Kenya’s fiscal position presents a mixed picture, with a narrower budget deficit occurring alongside a substantial stock of unpaid government obligations. The National Treasury reported a fiscal deficit of Kshs 1.3 tn, equivalent to 6.8% of GDP, in FY2025/26, while national government pending bills stood at approximately Kshs 465.9 bn at the end of the financial year. The deficit came in below the 7.3% target, indicating some progress in fiscal consolidation. However, the high level of pending bills points to continued pressure on government cash flows and the private sector. For investors, the combination is important because improved fiscal discipline can strengthen macroeconomic stability, while delayed government payments can restrict business liquidity and investment activity.
Pending bills comprise outstanding payments that government entities owe to suppliers, contractors and other service providers. When these obligations remain unpaid, affected businesses may face working-capital constraints and difficulties meeting their own financial commitments. The impact can be particularly significant for small and medium-sized enterprises, which often have fewer financing options and rely heavily on predictable cash flows. The National Government’s Kshs 465.9 bn pending-bill stock comprised approximately Kshs 271.2 bn in recurrent bills and Kshs 194.7 bn in development bills. This suggests that government payment delays can affect both routine business operations and firms involved in development projects.
The situation creates a two-sided effect on the investment environment. A lower fiscal deficit can reduce the Government’s financing requirements and, over time, ease pressure on domestic financial markets. Reduced government demand for local funds could create greater room for private-sector borrowing and investment. However, persistent arrears can offset some of these benefits by transferring part of the Government’s short-term financing burden to suppliers. Businesses waiting for payment may delay expansion, accumulate debt or experience weaker profitability. Banks can also face increased credit risk when borrowers depend heavily on government contracts and delayed receivables.
The Government’s revenue and expenditure measures will therefore remain important for the fiscal outlook. The FY2026/27 budget estimates total expenditure at about Kshs 4.8 tn, compared with Kshs 4.6 tn in the revised FY2025/26 estimates, while total revenue including grants is projected at approximately Kshs 3.7 tn, up from Kshs 3.4 tn. Ordinary revenue is expected to increase by 7.2% to Kshs 3.0 tn, from approximately Kshs 2.9 tn in the revised FY2025/26 estimates. The Government has also continued to explore alternative financing sources as it seeks to diversify its funding base and manage debt-service pressures. These include a potential USD 300.0 mn Panda bond, an USD 815.0 mn Eurobond and more than USD 500.0 mn from Japanese sources, including Samurai bonds.
Clearing verified pending bills could improve private-sector liquidity by releasing funds to suppliers and contractors. Businesses could then use the recovered cash to settle debts, strengthen working capital and finance new investment. However, the benefits would be limited if new arrears continue to accumulate. The fiscal deficit therefore provides only part of the picture when assessing Kenya’s fiscal health. Investors should also monitor pending-bill clearance, government cash flows, domestic borrowing, debt-service costs, revenue performance and private-sector credit conditions. A sustained reduction in both the deficit and arrears would provide a stronger indication of improving fiscal conditions and could support greater confidence in Kenya’s investment environment.
