Kenya projects a wider 2026/27 budget deficit at 5.3% of GDP, leaning more on external borrowing amid fiscal and debt pressures.

Kenya’s Budget Deficit to Widen to 5.3% of GDP in 2026/27

Nairobi, Kenya — Kenya’s Finance Ministry projects that the budget deficit will widen to 5.3% of GDP in the 2026/27 fiscal year. This is higher than earlier forecasts. Officials say slow revenue growth and sustained spending have caused the gap.

The ministry will rely on domestic borrowing to finance most of the deficit. “We aim to fund the deficit responsibly while protecting the domestic market,” a Treasury statement said.

Revenue Shortfalls and Spending Pressures

The draft 2026/27 Budget Policy Statement shows total revenue at KSh 3.487 trillion, or about 16.7% of GDP. Revenue has underperformed because of slow economic growth, lower tax compliance, and weaker commodity prices.

The government plans total spending of KSh 4.642 trillion. This includes development projects, county transfers, and debt service. The resulting deficit will reach KSh 1.106 trillion.

To fill the gap, the Treasury will borrow KSh 1.01 trillion domestically and KSh 99.5 billion externally.

Domestic Borrowing Strategy

Officials say focusing on domestic borrowing will reduce reliance on foreign lenders. They also want to manage refinancing risks. Analysts warn that increased domestic borrowing may raise interest rates and crowd out private lending. “We must monitor the impact on businesses and households,” said a Nairobi-based economist.

Fiscal Challenges

Kenya has faced repeated revenue shortfalls. Weak tax compliance, underperforming state-owned enterprises, and slower economic growth contributed to the gap. The government is introducing reforms to expand the tax base, improve collections, and prevent leakages. “Revenue reforms will secure fiscal sustainability,” Treasury officials said.

Debt service remains a major challenge. Kenya’s public debt now exceeds KSh 7 trillion, with domestic debt taking the largest share. Interest payments consume a large portion of revenue, limiting funding for development.

Economic Outlook

Officials expect the deficit may narrow if reforms succeed and economic growth strengthens. Growth in agriculture, manufacturing, and tourism could improve revenue collection.

However, uncertainties persist. Global market volatility, climate shocks, and fluctuating commodity prices could affect revenue. Analysts urge the government to balance fiscal discipline with growth-promoting investments. “We must invest in key sectors while maintaining fiscal stability,” said a policy expert.

Parliamentary Approval

The government must submit the final budget to Parliament before July 2026. Lawmakers are expected to examine domestic borrowing plans closely. They will focus on ensuring borrowing does not restrict private sector credit or raise inflation.

Conclusion

Kenya faces a critical fiscal year. The widening deficit highlights the need for disciplined spending and stronger revenue collection. Officials say careful implementation of reforms could stabilise finances while funding essential services and development projects.

Kenya creates an infrastructure sovereign wealth fund to finance projects, cut debt, and attract private investment.

NAIROBI, Dec 15 — Kenya’s cabinet approved the creation of an infrastructure fund and a sovereign wealth fund on Monday. The funds aim to finance development projects and reduce reliance on public borrowing.

President William Ruto first announced the plans in October. He said the funds will mobilise investment without pushing debt to unsustainable levels. (Reuters)

Funds aim to drive growth

The infrastructure fund will focus on transport, energy, and water. Meanwhile, the sovereign wealth fund will manage state assets to generate returns for long-term spending.

Officials expect the funds to attract pension funds, private equity, development finance institutions, and sovereign investors. Consequently, Kenya hopes to broaden its investment base.

Privatisation to seed financing

The government plans to sell part of its Safaricom stake to fund the infrastructure vehicle. This approach allows the government to ring-fence proceeds for infrastructure without adding debt.

Finance Cabinet Secretary Ephraim Mwangi Maina said, “We will crowd in private capital while maintaining fiscal discipline.”

Debt pressures drive reform

Kenya’s public debt exceeded 70% of GDP in recent years. High debt limits government spending and increases borrowing costs.

Economist James Shikwati said, “The success of these funds depends on clear governance and transparency.”

IMF talks continue

The cabinet’s decision comes as Kenya prepares for an IMF staff visit in January 2026. They will discuss a possible new lending programme focused on fiscal consolidation and reforms.

Monetary easing supports growth

The Central Bank of Kenya cut its benchmark rate several times in 2025. The moves aim to lower borrowing costs and stimulate private-sector investment. Consequently, officials hope to revive economic activity and support growth.

Infrastructure priorities under new model

Major projects, including the Naivasha–Kisumu Standard Gauge Railway and power transmission upgrades, will benefit. Energy expansion is supported by KETRACO public-private partnerships, aligning with Kenya’s broader investment strategy.

Governance and oversight

Economists and civil society groups urge strong governance to prevent mismanagement. They recommend transparency, independent audits, and clear reporting frameworks to attract investors.

Parliamentary next steps

The cabinet will submit draft legislation to parliament soon. Lawmakers will review mandates, governance structures, and reporting requirements.

DRC foreign-exchange reserves surge, lifting the franc 29% — a key development for banks, miners, and FX markets.

Congo’s FX Reserves Propel Franc to Africa’s Top Spot

The Congolese franc surged nearly 29% this year after the Central Bank of Congo (BCC) actively boosted foreign-exchange reserves and cut interest rates. As a result, the franc is now the strongest-performing currency in Africa against the U.S. dollar, reshaping investor sentiment.

BCC officials cited robust mining-export inflows, particularly from copper and cobalt,which strengthened reserves and gave the bank room to support the franc. (Financial Afrik) Meanwhile, the central bank lowered its key policy rate from 25% to 17.5%, encouraging lending in francs and reducing reliance on U.S. dollars. This combination of reserve growth and monetary easing helped trigger the DRC franc surge.

Drivers Behind the Franc’s Rally

Mining companies exported record volumes of copper and cobalt, boosting the Congolese franc. In addition, the inflows allowed BCC to intervene directly and support currency stability. Analysts say the franc’s rally reflects stronger macroeconomic management and increased confidence in the local financial system.

Furthermore, lower interest rates stimulated domestic credit, making franc-denominated loans more attractive. Commercial banks responded by expanding local lending, thereby reducing the economy’s dependence on dollars.

Banking and Mining Benefits

Commercial banks gained from the franc’s strength. Consequently, improved liquidity and lower interest rates reduced foreign-exchange hedging costs and encouraged local lending. (IMF Report)

Similarly, mining companies benefited. A stronger franc lowered local operating costs for dollar-earning firms, improving profit margins and supporting reinvestment. Analysts expect the franc’s gains to boost payouts and attract more regional investment.

At the same time, FX traders responded to the rally. Investors placed funds in franc-denominated assets, while BCC interventions continued to stabilize the currency.

Risks and Vulnerabilities

Despite the gains, risks remain. Total reserves, while higher, still fall below international adequacy benchmarks. (IMF Data)

However, the DRC economy remains heavily dollarized, with most transactions conducted in U.S. dollars. (Ecofin Agency) As a result, imported goods remain priced in dollars, exposing consumers to potential inflation if external shocks hit.

Key Indicators to Watch

Market participants are focusing on several factors:

• Reserves: Continued growth is crucial to maintain the franc’s momentum.
• BCC policy moves: Future interventions and rate adjustments could impact stability.
• Mining exports: Copper and cobalt flows remain critical for liquidity.
• De-dollarization: Increased franc adoption in lending and payments could strengthen long-term stability. (Ainvest)

Regional and Global Impact

Moreover, the franc’s strength may influence regional FX markets. Banks and miners benefit from lower costs and improved liquidity. Investors are watching closely, as the DRC franc surge demonstrates how disciplined policy and strong exports can reshape frontier-market currencies.

In addition, the currency rebound may encourage other African central banks to combine reserve accumulation with strategic rate cuts to stabilize currencies and boost local lending.