Auditor General raises concern over proposed Sh4.3 trillion budget, unrealistic revenue projections
The projected Sh4.3 trillion budget marks an increase from the Sh3.978 trillion allocated for the current 2024-2025 financial year.
Auditor-General Nancy Gathungu has cautioned that the government's proposed Sh4.3 trillion budget for the 2025-2026 financial year could lead to increased borrowing due to unrealistic revenue projections.
In a document presented to Parliament, Gathungu highlighted concerns over the credibility of the budget, citing consistent revenue collection shortfalls by the Kenya Revenue Authority (KRA).
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According to the 2025 Budget Policy Statement (BPS), ordinary revenue is expected to reach Sh2.8 trillion, about 14.7 per cent of the gross domestic product (GDP), up from Sh2.6 trillion, which represented 14.8 per cent of GDP in the 2024/25 financial year.
“This falls short of the World Bank’s recommended minimum tax-to-GDP ratio of 15 per cent. This trend raises some concern on the accuracy of revenue projections in the budget,” Gathungu stated.
The projected Sh4.3 trillion budget marks an increase from the Sh3.978 trillion allocated for the current 2024-2025 financial year.
However, Gathungu expressed scepticism about the ability to meet expenditure targets without resorting to borrowing, given the persistent failure to meet revenue goals.
“I’ve raised the challenge of tax revenue collection in my audit reports. If the trend continues, it will be difficult to meet expenditure projections for the 2025-2026 financial year without resulting in borrowings,” she said.
More cautious approach
To enhance budget credibility, Gathungu urged the National Treasury to adopt a more cautious approach to revenue forecasting, taking into account historical trends and economic risks.
She pointed out that accurate revenue projections would help align expenditure commitments with realistic expectations.
“The government should also strengthen tax administration efforts to improve compliance and expand the tax base. This includes modernising tax collection systems and enhancing taxpayer services,” Gathungu noted.
Gathungu’s report revealed that in four of the last five financial years, KRA did not meet its ordinary revenue collection targets.
In the 2023-2024 financial year, the government projected Sh2.5 trillion in revenue but only collected Sh2.3 trillion, leaving a Sh170.4 billion shortfall.
Similarly, in 2022-2023, the target was Sh2.2 trillion, but actual collections amounted to Sh2.1 trillion, a shortfall of Sh99.35 billion.
The only exception was the 2021-2022 financial year when actual revenue collection exceeded projections by Sh101.5 billion. During that period, the government had estimated KRA would collect Sh1.89 trillion, but it managed Sh1.94 trillion, an increase of 5.5 per cent over projections.
In contrast, the 2020-2021 financial year saw a marginal shortfall of Sh581.6 million against a projected Sh1.6 trillion, while in 2019-2020, the missed target stood at Sh50.9 billion against a projection of Sh1.67 trillion.
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