Kenya Slashes Tax Target, Turns to Borrowing to Fund Projects After Protest Fallout
NAIROBI, Kenya
The Kenyan government has revised its tax revenue projection for the 2024/25 fiscal year down to Ksh2.4 trillion, following months of political unrest and economic disruption triggered by the now-withdrawn Finance Bill 2024. Treasury Cabinet Secretary John Mbadi confirmed the decision via a gazette notice, revealing that the government will rely more heavily on domestic and foreign borrowing to plug the budget deficit.
The revised figure marks a 3% decrease from the earlier target of Ksh2.475 trillion and reflects the economic slowdown that followed widespread Gen Z-led protests in mid-2024. Those demonstrations, sparked by tax proposals on essentials such as bread and diapers, culminated in a nationwide movement that forced President William Ruto to recall the bill in June 2024.
“The economy was effectively shut for two months. That significantly disrupted our revenue streams,” Mbadi told legislators earlier this week.
Borrowing Surges as Government Rethinks Fiscal Strategy
With domestic revenue shrinking, Kenya is now eyeing a sharp increase in borrowing to maintain development momentum. Net domestic borrowing is projected to rise by 46%, hitting Ksh597.2 billion, while foreign loans will climb to Ksh718.4 billion—an increase of Ksh119.8 billion from previous estimates.
These adjustments are designed to finance critical infrastructure projects, but they come at a time when the International Monetary Fund (IMF) has classified Kenya as being at high risk of debt distress, raising alarms about the country’s long-term fiscal health.
Kenya Walks Away from IMF Deal, Eyes Fresh Terms
In a bold move, the Kenyan government has opted out of the final review of a four-year, $3.6 billion IMF program, foregoing nearly $850 million in pending financing. The decision signals a desire to escape what officials deemed unrealistic fiscal constraints under the previous deal.
Prime Cabinet Secretary Musalia Mudavadi defended the withdrawal, stating that the administration would now pursue a new, more flexible three-year deal that reflects current economic realities.
“Some of the conditions were far too demanding. We need a new programme tailored to the real situation on the ground,” Mudavadi explained, adding that talks are expected to conclude by November 2025.
The revised deal will reportedly factor in both domestic conditions and global pressures, such as persistent geopolitical uncertainties and ongoing U.S. trade tariffs under President Donald Trump’s administration.
Development vs. Debt: A Balancing Act
The government’s fiscal realignment is part of a larger strategy to keep infrastructure development on track without overburdening citizens with additional taxes—at least for now. However, with mounting public debt, a weakening shilling, and rising inflation, economic analysts warn that Kenya’s reliance on loans may worsen its financial position if not managed prudently.
As Kenya shifts its approach, all eyes are on how the administration balances its development ambitions with sustainable debt management. The coming months—and the outcome of IMF negotiations—will be key to determining whether this new path can deliver economic stability without sparking another public backlash.
