Treasury Confirms Government Breached Borrowing Law by Allocating Sh207.7 Billion to Salaries

The Kenyan government breached the Public Finance Management Act by allocating Sh207.7 billion of borrowed funds towards recurrent expenditure in the 2025/26 financial year, the Treasury has revealed.

According to the draft 2026 Budget Review and Outlook Paper (BROP), the government borrowed a total of Sh983.7 billion during the year. Of this, only Sh776 billion was used for development projects such as infrastructure, while the remaining 21.1 percent financed salaries, debt repayments, and other recurrent costs.

The law mandates that national government borrowing should be directed solely towards development expenditures over the medium term. The Treasury acknowledged the breach and committed to ensuring future compliance with fiscal responsibility regulations.

Borrowing Trends and Fiscal Discipline

Despite President William Ruto’s 2022 pledge to end borrowing for recurrent expenses, the government continues to rely partly on debt to cover day-to-day costs. In the 2023/24 financial year, over half of the Sh766.4 billion borrowed went to recurrent spending. The following year saw an improvement with 70.7 percent of Sh854.5 billion directed to development, and in 2025/26, this share increased to 78.9 percent.

The Treasury defends its borrowing strategy, emphasizing the growing share of debt invested in productive infrastructure rather than operational costs. Treasury Cabinet Secretary John Mbadi has highlighted ongoing efforts to restore fiscal discipline and adhere to the Public Finance Management Act after years of rising debt servicing obligations.

Budget Execution and Development Spending

Recurrent expenditure rose to nearly Sh3.29 trillion in 2025/26, covering wages, pensions, debt interest, and transfers to counties and state agencies. Debt servicing remains the largest pressure on the recurrent budget.

Development expenditure also increased steadily, reaching a provisional Sh731.5 billion in 2025/26 — the highest during the Ruto administration. However, this fell short of the Sh771 billion target due to underperformance in project absorption, resulting in a Sh39.5 billion underspend.

This shortfall raises concerns about the effective implementation of development projects and budget execution.

Fiscal Consolidation Efforts

The Treasury is pursuing a fiscal consolidation programme aimed at reducing the budget deficit and curbing public debt growth by boosting revenue collection and tightening spending controls.