High debt repayment, budget deficit to hit Kenyans hard
By John Otini, June 24, 2025Maturing loan repayments and a high budget deficit will likely eclipse the delivery of key government services in the Finance Bill 2025 as the Treasury grapples to honour and refinance outstanding debt obligations, Deloitte has said.
“Although Kenya’s GDP is projected to grow by 5.3 per cent in 2025, public debt remains a major concern and poses significant downside risks to countries, notably by reducing government spending on essential services and infrastructure and potentially weakening the national currency,” said Gladys Makumi, Deloitte East Africa Financial Advisory Leader
“The FY25/26 budget has signalled the government’s intent to focus on critical and essential services,” .. “Nonetheless, with the budget indicating a significant budget deficit and maturing loan repayment obligations, there is a need to implement revenue and expenditure measures that ensure fiscal consolidation and run a sustainable economy,” she added.
According to Deloitte Kenya’s Budget Highlights 2025/26, the government has signalled its intention to tighten tax compliance without further burdening taxpayers. This comes at a time when debt obligations are crowding out essential spending and posing risks to the economy.
Kenya’s fiscal gap remains wide. The government has outlined key spending priorities in the 2025/26 budget, including education, infrastructure, energy, and ICT. However, the burden of interest payments on existing loans continues to limit available resources.
In contrast to the previous year, when tax hikes in the Finance Bill 2024 sparked widespread opposition, the Finance Bill 2025 has taken what analysts describe as a more cautious and technical approach. Deloitte experts say the government is trying to restore public confidence and improve compliance through reforms in tax administration.
Budget proposals
“Overall, this year’s Budget proposals reflect an aversion to introduce new taxes, likely informed by the adverse public reaction to the new taxes proposed by the Finance Bill, 2024,” said Fred Omondi, Deloitte East Africa Tax and Legal Leader.
“However, it remains to be seen whether enhanced administrative measures will result in more revenue collection to avoid widening the deficit.”
The Bill includes legal clean-ups and amendments aimed at simplifying compliance, correcting inconsistencies in tax law, and expanding enforcement capabilities.
But experts caution that the absence of new taxes does not necessarily ease the pressure on taxpayers or the economy. Fredrick Kimotho, Deloitte East Africa Tax and Legal Associate Director, said the government’s shift in tone is clear.
“While the Finance Bill 2025 offers some relief by avoiding new taxes, it raises valid concerns about the government’s commitment to its stated policy direction. The mixed signals not only undermine the credibility of key tax reform instruments like the MTRS and National Tax Policy, but also cast doubt on Kenya’s readiness to offer a predictable and investor-friendly fiscal environment.”
Deloitte’s budget review also noted the challenges of relying on indirect taxes in an economy with shrinking disposable income. Lilian Kubebea, Deloitte East Africa Indirect Tax Leader, said growth in VAT and excise duty collections depends on the purchasing power of citizens.
“Indirect taxes are mainly premised on consumption and their efficacy is closely tied to the availability of disposable income in the economy,” she said.
“Accordingly, sustained growth hinges on improving the earning capacity of most Kenyans and fostering employment and entrepreneurial opportunities, particularly among the youth demographic.”