Kenya Slashes Tax Target to Ksh2.4 Trillion, Ups Borrowing Amid Economic Strain
Kenya’s government has revised its tax revenue collection target downward to Ksh2.4 trillion for the 2024/25 fiscal year, as Treasury Cabinet Secretary John Mbadi unveiled a shift in fiscal strategy that leans heavily on borrowing to fund key infrastructure projects.
The move follows a turbulent period marked by Gen Z-led protests against the now-withdrawn Finance Bill 2024. President William Ruto declined to sign the bill into law, officially calling for its withdrawal on June 26, 2024, after nationwide unrest turned deadly.
The Treasury now projects a Ksh2.4 trillion ($18.5 billion) revenue collection—3% less than the previously revised Ksh2.475 trillion target. “This economy was shut for two months. That affected revenue collection,” Mbadi told lawmakers, referencing the economic paralysis during the protests.
Spike in Borrowing
With the revenue outlook dimmed, Kenya plans to raise net domestic borrowing by 46% to Ksh597.2 billion. Foreign borrowing is also set to climb to Ksh718.4 billion—an increase of nearly Ksh120 billion from the earlier projection.
The anti-Finance Bill protests not only disrupted business but also transformed into broader anti-government demonstrations, resulting in over 60 fatalities and reports of abductions. These events forced the government to reassess its fiscal priorities.
IMF Caution and a New Path
The International Monetary Fund (IMF) recently flagged Kenya as being at high risk of debt distress—a warning that carries weight amid the government’s increasing reliance on loans.
In a notable shift, Kenya has opted out of the final review of a four-year $3.6 billion IMF program, foregoing approximately $850 million in additional funding. Instead, Prime Cabinet Secretary Musalia Mudavadi announced plans to negotiate a fresh three-year agreement with the IMF, with talks expected to conclude by November.
“Some of the targets were extremely steep,” Mudavadi stated, adding that the new deal will allow the Ruto administration to craft more realistic goals aligned with the current economic climate.
“We have to come to terms and discuss these new realities as we negotiate the new programme,” Mudavadi said. “We would have to be very realistic based on the numbers that we have as a country to be able to project and show the kind of revenue targets that we want to work with going forward.”
Looking Ahead
As Kenya adjusts its fiscal policy, the government must now balance its ambitious development agenda against global uncertainties, including lingering trade tensions under U.S. President Donald Trump’s continued tariffs.
Whether the revised targets and increased borrowing will stimulate growth or further strain the economy remains to be seen. One thing is certain: the road to economic recovery will require cautious planning, broad consensus, and a clear-eyed assessment of Kenya’s financial realities.
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Kenya Slashes Tax Target to Ksh2.4 Trillion, Ups Borrowing Amid Economic Strain