The trillion-shilling question
Every budget season, Kenya turns the Finance Bill into the main battlefield of economic debate and for good reason. New taxes are visible, immediate and politically painful. They show up in payslips, M-Pesa charges, business margins, withholding rules and the daily cost of compliance.
Yet the FY2026/27 budget contains a larger fiscal choice receiving far less public attention. Treasury plans to borrow nearly a trillion shillings from the domestic market, a financing decision with significant implications for credit, growth, future taxation, and accountability.
The 2026 Budget Policy Statement (BPS) projects total expenditure of roughly KES 4.82 trillion against revenue of about KES 3.629 trillion. The gap between expenditure and revenue will be financed through revenue-raising measures in the Finance Bill and through borrowing.
The Finance Bill 2026 is expected to raise approximately KES 120 billion in additional revenue. This leaves a financing gap of just over KES 1.11 trillion. Of this amount, Treasury intends to borrow KES 995.7 billion from domestic creditors and about KES 114.3 billion from external creditors.
In effect, the government plans to borrow roughly nine shillings locally for every shilling borrowed from foreign creditors. Put differently, the government intends to borrow more than eight shillings from local lenders for every shilling expected from new Finance Bill measures.
Kenyans need to interrogate whether concentrating financing pressure on the domestic market at this scale is prudent and what trade-offs come with such a choice.
Concern over measures contained in the Finance Bill is understandable. However, equal scrutiny should be directed towards why the government still needs to absorb almost a trillion shillings from local financial markets after collecting nearly KES 3 trillion in ordinary revenue.
This comes against a backdrop of total public debt standing at KES 13 trillion, comprising KES 7.24 trillion in domestic debt and KES 5.78 trillion in external debt as of May 2026. Between July 2025 and May 2026 alone, the government borrowed KES 913.88 billion from the domestic market.
Kenya’s Education System and the Financial Shift
Kenya’s public education system has undergone major reforms over the years, but none have reshaped financial pressures as much as the Competency-Based Curriculum (CBC), which is the current model. Under the 8-4-4 system, implemented from 1985 to 2017, primary education lasted eight years, secondary education four years and university another four years on average.
The country’s commitment to accessible education gained global recognition in 2003 with the introduction of Free Primary Education (FPE), which dramatically increased enrolment. This effort was later extended to secondary education through the Free Day Secondary Education (FDSE) policy, providing government capitation per learner to subsidise fees and limit household borrowing.
The introduction of the CBC in 2017 fundamentally altered these patterns. Primary education, previously a single eight-year block, was divided into three key stages: Lower Primary (Grades 1–3), Upper Primary (Grades 4–6) and Junior Secondary School (Grades 7–9). After completing junior secondary, students transition to senior secondary, comprising Grades 10–12. These changes concentrated costs at key progression points, particularly the move into Grade 10, creating significant financial pressure and often driving families into debt. While CBC was designed to improve learning outcomes and better prepare students for life beyond school, it disrupted the predictable cost patterns parents were accustomed to under 8-4-4, where only KCPE and KCSE represented major financial transitions.
Why domestic borrowing is a hidden claim on the economy
Domestic borrowing does not affect the economy in exactly the same way as taxation, but it remains a significant claim on national resources.
A tax transfers money from families and businesses to the state immediately. Domestic borrowing draws from the same pool of savings relied upon by businesses, households, pension funds, insurers, and banks, while also creating future obligations through interest and principal repayments.
In this sense, borrowing is less visible than taxation, but not necessarily less consequential.
When Treasury enters the market seeking KES 995.7 billion in net financing, it competes for capital with every private borrower in the country. It absorbs almost a trillion shillings of lending capacity.
A bank, pension fund, or insurer then faces a practical choice: lend to businesses and individuals, with all the risk and administrative effort involved in assessing creditworthiness, or purchase government securities, which are liquid, familiar, and generally regarded as lower risk.
At this scale, government paper becomes the easier option. Private sector lending becomes the harder one.
This matters because investment, job creation, and productivity growth occur within the private sector. When firms struggle to access affordable credit, expansion plans are delayed, investment slows, and hiring weakens.
The consequences do not appear as a new tax line on a payslip. Instead, they emerge through fewer employment opportunities, stagnant wages, and an economy that feels weaker to ordinary Kenyans than official indicators suggest.
The current budget’s reliance on domestic debt raises three principal concerns.
First, it can keep credit expensive. Banks face less pressure to reduce lending rates when the government continues borrowing heavily at attractive yields. This also undermines efforts by the Central Bank of Kenya to lower the cost of credit for businesses.
Second, it pushes risk into the future. The KES 995.7 billion borrowed today must be repaid with interest tomorrow. Future interest obligations can easily become the next justification for more aggressive revenue-raising measures.
This concern is particularly relevant because much of Kenya’s domestic borrowing is not financing new development projects. Instead, significant portions are used to refinance maturing obligations and manage government liquidity through the continuous rollover of short-term commercial debt.
Third, heavy domestic borrowing can weaken private investment. No country can tax and borrow its way into broad-based prosperity if businesses expected to create jobs are increasingly priced out of credit markets.
Domestic borrowing may be necessary during periods of fiscal pressure. However, its growing scale raises a legitimate question: is debt financing productive investment, or is it postponing harder decisions around expenditure discipline, pending bills, inefficiencies, and waste?
Why domestic borrowing is harder to scrutinise
An accountability challenge also exists.
Much of Kenya’s external borrowing is linked to specific projects, programmes, or lender conditions. It is often accompanied by appraisal documents, procurement requirements, reporting obligations, and oversight from development partners or creditors.
These safeguards do not eliminate waste or corruption. They do, however, create additional layers of scrutiny and make it easier to ask what a loan was intended to finance, whether funds were disbursed as planned, and whether promised outcomes were achieved.
Domestic debt operates differently.
Although approved through the budget process and governed by Kenya’s public finance management framework, domestic borrowing often attracts less public scrutiny. It is generally harder for citizens to trace domestic debt, including infrastructure bonds, to specific assets, services, or development outcomes.
Much of it functions as general budget support, financing the gap between what the government spends and what it collects.
As a result, answering a basic public finance question becomes more difficult: what exactly did this debt build?
This distinction matters because borrowing not clearly linked to productive investment can easily finance recurrent expenditure, inefficiencies, and political priorities.
A trillion-shilling domestic borrowing programme should therefore face the same level of civic scrutiny as a controversial tax proposal. Not because the two are identical, but because both influence who pays, who benefits, and which economic opportunities are crowded out.
Citizens should feel entitled to ask why the government needs to absorb nearly a trillion shillings from local capital markets in 2026/27 instead of leaving a greater share of those resources available for private sector investment.
The real public debate
Kenyans are right to scrutinise the Finance Bill, particularly at a time when families and businesses remain under pressure.
However, the national conversation should not stop at tax rates.
The more fundamental question is why the government still needs to borrow almost a trillion shillings domestically after collecting nearly KES 3 trillion in ordinary revenue, and what economic return this borrowing is expected to generate.
Answering this question takes the debate beyond tax design and into expenditure choices, pending bills, debt service obligations, the credibility of revenue projections, corruption risks, and the true cost of running the state.
Kenyans should demand more than debate over new taxes. They should demand a credible ceiling on domestic borrowing, clearer links between borrowing and productive investment, serious expenditure rationalisation, and transparent reporting on what domestic debt finances.
The implications of Finance Bill proposals are easier to see because they directly affect incomes and business costs. The consequences of sustained domestic borrowing are less visible, but no less important.
Domestic borrowing influences the availability and cost of credit, shapes future tax pressures, and affects public accountability long after annual tax debates have faded.
If we care about jobs, business growth, affordable credit, and value for public money, then scrutiny of the KES 995.7 billion domestic borrowing target should be every bit as vigorous as scrutiny of the Finance Bill itself.
Written by John Mburu – Programme Manager, Expertise Global
