The Institute of Economic Affairs (IEA) has presented highlights of its Citizens’ Alternative Budget for the 2026/2027 financial year and urged Parliament and the National Treasury to address rising fiscal pressures, debt sustainability risks and structural weaknesses in revenue and expenditure management.

Speaking during the budget engagement forum in Nairobi, the IEA Programme Coordinator John Mutua, revealed that the proposals were developed following a pre-budget hearing held on November 26 last year, where private sector players and civil society organisations submitted recommendations for consideration in the upcoming fiscal plan.

He said submissions by organisations, among them, the Kenya Association of Manufacturers, Kenya Private Sector Alliance, Kenya Bankers Association, Tegemeo Institute and the Rural Urban Private Health Facilities Association were synthesized into a memorandum dubbed the Citizens’ Alternative Budget.

“This forum provides an opportunity for the private sector and civil society to share their budget proposals. We then analyse them for feasibility, macroeconomic alignment and viability before presenting them to government officials and legislators,” he explained.

Further, Mutua observed that the engagement comes at a critical time when the National Assembly’s Budget and Appropriations Committee is reviewing the Budget Policy Statement (BPS), a key document that sets policy priorities and expenditure ceilings for the 10 government sectors.

IEA Programme Officer Faith Nzomo observed that Kenya’s economy recorded improved growth in 2025 compared to 2024, with real GDP expanding to 4.9 per cent in the third quarter of 2025, up from 4.2 per cent in a similar period the previous year.

However, she pointed out that agriculture registered a slowdown between the second and third quarters, partly attributed to weather patterns.

In addition, Nzomo said the rate declined to 2.8 per cent in late 2024 before rising gradually to 4.4 per cent in the third quarter of 2025, although still within the five per cent target band.

“Interest rates have also declined since early 2025, leading to improved private sector credit growth, which rose from negative 1.4 per cent to 5.9 percent by the end of last year,” she added.

Despite the relatively stable macroeconomic environment, Nzomo warned of mounting fiscal challenges.

Concurrently, IEA Programme Officer Raphael Muya said revenue projections for 2026/2027 show reliance on income tax, value-added tax and excise duty as key drivers of ordinary revenue.

“Ordinary revenue is projected to increase by 5.3 per cent, mainly driven by income tax and import duty. However, expenditure is growing at a faster rate – recurrent expenditure by 10.3 per cent and development expenditure by 15.5 per cent,” Muya explained.

He also flagged pending bills, which stood at approximately Ksh702 billion as of September 2025, down slightly from Ksh722 billion the previous year.

Notably, Muya charged that the 2026/2027 budget reflects an expansionary trend, with most sectors receiving increased funding. Health recorded one of the highest percentage increases at 21.2 percent, followed by national security.

“We need to interrogate what these increases mean in practice, whether they are directed to emergency funds, infrastructure or other priorities,” he urged.

Meanwhile, among key proposals from stakeholders were tax reforms aimed at lowering production costs, particularly through targeted import duty reductions and VAT exemptions for manufacturing inputs.

“The manufacturing sector contributes about 7.3 per cent to GDP and employs approximately 347,000 people directly. Lowering production costs can enhance competitiveness and job creation,” Muya advised.

In agriculture, proposals focused on improving subsidy targeting through private sector participation, strengthening county-level extension services and expanding climate-smart investments.

Additionally, the IEA said it has submitted its memorandum to the Budget and Appropriations Committee and will continue engaging Parliament ahead of the tabling of the 2026/2027 budget.

As Parliament prepares to debate and approve the 2026/2027 Budget, the Institute of Economic Affairs maintained that sustained stakeholder engagement and prudent fiscal management will be crucial in addressing Kenya’s mounting debt obligations, rising expenditure pressures and structural revenue gaps.

Ultimately, the institute reiterated that aligning spending priorities with productive sectors, enhancing revenue efficiency and strengthening accountability mechanisms will be key to fostering economic resilience and inclusive growth in the coming financial year.

• A Tell Media / KNA report / By Nicholas Ochieng and Celestine Lomolinah