Treasury cuts tax revenue target by Sh93 billion amid economic slowdown
Despite these changes, no expenditure cuts have been announced for the current fiscal year, raising concerns that the budget deficit could increase by at least Sh93 billion.
The National Treasury has revised its tax revenue target downward by Sh93 billion for the current fiscal year due to economic difficulties affecting businesses and households.
This move signals increased government borrowing and the potential for higher domestic interest rates.
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Treasury Cabinet Secretary John Mbadi announced on Monday that the projected tax revenue has been lowered from Sh2.631 trillion to Sh2.538 trillion.
The borrowing target for the 2025-2026 financial year has also been cut by Sh180 billion – from Sh3.018 trillion to Sh2.838 trillion.
These adjustments stem from the Supplementary Budget I for FY 2024-2025, passed in August, which incorporated fiscal changes made following the youth-led protests in June and July.
Initially, the government had set an ambitious tax revenue target of Sh2.917 trillion in the June 2024 Budget statement.
"We have introduced reality in projections at the Treasury and revised our revenue projection downwards, where we had Sh2.632 trillion as projection for ordinary revenue, and have since revised that to Sh2.538 trillion," Mbadi said.
Final BPS version
The final version of the 2025 Budget Policy Statement (BPS), which incorporates these adjustments, will be presented to Parliament in the coming days.
CS Mbadi also disclosed that the draft BPS expenditure target of Sh4.329 trillion for the FY 2025-2026 will be reduced by Sh153 billion to align with the lower expected revenue.
Despite these changes, no expenditure cuts have been announced for the current fiscal year, raising concerns that the budget deficit, currently at Sh768.6 billion could increase by at least Sh93 billion.
The government had initially planned to finance this deficit through net domestic borrowing of Sh413.1 billion and external borrowing of Sh355.5 billion.
In June 2024, the Treasury had projected a budget deficit of Sh597 billion, with Sh263.2 billion to be sourced from local lenders.
Any further increase in domestic borrowing could lead to higher interest rates, particularly after the Central Bank of Kenya recently cut its policy rate from 13 per cent to 11.25 per cent.
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