Kenya is unable to meet its fiscal consolidation targets because of cash demands by education and security sectors, which were allocated Sh1.35 trillion in this year’s budget, President William Ruto’s chief economic advisor, David Ndii, has said.

He said despite allocating the education sector Sh784.5 billion in the current budget, the government is still running a deficit in funding for universities and teacher recruitment.

Tying the funding demands to demographics, Dr Ndii cited the widening ratio of security officers and teachers to the population as one of the reasons the government is being forced to spend more on the two despite calls to cut its recurrent budget.

“Fiscal consolidation is harder than it might look from the outside, where it is easy to ask why we can’t just reduce expenditure. The single largest driver of the expenditure side of government is demographics,” Dr Ndii said when he spoke at a markets forum last week.

“We had a teachers’ deficit of 200,000 when the current administration took over, and though we have employed 120,000, we still have a shortfall of 80,000. If you look at ratios of things like security services per population, that number has been dropping, so you have more people to serve, and you need more money,” the chair of the presidential council of economic advisers added.

The government has budgeted Sh223.7 billion for 1.2 million tertiary students this year, but with their number set to double to 2.5 million over the next five years, the State estimates that the funding requirement will climb to Sh450 billion.

To cap the impact of the tertiary education budget on its books, the government is rolling out a new funding model in which it will issue education bonds backed by an annual exchequer allocation of Sh100 billion.

In the current budget, the security sector has been allocated Sh567.4 billion. Defence has the largest share at Sh252.1 billion, followed by the National Police Service at Sh144.7 billion, the National Intelligence Service (NIS) at Sh64.1 billion, internal security and administration at Sh63.9 billion and the Kenya Prisons Service at Sh42.6 billion.

Together, education and security account for 28 percent of Kenya’s Sh4.82 trillion budget expenditure. The budget deficit for the year runs at Sh1.145 trillion, equivalent to 5.5 percent of GDP.

The government has unsuccessfully targeted to lower this deficit to three percent of GDP, because of expenditure overruns and revenue shortfalls.

Lowering the deficit to about three percent in the medium term is one of the conditions that the International Monetary Fund (IMF) had placed on Kenya under the $3.6 billion funding programme that ended in April 2025. The two parties are in talks for a successor programme.

In the 2025/2026 fiscal year, the Treasury opened with a projected budget deficit of Sh923.2 billion, equivalent to 4.8 percent of GDP.

Spending and revenue revisions through the year, however, meant that the actual deficit rose to Sh1.26 trillion by the end of June 2026, equivalent to 6.8 percent of GDP.

On the revenue side, Dr Ndii said the reforms meant to close the deficit gap have trailed growth in spending.

Read: Treasury misses development spending threshold for the fourth year

Kenya currently runs a revenue yield gap of eight percent of GDP—meaning that the country’s tax to-GDP-ratio of about 14 percent is below the ideal level of 22 percent.

Tax revenue fell short of target in the 2025/26 fiscal year by Sh52 billion, closing the year at Sh2.59 trillion against a target of Sh2.64 trillion.

“On the revenue side, it has been challenging to implement structural reforms, although they are beginning to kick in now. Revenue reforms are lagging expenditure demands, which means fiscal consolidation ambitions meet reality,” added Dr Ndii.

To close the revenue gap, the State has leaned on digital technology to catch tax cheats, with Mr Ndii adding that the government is hoping to increase revenue to GDP by at least a percentage point per year, to halve the revenue yield gap in the next five years.

→ cmwaniki@ke.nationmedia.com

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