers to State agencies and county governments, and operations and maintenance costs across ministries and departments.

Debt servicing has become the single-largest pressure on the recurrent budget, prompting the government to devote an increasing share of revenue to interest and principal repayments.

The BROP report also shows that overall development expenditure has risen steadily, strengthening the Treasury’s argument that a larger share of public spending is being directed toward investment.

Development expenditure increased from Sh493.66 billion in the financial year 2022/23 to Sh546.39 billion in the financial year 2023/24, before rising to Sh582.94 billion in the financial year 2024/25.

The Treasury estimates that development expenditure reached a provisional Sh731.54 billion in the financial year 2025/26, an increase from the previous year and the highest level in the four years of President Ruto’s administration.

However, officials acknowledged that the government still failed to meet its own development spending target.

“Development expenditure amounted to Sh731.5 billion against a target of Sh771.0 billion, translating to an under-spending of Sh39.5 billion. This variance was largely driven by lower-than-projected absorption in development projects, which underperformed by Sh41.5 billion,” Treasury officials wrote in the draft BROP.

The missed target means the government borrowed nearly Sh984 billion while failing to spend all the development funds it had planned, raising fresh questions about project implementation and budget execution.

The Treasury has been pursuing a fiscal consolidation programme aimed at reducing the budget deficit and slowing the pace of debt accumulation through higher revenue collection and tighter control of expenditure.

However, the review paper indicates that ordinary revenues such as taxes, dividends from government-owned entities and charges on government services were still not sufficient to cover all recurrent obligations, requiring the government to use borrowed funds to bridge the financing gap.

The continued breach of the borrowing rule is likely to raise questions about the credibility of the government’s fiscal consolidation strategy, especially as Kenya seeks to reassure lenders such as the IMF and investors that public debt is funding productive investment.

The Treasury’s promise that future borrowing will fully comply with the PFM Act means the government would need to eliminate the practice of financing recurrent expenditure with debt, a target that has remained elusive for years.

→ cmunda@ke.nationmedia.com

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