REPUBLIC OF KENYA

THE NATIONAL TREASURY AND ECONOMIC PLANNING

MEDIUM TERM

DRAFT 2025 BUDGET POLICY

STATEMENT

CONSOLIDATING GAINS UNDER BOTTOM–UP

ECONOMIC TRANSFORMATION AGENDA FOR
INCLUSIVE GREEN GROWTH

15TH JANUARY, 2025

© Budget Policy Statement (BPS) 2025

To obtain copies of the BPS, please contact:

The National Treasury and Economic Planning

Treasury Building
P. O. Box 30007-00100
NAIROBI, KENYA

Tel: +254-20-2252-299
Fax: +254-20-341-082

The document is also available on the website at: www.treasury.go.ke

ii
Draft 2025 Budget Policy Statement
Foreword
The 2025 Budget Policy Statement (BPS), which is the third to be prepared under the Kenya
Kwanza Administration, highlights the progress made in the implementation of the strategic
interventions articulated in the Bottom-Up Economic Transformation Agenda (BETA) and
anchored on the Fourth Medium Term Plan of the Vision 2030. BETA is the Government’s
transformation agenda geared towards economic turnaround through a value chain approach.
BETA is about investing the limited capital available where it will create the most jobs at the
bottom of the pyramid. It is a commitment to invest in smallholder agriculture and the informal
sector and end socio-economic exclusion by levelling the playing field for all investors. Great
progress has been realized in the implementation of the core pillars and enablers of BETA over
the last two years. Going forward and over the medium term, the Government will consolidate
the gains realized under the BETA for inclusive green growth with a special focus on the
following six (6) objectives: bringing down the cost of living; eradicating hunger; creating jobs;
expanding the tax base; improving foreign exchange balances; and inclusive growth. Emphasis
will be placed on promoting investment in BETA core pillars and enablers and harnessing
implementation of the targeted interventions through a value chain approach. The value chain
approach targets to enhance production, value addition and market access, and attract local and
foreign investments.

The 2025 BPS has been prepared against a backdrop of stable global and domestic economic
outlook. Global growth is projected at 3.2 percent in 2024 and 3.3 percent in 2025 from 3.3
percent in 2023. The outlook reflects economic recovery in China, Euro area and UK, despite a
slowdown in activity in the USA and Japan. On the domestic front, the Kenyan economy has
remained resilient despite the challenging domestic and external environment. The focused
interventions and structural reforms of the Government under BETA have stabilized the
economy and supported economic recovery to 5.6 percent in 2023 from 4.9 percent in 2022
following a strong rebound in agriculture after two years of severe drought. Additionally,
macroeconomic fundamentals have strongly rebounded and are projected to continue on an
upward trajectory. Economic growth is estimated to have slowed down to 4.6 percent in 2024
from a growth of 5.6 percent in 2023 reflecting deceleration of economic activities in the first
three quarters of 2024 and the slowdown in private sector credit growth to key sectors of the
economy. Growth is expected to pick up to 5.3 percent in 2025 and retain the same momentum
over the medium term largely driven by: enhanced agricultural productivity; resilient services
sector, and ongoing implementation of priorities under BETA.

The Government’s fiscal policy for the FY 2025/26 and over the medium-term places special
emphasis on fiscal consolidation to reduce public debt vulnerabilities while providing fiscal
space to deliver essential public goods and services. Fiscal consolidation will be supported by
concerted expenditure rationalization and revenue mobilization efforts. This will bring public
debt on downwards path consistent with Kenya’s debt anchor. To boost revenues, emphasis will
be placed on a combination of tax administrative and tax policy reforms that include:
strengthening tax administration for enhanced compliance through expansion of the tax base,
minimizing tax expenditures, leveraging on technology to revolutionize tax processes, sealing
revenue loopholes and enhancing the efficiency of tax system; and, focusing on non-tax revenues
that Ministries, Departments and Agencies can raise through the services they offer to the public.
The Government will also sustain efforts to strengthen accountability, transparency and a
revenue mobilization path guided by the Medium-Term Revenue Strategy – that makes tax
regime more efficient, equitable, and progressive. These deliberate efforts will be put in place to

iii
Draft 2025 Budget Policy Statement
strike a right balance between the need to create a stronger and more reliable revenue stream and
the need to protect the critical masses who have been grossly affected by the prevailing
macroeconomic shocks.

To strengthen expenditure control and improve efficiency and effectiveness in public spending,
the Government will: rationalize and reduce non-essential expenditure; roll out an end-to-end e-
procurement system to maximise value for money and increase transparency in procurement;
operationalize the Public Investment Management Information System to automate public
investment management process; revamp the public service pension administration through
digitization and re-engineering of the pension management system; and expedite governance
reforms targeting state corporations. To strengthen public finance management, the Government
will fast-track the process of transitioning from cash basis to accrual basis of accounting to
improve cash management and enhance financial and fiscal reporting; and entrench the adopted
Zero-Based Budgeting approach in preparing the FY 2025/26 and future budgets. The
Government will also operationalize the Assets and Inventory Management Modules in the
IFMIS for all MDAs. This will enable the Government have full visibility of all assets and
inventory and facilitate optimal assets utilization and ensure idle and unserviceable assets are
disposed in conformity with the existing legal requirements. To crowd-in the private in the
provision of public services, the Government will scale up use of Public Private Partnerships
(PPP) framework for commercially viable projects.

In view of the constrained fiscal environment, prioritization during resource allocation will be
critical in ensuring low-priority expenditures are dropped or deferred to give way to high-priority
service-delivery programmes. Ministries, Departments and Agencies (MDAs) are therefore,
required to re-evaluate all the existing or planned activities, projects, and programmes to be
funded in the FY 2025/26 and medium-term budget. Sector Working Groups (SWGs) are
required to eliminate wasteful expenditures and pursue priorities which are aimed at
safeguarding livelihoods, creating jobs, reviving businesses and economic recovery. SWGs
should also ensure that all expenditure items in the FY 2025/26 Budget are justified and emphasis
is placed on allocating the limited resources based on programme efficiency and requirement
rather than incremental budgeting. The hard sector ceilings provided for the FY 2025/26 budget
and the Medium Term will form the basis of allocations.

HON. FCPA JOHN MBADI NG’ONGO, EGH

CABINET SECRETARY

iv
Draft 2025 Budget Policy Statement
Acknowledgement
The 2025 Budget Policy Statement is prepared in compliance with the provisions of the Public
Finance Management Act, 2012. It outlines the strategic priorities of the Government, highlights
the current state of the economy, provides macro-fiscal outlook over the medium term together
with a summary of Government spending plans as a basis for the FY 2025/26. The publication
of the 2025 BPS aims to improve the public’s understanding of Kenya’s public finances and
guide public debate on economic and development matters.
The Government is keen on fostering prudent management of public resources in order to support
inclusive green growth and development. Budget implementation in the first quarter of the FY
2024/25 was impeded by: protests that led to a slowdown of economic activities; the withdrawal
of Finance Bill 2024 that was expected to raise an additional revenue amounting to Ksh 344.3
billion; and the implementation of the Collective Bargaining Agreements has continued to put
pressure on the expenditures. Revenue shortfalls and emerging expenditures pressures is
affecting our ability to execute the FY 2024/25 budget in a timely manner leading to cash flow
challenges and associated build-up in unpaid bills. To ensure seamless implementation of the FY
2024/25 budget and safeguard the fiscal consolidation plan, the fiscal framework for FY 2024/25
budget was revised downwards through the Supplementary Estimates No. I taking into account
the lower base effect following the preliminary actual outcome for FY 2023/24. Additionally,
while preparing this budget, all proposed Ministries, Departments and Agencies (MDAs) budgets
for FY 2025/26 have been scrutinized carefully to ensure quality and alignment to the
Government’s Bottom - Up Economic Transformation Agenda as outlined in this BPS and the
Fourth Medium Term Plan and other strategic interventions of national interest.
The policy measures outlined in the 2025 BPS are expected to improve economy-wide
efficiencies, create an enabling environment that supports growth in businesses and investment,
reduce the cost of living as well as enhance the wellbeing of all Kenyans. The tight fiscal stance
is expected to reduce debt vulnerabilities through implementation of reforms to broaden the
domestic tax base and improve tax compliance. Expenditure rationalization will continue to
focus on enhanced efficiency of public investments, better targeting of subsidies and transfers,
addressing weakness in state corporations, and digital delivery of public services. Social safety
nets and fiscal risk management framework will be enhanced.
The completion of this policy statement was as a result of collective effort by various MDAs
who provided valuable information. We are grateful for their contributions. We are also grateful
for the inputs we received while preparing this document from the Macro Working Group;
stakeholders and the general public during the Public Sector Hearings from 20th to 22nd
November, 2024. A dedicated team in the National Treasury spent substantial amount of time
putting together this BPS. We are particularly grateful to them for their tireless efforts and
dedication.

DR. CHRIS KIPTOO, CBS

PRINCIPAL SECRETARY/THE NATIONAL TREASURY

v
Draft 2025 Budget Policy Statement
Foreword ............................................................................................................................. iii
Acknowledgement ......................................................................................................................... v
I. CONSOLIDATING GAINS UNDER BOTTOM–UP ECONOMIC TRANSFORMATION AGENDA
FOR INCLUSIVE GREEN GROWTH ...................................................................................... 1
1.1 Overview ............................................................................................................................... 1
1.2 Core Pillars ............................................................................................................................ 3
1.2.1 Agricultural Transformation for Inclusive Green Growth .............................................3
1.2.2 Transforming the Micro, Small and Medium Enterprise (MSME) Economy ................ 5
1.2.3 Housing and Settlement .................................................................................................6
1.2.4 Healthcare ...................................................................................................................... 7
1.2.5 Digital Superhighway and Creative Economy ............................................................... 8
1.3 Enablers .................................................................................................................................9
1.3.1 Infrastructure................................................................................................................ 10
1.3.2 Manufacturing Sector .................................................................................................. 13
1.3.3 Blue Economy ............................................................................................................. 18
1.3.4 The Services Economy ................................................................................................ 19
1.3.5 Environment and Climate Change ............................................................................... 22
1.3.6 Education and Training ................................................................................................ 22
1.3.7 Women Agenda ........................................................................................................... 23
1.3.8 Social Protection .......................................................................................................... 24
1.3.9 Sports, Culture and Arts............................................................................................... 25
1.3.10 Youth Empowerment and Development Agenda ...................................................... 27
1.3.11 Governance ................................................................................................................ 27
1.3.12 Foreign Policy and Regional Integration ................................................................... 30
II. RECENT ECONOMIC DEVELOPMENTS AND MEDIUM-TERM OUTLOOK......... 33
2.1 Global Economic Outlook ................................................................................................... 33
2.2 Domestic Economic Performance ....................................................................................... 34
2.3 Fiscal Performance .............................................................................................................. 42
2.4 Fiscal Policy ........................................................................................................................ 43
2.4.1 Domestic Revenue Mobilization .................................................................................. 44
2.4.2 Expenditure Reforms ................................................................................................... 45
2.4.3 Deficit Financing Policy .............................................................................................. 47
2.5 Fiscal Responsibility Principles........................................................................................... 47
2.5.1 Allocation to Development Expenditure over the Medium Term ................................ 48
2.5.2 Compliance with the Requirement on Expenditure on Wages and Benefits ................ 49
2.5.3 Compliance with the Requirement to use National Government’s Borrowings only for Financing
Development Expenditure .................................................................................................... 50
2.5.4 Maintenance of Public debt and Obligations at a Sustainable Level ........................... 50
2.5.5 Prudent Management of Fiscal Risks........................................................................... 51
2.5.6 Compliance with the Requirement to Maintain of a Reasonable Degree of Predictability with respect to
the Level of Tax Rates and Tax Bases .................................................................................. 51
2.6 Kenya’s Macroeconomic Outlook ....................................................................................... 52
2.6 Risks to the Economic Outlook ........................................................................................... 55

vi
Draft 2025 Budget Policy Statement
III. BUDGET FOR FY 2025/26 AND THE MEDIUM TERM ............................................... 56
3.1 Fiscal Framework for FY 2025/26 and Medium-Term Budget ........................................... 56
3.2 FY 2025/26 and Medium-Term Budget Priorities ............................................................... 56
3.3 Budgetary Allocations for the FY 2025/26 and the Medium-Term..................................... 57
3.4 Details of Sector Priorities................................................................................................... 58
3.5 Public Participation/ Sector Hearings and Involvement of Stakeholders ............................ 70
IV. COUNTY FINANCIAL MANAGEMENT AND DIVISION OF REVENUE ................ 71
4.1 County Governments’ Compliance with Fiscal Responsibility Principles .......................... 71
4.1.1 Allocation to Development Expenditure over the Medium-Term ............................... 72
4.1.2 Actual Development Expenditure over the Medium Term .......................................... 72
4.1.3 Compliance with the Requirement on Expenditure on Wages and Benefits ................ 73
4.1.4 Prudent Management of Fiscal Risks........................................................................... 74
4.2 Performance of County Governments Own Source Revenue .............................................. 76
4.2.1 Performance of Own Source Revenue against Target ................................................. 76
4.2.2 OSR Growth in FY 2023/24 ........................................................................................ 79
4.2.3 National Government Support on enhancement of County Government OSR ............ 80
4.3 Division of Revenue for FY 2025/26 .................................................................................. 81
4.3.1 Performance of Shareable Revenue ............................................................................. 81
4.3.2 Division of Revenue for FY 2025/26 ........................................................................... 82
4.4 Intergovernmental Fiscal Transfers ..................................................................................... 86
4.4.1 Intergovernmental Agreements in respect of the Additional Conditional Allocations 87
4.5 Equalization Fund................................................................................................................ 87
4.6 Emerging Issues and Policy Interventions ........................................................................... 88
4.6.1 County Revenue Forecasting Model ............................................................................ 88
4.6.2 County Governments Capacity building on Public Finance Management .................. 88
4.6.3 Integrated County Revenue Management Systems ...................................................... 88
V. STATEMENT OF SPECIFIC FISCAL RISKS .................................................................. 90
5.1 Introduction ......................................................................................................................... 90
5.2 Risk in Changes in Macroeconomic Assumptions .............................................................. 90
5.3 Specific Fiscal Risks............................................................................................................ 94
5.3.1 Fiscal Risk Associated with Public Debt ..................................................................... 94
5.3.2 Crystallization of Contingent Liabilities ...................................................................... 95
5.3.3 Fiscal Risks Related to Devolution .............................................................................. 99
5.3.4 Climate Change Related Fiscal Risks to the Economy ................................................ 99
5.3.5 Other Fiscal Risks ...................................................................................................... 108
Annex Table 1: Macroeconomic Indicators ............................................................................ 110
Annex Table 2: Government Fiscal Operations, Ksh Billion .................................................. 111
Annex Table 3: Government Fiscal Operations, Percent of GDP ........................................... 112
Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) .............................. 113
Annex Table 5: Memorandum on how Resolutions by Parliament on Previous Budget Policy Statements Have
Been Incorporated ................................................................................................................... 124
Annex Table 6: Highlights of the Issues Raised During Public Participation ......................... 130

vii
Draft 2025 Budget Policy Statement
About the Budget Policy Statement
The Budget Policy Statement (BPS) is a Government policy document that sets out the broad
strategic priorities and policy goals to guide the National Government and the County
Governments in preparing their budgets for the subsequent financial year and over the medium
term. In the document, adherence to the fiscal responsibility principles demonstrates prudent and
transparent management of public resources in line with the Constitution and the Public Finance
Management (PFM) Act, 2012.
Section 25 of the PFM Act, 2012, provides that the National Treasury shall prepare and submit
to the Cabinet the BPS for approval. Subsequently, the approved BPS is submitted to the
Parliament, by the 15th of February each year. Parliament shall, not later than 14 days after the
BPS is submitted, table and discuss a report containing its recommendations and pass a resolution
to adopt it with or without amendments. The Cabinet Secretary, the National Treasury and
Economic Planning shall take into account resolutions passed by Parliament in finalizing the
budget for the FY 2025/26 and the medium term.
The Budget Policy Statement contains:
(a) an assessment of the current state of the economy, including macroeconomic forecasts as
well as the priorities of the Government current pillars of growth and strategic directions;
(b) the financial outlook with respect to Government revenue, expenditures and borrowing for
the next financial year and over the medium term;
(c) the proposed expenditure ceilings for the National Government, including those of
Parliament and the Judiciary and indicative transfers to County Governments;
(d) the fiscal responsibility principles and financial objectives over the medium-term including
limits on total annual debt; and
(e) Statement of Specific Fiscal Risks.
The preparation of the BPS is a consultative process that involves seeking and taking into account
the current Government priorities and challenges in economic management and the views of:
The Commission on Revenue Allocation; County Governments; Controller of Budget;
Parliamentary Service Commission; Judicial Service Commission; Ministries, Departments and
Agencies; the public and any other interested persons or groups.

viii
Draft 2025 Budget Policy Statement
I. CONSOLIDATING GAINS UNDER BOTTOM–UP
ECONOMIC TRANSFORMATION AGENDA FOR
INCLUSIVE GREEN GROWTH
1.1 Overview
1. The 2025 Budget Policy Statement (BPS), which is the third to be prepared under the Kenya
Kwanza Administration, highlights the progress made in the implementation of the strategic
interventions articulated in the Bottom-Up Economic Transformation Agenda (BETA) and
anchored on the Fourth Medium Term Plan of the Vision 2030. BETA is the Government’s
transformation agenda geared towards economic turnaround through a value chain approach.
BETA is about investing the limited capital available where it will create the most jobs at the
bottom of the pyramid. It is a commitment to invest in smallholder agriculture and the informal
sector and end socio-economic exclusion by levelling the playing field for all investors.
2. Despite the challenging domestic and external environment, significant success have been
registered following the various interventions rolled out by the Government during the past two
years. The focused interventions and structural reforms of the Government under BETA have
stabilized the economy and supported economic recovery to 5.6 percent in 2023 from 4.9 percent
in 2022 following a strong rebound in agriculture after two years of severe drought. Growth is
estimated to have slowed down to 4.6 percent in 2024 from a growth of 5.6 percent in 2023
reflecting deceleration of economic activities in the first three quarters of 2024 and the slowdown
in private sector credit growth to key sectors of the economy. Growth is expected to pick up to
5.3 percent in 2025 and retain the same momentum over the medium term largely driven by:
enhanced agricultural productivity; resilient services sector, and ongoing implementation of
priorities under BETA.
3. Additionally, macroeconomic fundamentals have strongly rebounded and are projected to
continue on an upward trajectory. In particular:
i) Inflation has significantly declined from a peak 9.6 percent in October 2022 to 3.0 percent in
December 2024 reflecting the effectiveness of the Government’s tight monetary policy and
pass-through effects of the strengthening exchange rate that have eased food and energy
prices;
ii) The Kenya Shilling has stabilized significantly appreciating from an average of Ksh 159.7
to the US dollar in January 2024 to Ksh 129.4 in December 2024, an appreciation of 19
percent. The recovery has restored confidence in financial markets and significantly reduced
the cost of servicing external debt, creating vital fiscal space for development imperatives;
iii) The foreign exchange reserves have grown to US dollar 9.6 billion in November 2024 from
US dollar 7.4 billion in November 2023, providing 4.9 months of import cover. The
resilience shields the country from external shocks in the global economy and restores
investor confidence;
iv) Interest rates have begun to decline as a result of the easing of the monetary policy, reducing
borrowing costs and freeing up fiscal space for growth-enhancing initiatives by businesses.
Interbank rate declined to 11.4 percent in December 2024 from 11.7 percent in December
2023 in line with the easing of the monetary policy. The 91-day Treasury Bills rate declined
to 10.0 percent in December 2024 from 15.7 percent in December 2023.
v) Tax revenues have grown by 11.5 percent in the year to June 2024, reflecting the success of
the Government’s tax base expansion measures.

1 Draft 2025 Budget Policy Statement

4. Great progress has also been realized in the core pillars of the Bottom-Up Economic
Transformation Agenda. Key achievements include:
i) To ensure food security in the country and reduce the cost of living, the Government has
continued to roll out fertilizer and seeds subsidies to farmers across the country enabling
them to increase the key food value chains and revamp underperforming/collapsed export
crops. Since February 2024, the Government has distributed subsidised fertiliser to 6.45
million registered farmers in 45 counties, from the Fertilizer Subsidy Programme, as well as
animal feed and certified seeds more easily and affordably, enabling them to increase their
yields. Additionally, maize production doubled to 61 million bags of maize in 2023 compared
to the 30 million bags that was harvested in 2022. The achievement was made possible
through leveraging on technology, utilizing an integrated digital platform that registered over
6 million farmers;
ii) To support livelihood and businesses, the Government disbursed Ksh 60.0 billion through
the Financial Inclusion Fund, or the ‘Hustler Fund’ by end of November 2024 providing
access to affordable credit to over 24.6 million customers with a repeat customers’ base of
8.5 million beneficiaries and a repayment rate of 79 percent. Additionally, in keeping up with
the BETA policy to inculcate a culture of saving for posterity, the Fund has successfully
mobilized Ksh 3.3 billion in savings;
iii) To promote achievement of the universal health coverage, the Government has replaced the
National Health Insurance Fund with Taifa Care and established the Social Health Authority
(SHA), which administer three essential funds primary healthcare funds including the Social
Health Insurance Fund (SHIF in a way that ensures every Kenyan, especially the most
vulnerable, can access quality healthcare services when they need them most). The newly
established SHIF empowers citizens to contribute towards accessing a broad range of
healthcare benefits;
iv) To facilitate delivery of affordable houses and enable low-cost housing mortgages, the
Government has facilitated construction of 124,000 housing units which are at different
stages of completion across 75 sites in 37 counties. Already, 4,888 housing units are set for
completion across 21 social housing projects and will soon be launched; and
v) To foster digital transformation, the Government has expanded last-mile fibre-optic
connectivity using the extensive Kenya Power transmission lines network to the most remote
and underserved areas of our country, and made significant strides to establish digital and
ICT hubs. In 2023, the Government had laid 13,712 kilometers of fibre cable and increased
the number of Public-Wi-Fi hot spots from 40 in 2022 to 1,222 in 2023, giving a total of
1,262 public Wi-Fi spots.
5. Over the medium term, the Government will consolidate the gains realized under the BETA
for inclusive green growth with a special focus on the following six (6) objectives: bringing down
the cost of living; eradicating hunger; creating jobs; expanding the tax base; improving foreign
exchange balances; and inclusive growth. Emphasis will be placed on promoting investment in
BETA core pillars and enablers and harnessing implementation of the targeted interventions
through a value chain approach. The five core pillars are: Agricultural Transformation; Micro,
Small and Medium Enterprise (MSME) Economy; Housing and Settlement; Healthcare; and
Digital Superhighway and Creative Economy.
6. A value chain describes the production-to-market linkages generating added benefit for the
customer. The value chain approach targets to enhance production, value addition and market
access, and attract local and foreign investments. The priority BETA value chains are: (i) Leather
and leather products; (ii) Textile and apparel; (iii) Dairy; (iv) Edible oils (sunflower, canola,
palm oil, coconut, soya); (v) Tea; (vi) Rice; (vii) Blue economy; (viii) Minerals including
forestry; and (ix) Construction/building materials. Other value chains include: (i) Maize; (ii)
2 Draft 2025 Budget Policy Statement
Potatoes; (iii) Pyrethrum; (iv) Beef; (v) Coffee; (vi) Apiculture (bees); and (vii) Indigenous
poultry.
7. The Government will also build on the solid foundation already built over the last two years
by entrenching structural reforms, enhancing governance, transparency and accountability, and
promoting responsibility for the use of public resources. Key reforms will include: entrenching
of the zero-based budgeting to re-orient the budgeting and expenditure framework of the
Government; migrating from cash basis to accrual basis of accounting; implementing the
Treasury Single Account to improve cash management; implementing a unified Personal
Identification system for all personnel working across all the arms of Government; and exploiting
the power of Information and Communication Technology to radically diminish opportunities
for corruption, conflict of interest, and abuse of office by digitizing procurement and making it
open and transparent.

1.2 Core Pillars

1.2.1 Agricultural Transformation for Inclusive Green Growth
8. Agriculture remains a core pillar for the realization of the Bottom-Up Economic
Transformation Agenda’s aspiration for inclusive green growth given that more than two-thirds
of Kenyans derive livelihoods directly or indirectly from agriculture, which has the highest
employment multiplier effect and consists of crucial value chains with the highest impact on job
creation for economically excluded segments of the population. Given the critical role the
agricultural sector plays in providing livelihoods, the Government embarked on implementation
of interventions and boosted investments intended to transform the sector by raising productivity
of key value chains in the sector that includes: fisheries and aquaculture, horticulture, food crops
like maize, rice, edible oils, livestock, beekeeping, and rangeland development.
9. The interventions were aimed at: i) transforming poor farmers from food deficit to surplus
producers through input making inputs, especially fertilizer, more accessible and affordable, and
providing intensive agricultural extension support; ii) raising the productivity of key food value
chains, and reduce post-harvest losses; iii) reducing dependence on basic food imports by 30
percent; revamp underperforming or collapsed export crops and expand emerging ones; iv)
boosting coffee and tea value chains; and v) providing adequate and affordable working capital
to farmers through cooperative societies and deploy modern agricultural risk management
instruments that ensure farming is profitable and income is predictable.
10. Implementation of these interventions over the last two years has borne fruits. Maize
production in the country doubled to 61 million bags of maize in 2023 compared to the 30 million
bags that was harvested in 2022. The achievement was made possible through leveraging on
technology, utilizing the Kenya Integrated Agriculture Information System – an integrated
digital platform that registered over 6 million farmers. Through the platform, farmers accessed
fertilizer using mobile phone vouchers, make payments, and receive collection notifications at
nearby Government storage facilities. Additionally, more land has been put under cultivation,
with each acre yielding higher production since the availability and affordability of fertilizer.
Notably, since February 2024, the Government has distributed subsidised fertiliser to 6.45
million registered farmers in 45 counties, from the Fertilizer Subsidy Programme, as well as
animal feed and certified seeds more easily and affordably, enabling them to increase their yields.
Further, the Government in 2024 has procured and through e-vouchers distributed 7 million bags
of both planting and top-dressing fertilizer to boost food production across the country. The
intervention is projected to further increase maize production to 74 million 90 kg bags. The
Government has also concluded long-term agreements with eleven suppliers of assorted fertiliser
so as to make this commodity available all year round. Fertiliser for the long rains season will
be stocked in outlets nationwide, ensuring our farmers are ready to plant, grow and produce. This
3 Draft 2025 Budget Policy Statement
will not only increase agricultural output, but also reduce reliance on costly food imports,
securing a more self-reliant and prosperous Kenya.
11. The dairy sector remains a vital value chain with a quick turnaround impact on households
and the economy. To support the sub-sector, the Government has released Ksh 3 billion to
modernise the New KCC, ensure farmers are paid on time, and maintain a high price of Ksh 50
per litre. As a result, milk intake to KCC has increased from 100,000 litres to 220,000 litres a
day. Other strategic interventions include: the extension of duty-free imports for feed
manufacturing raw materials; subsidised artificial insemination services; and the reduction of
sexed semen costs from Ksh 7,000 to Ksh 2,900 through the Kenya Animal Genetic Resource
Center. These measures have led to a 14 percent increase in milk production, from 4.6 billion
litres in 2022 to 5.2 billion litres in 2023, with projections exceeding 6 billion litres this year. In
addition, the value of exported dairy products has nearly doubled, rising from Ksh 4.8 billion in
2022 to Ksh 7.2 billion in 2023.
12. To revitalize the coffee sub-sector, the Government has raised disbursements through the
Cherry Advance Fund from Ksh 2.7 billion to Ksh 6 billion, complemented by an additional
disbursement of Ksh 1.5 billion by the Commodities Fund. The Government also allocated
320,000 bags of fertilizer specifically for the coffee sector as part of its overall goal of providing
600,000 seedlings and 15,000 metric tons of subsidized fertilizer and modernization of coffee
cooperative factories. The measures were geared towards boosting coffee productivity from 2
kilogram to 10 kilogram, and increasing smallholder farmer earnings from Ksh 300,000 to Ksh
500,000 per acre annually by the end of 2027. In FY 2023/24, the country produced and exported
48,000 metric tonnes, earning farmers Ksh 25 billion. The Government is on track to increase
exports from 51,000 metric tonnes to 150,000 metric tonnes by 2027.
13. To facilitate the holistic development of the livestock sector and anchor all its value chains
in a sustainable strategic platform, the Government is implementing several policies and
legislative reforms and improvements to transform the livestock sector, guide training
institutions and provide a predictable environment to attract investments. These frameworks
include the Veterinary Policy, Livestock Policy, Livestock Bill, Livestock Masterplan, Food
Safety Policy, and Food Safety Coordination Bill. All these are at various stages of consideration
by the Cabinet and Parliament.
14. The Government's interventions in the livestock value chain are robust and have led to an
8.6 percent increase in meat exports from 15,000 metric tonnes, valued at Ksh 9 billion in 2022,
to 16,000 metric tonnes valued at Ksh 10 billion. There has also been a 42 percent growth in the
export of live animals from 33,000 animals in 2022 to 47,000 animals in 2023. The Government
plans to increase annual red meat production by an additional 108,500 metric tonnes valued at
Ksh 54 billion. To sustain high livestock performance, several interventions have been
undertaken with the aim of improving genetics and eliminating feed-water supply constraints,
diseases, and barriers to market access. Key actions include the implementation of a countrywide
breed improvement programme in collaboration with the counties and to upgrading of dairy and
beef breeds. In 2023, the Kenya Animal Genetic Resource Centre provided farmers with 900,000
doses of bull semen with the aim of increasing production and productivity. To enhance livestock
disease and pest management, the Government plans to launch a National Vaccination
Programme to eradicate the Peste des Petits Ruminants (PPR) disease and control the Foot and
Mouth Disease. Under this programme, more than 22 million cattle will be vaccinated against
foot and mouth disease, while 50 million goats will be vaccinated through a collaborative
nationwide exercise.
15. In an effort to increase food production and expand economic opportunities for the youth,
the Government commissioned and trained 18,000 agripreneurs across the country. The
agripreneurs will work through National Agricultural Value Chain Development Project
(NAVCDP) to guide farmers on best agricultural practices, pest management, and irrigation
4 Draft 2025 Budget Policy Statement
techniques. The programme will also connect farmers with suppliers for quality inputs and link
them to markets to secure fair prices. The agripreneurs will assist farmers in accessing financial
services, support loan applications, and connect them with providers of farm and mechanization
services. The agriprenuer model will regularly track progress, provide feedback for
improvement, and maintain accurate records to inform decision-making and planning. To
enhance the Government’s capacity to coordinate agricultural production and deliver services to
the sector more efficiently, the Government is developing and integrating a farmers’ and
agripreneurs database into the Kenya Integrated Agriculture Information System.
16. Over the medium term, the Government will consolidate the gains made in the agricultural
sector by aligning all policies under the sector towards increasing food production, boosting
smallholder productivity and reducing the cost of food. Overall, the strategies will be geared
towards: addressing the cost, quality and availability of inputs; reducing the cost of food and cost
of living in general; reducing the number of food insecure Kenyans; raising productivity of key
food value chains; increasing access to affordable credit and agricultural extension services;
creating direct and indirect jobs, increasing average daily income of farmers as well as foreign
exchange earnings; and revamping underperforming and collapsed export crops while expanding
emerging ones.

1.2.2 Transforming the Micro, Small and Medium Enterprise (MSME) Economy
17. The Micro, Small and Medium Enterprise (MSME) sector remains a vital sector of the
Bottom-Up Economic Transformation Agenda as it serves as an engine for inclusive green
growth and transformation by providing jobs and income opportunities for economically
excluded segments of the population, including youth, women, persons with disabilities and low-
skilled persons. The sector, however faces challenges in accessing to finance, inadequate
infrastructure, regulatory and compliance constraints, limited market access and competition,
skills and capacity gaps, weak institutional support and networking. To address these challenges
and transform the MSME economy, the Government initiated a number of reforms including:
establishment and strengthening of the Financial Inclusion Fund, popularly known as Hustler
Fund to provide access to affordable credit; capacity building; and linkage to markets; and
strengthen the capacity of MSMEs to venture into economic activities in building and
construction value chains and ring-fencing certain components of low-cost housing projects for
MSMEs.
18. Significant progress has been realized in the delivery of these reforms. By the end of
November 2024, the Hustler Fund had disbursed Ksh 60.0 billion benefitting 24.6 million
customers, with a repeat customers’ base of 8.5 million beneficiaries and a repayment rate of 79
percent. Additionally, in keeping up with the BETA policy to inculcate a culture of saving for
posterity, the Fund has successfully mobilized Ksh 3.3 billion in savings. Building on the gains
made, the Government will roll out a third product offering, specifically tailored to the Small
and Medium Enterprises (SME) sector. The new product will initially target the 2 million
beneficiaries who have demonstrated a strong credit history with the Fund. The ground breaking
initiative aims to create a pathway for the SME entrepreneurs to transition into the formal
banking system, thereby deepening financial inclusion and strengthening the SME sector.
19. To further address the challenges facing the MSMEs, the Government has embarked on the
review of the Micro, Small Enterprise (MSE) 2020 Policy. The review is aimed at pulling down
the barriers in the MSME sector that stifle business growth and development. The new policy
that will be developed will unlock and improve access to finance, reduce regulatory burden,
enhance market access and upgrade MSME infrastructure as well as nurture a supportive MSME
ecosystems.

5 Draft 2025 Budget Policy Statement

1.2.3 Housing and Settlement

20. The Constitution of Kenya provides that every person has the right to accessible and
adequate housing. As a core pillar of BETA, the Affordable Housing Programme provides an
avenue to ensure the development of quality and affordable houses for Kenyans. The Affordable
Housing Programme is expected to increase the supply of affordable houses from the current 2
percent to 50 percent, by facilitating the delivery of 200,000 housing units annually. In addition,
the Programme aims to tackle the housing deficit that has left many Kenyans living in insecure,
unsanitary, and poorly constructed dwellings while also fostering the inclusive green growth and
generating job opportunities across various sectors. To realize these objectives, the Affordable
Housing Programme was designed to increase opportunity for manufacturers, developers and the
Jua Kali industry to produce high quality construction products and provide employment to
different types of professional services and materials, bringing together labourers, masons and
brick layers, artisans, electricians and carpenters, as well as architects, engineers, quantity
surveyors, lawyers and real estate economists.
21. Progress has been made in the delivery of the affordable housing agenda. Notably, the
enactment of the Affordable Housing Act, 2024, provides a long-term solution in financing the
Affordable Housing Programme. The Act is a landmark legislation in Kenya aimed at addressing
the housing deficit and ensuring that every Kenyan has access to affordable, adequate, and decent
housing. The enactment of the Affordable Housing Act gives effect to Article 43(1)(b) of the
Constitution which guarantees every person the right to accessible and adequate housing. This
article delves into the key aspects of the Act, its implications, and how it aims to transform the
housing sector in Kenya. The Act aims to create a framework for the development and access to
affordable housing, emphasizing community engagement, public-private partnerships and
inclusivity.
22. Additionally, after two years of implementing the Affordable Housing Programme, 124,000
housing units are at different stages of completion across 75 sites in 37 counties. The Programme
includes houses for military, police, and correctional services personnel, student
accommodation, and private-sector developments. In addition, the online portal platform, Boma
Yangu, over 547,000 have registered, of which 52,000 have collectively saved more than Ksh
2.3 billion towards homeownership. The Affordable Housing Programme has created over
164,000 jobs through the housing value chain. Already, 4,888 housing units are set for
completion across 21 social housing projects and will soon be launched. The units, comprise of
studios, one-bedroom, two- bedroom, and three-bedroom homes, and are tailored to meet the
needs of Kenyans, offering 1,041 social housing units, 2,133 affordable housing units, and 1,714
affordable middle-class housing units in 24 counties.

1.2.3.1 Urban Housing

23. The rapid pace of urbanization has outpaced the development of necessary infrastructure
leading to over 10 million people living in the informal settlement and 60 percent living in slum
areas. To improve urban housing, the Government will scale-up implementation of the Kenya
Urban Settlement Program Phase II that will strengthen the capacities of urban municipalities to
improve delivery and resilience of urban infrastructure and services. In addition, the Program
will enhance the contribution of the private sector in urban planning and development and
support the transition of refugee camps into integrated host communities and refugee settlements.
Through the Kenya Informal Settlement Improvement Project Phase II, the Government will also
fast track land tenure regularization, upgrade infrastructure, improve access to basic services,
and strengthen institutional capacity development for slum upgrading in informal settlements in
33 counties.

6 Draft 2025 Budget Policy Statement

1.2.3.2 Rural Housing and Settlement

24. Rural housing is affected by rapid urbanization, rural-urban migration, and a lack of
affordable housing. In the rural areas, the quality of housing is below the standard requirement
and lack basic sanitation requirement. To support rural housing and settlement, the Government
will continue to ensure that urbanization is planned and controlled through integrated land use
planning and development programme that we are implementing throughout the country, in
every county. Key initiatives will include supporting construction of affordable housing projects
using local materials, supporting planned rural settlements with essential infrastructure, and
promoting climate-resilient housing designs to foster inclusive green growth and bridge the
urban-rural divide.

1.2.4 Healthcare
25. The right to the highest quality of health is enshrined in the Constitution of Kenya. The
Medium-Term Plan IV of Vision 2030 and Bottom-Up Economic Transformation Agenda
prioritizes provision of equitable, accessible, affordable and quality healthcare. Despite recent
strong economic growth in the country, many Kenyans face financial barriers in accessing
healthcare and only 20 percent of Kenya’s population have health insurance, with most of them
being employed in the formal sector. In order to achieve Universal Health Coverage by 2030,
the Government’s BETA focuses on various interventions to: i) provision of a fully public
financed primary health care system, an emergency care fund and a health insurance fund that
will cover all Kenyans, ii) installation of digital health management information system, iii) set
up of a Fund for improving health facilities; iv) set up of an Emergency Medical Treatment Fund,
iv) establishment of a National Insurance Fund that covers all Kenyans, and v) availing of
medical staff who would deliver Universal Health Coverage.
26. Significant milestones have been realized in the implementation of these interventions. To
accelerate the implementation of the Universal Health Coverage, the Government enacted the
Social Health Insurance Act, 2023; ii) Primary Health Care Act, 2023; iii) Facility Improvement
Financing Act, 2023; and iv) Digital Health Act, 2023. The Social Health Insurance Act replaced
the National Health Insurance Fund and established the Social Health Authority (SHA), which
administer three essential funds primary healthcare funds in a way that ensures every Kenyan,
especially the most vulnerable, can access quality healthcare services when they need them most.
The shift from the National Health Insurance Fund model to Taifa Care is fundamental and
radical in both scale and character. NHIF served a few salaried Kenyans and those who could
pay, but Taifa Care covers every Kenyan regardless of their employment status. Secondly,
despite serving a limited class of citizens, NHIF nevertheless accumulated billions of shillings
of debt because of misalignment between contributions and the actual cost of healthcare. Taifa
Care has undertaken an accurate costing of all healthcare-related goods and services, in order to
provide timely, effective and efficient service to everyone. Additionally, the NHIF had a waiting
period, lasting between registration and eligibility for services. Under Taifa Care, citizens are
eligible for all services upon registration.
27. To date, over 15 million Kenyans have enrolled in Taifa Care and more than 60 percent of
employers have successfully transitioned into its framework. The newly established Social
Health Insurance Fund (SHIF) empowers citizens to contribute towards accessing a broad range
of healthcare benefits. This represents a seismic shift from the old, reactive healthcare model to
a forward-looking system that prioritises prevention and preparedness. Once the transition from
NHIF is complete and SHIF becomes fully operational, Kenya will have a healthcare system that
guarantees dignity, peace of mind and equitable access for every citizen. Under the Digital Health
Act, the Government will continue to enhance the efficiency and transparency provided by
technology in the provision of healthcare services to eliminate fraud and fake claims.

7 Draft 2025 Budget Policy Statement

28. As a start, free primary healthcare is increasingly becoming available at dispensaries, health
centres and hospitals. Ambulance and emergency services are also slowly but surely being made
available at no fee. Under Taifa Care, we have introduced a comprehensive benefits package that
brings specialised care, such as cardiothoracic surgery, within reach for many Kenyans, without
the burden of financial strain. Through the Digital Health Act, the Government has
revolutionized healthcare delivery process including registration, eligibility checks, as well as
claims. By eliminating unnecessary human interaction, the Government is tackling corruption,
reducing inefficiencies and ensuring that resources are used where they are needed most.
29. Building on the gains made, the Government through the Facility Improvement Fund (FIF)
will ensure that hospitals are equipped with the tools they need including: medicine, equipment
and other resources necessary to provide quality care, while involving citizens in decision
making at every facility. To start of the process, the Government is clearing decade-old debts,
and ensuring access to medicine and equipment. Already, the Government has paid disbursed
Ksh 8.7 billion to settle historical debts owed to public, private and faith-based medical facilities,
and will continue to clear the remaining balances in a phased-out approach over the coming
months. This underscores the Government’s commitment to ensuring uninterrupted delivery of
healthcare services.
30. To increase availability of human capital in the public health sector, the Government will
continue to implement programmes like Afya Bora Mashinani that has engaged over 100,000
community health promoters who provide direct care in households across the country. In
addition, the Government will implement institutional and strategic measures to extend the
impact of Universal Health Coverage by developing the biomedical, pharmaceutical, and
medical supplies production industries.
31. Over the medium term, the Government will continue to implement strong institutional and
strategic measures to extend the impact of Universal Health Coverage by developing the
biomedical, pharmaceutical, and medical supplies production industries. To enhance healthcare
delivery and ensure the security of medical supplies, the Government will improve the overall
supply chain, starting with capacity upgrades and the establishment of Kenya Medical Supplies
Agency (KEMSA) regional distribution centres in Kisumu, Embakasi, and Mombasa. Further,
the Government will scale up the scope of existing programmes such as Edu Afya to encompass
all school-going children, extending beyond its current focus on secondary school students. In
addition to covering prenatal care, the Linda Mama Programme will be enhanced to provide
comprehensive postnatal care ensuring a holistic approach to maternal and child health.

1.2.5 Digital Superhighway and Creative Economy

1.2.5.1 Digital Superhighway

32. The digital economy has undergone rapid changes both globally and domestically in recent
years, with the COVID-19 pandemic accelerating the shift towards digital technologies. In order
to entrench Kenya’s lead in digital economy, the Government under the BETA committed to: i)
promote investment in the digital superhighway and the creative economy which provides
tremendous potential for the country in employing hundreds of thousands of young people and
generating immense wealth if the young people are facilitated to plug into the global digital
economy; ii) support extension of National Fiber Optic Backbone infrastructure to ensure
universal broadband availability; and iii) digitize and automate all critical Government processes
throughout the country, with a view of bringing greater convenience to citizens.
33. Towards this end, the Government has expanded last-mile fiber-optic connectivity using
the extensive Kenya Power transmission lines network to the most remote and underserved areas
of the country, and making significant strides to establish digital and ICT hubs. Government is

8 Draft 2025 Budget Policy Statement

on schedule to establish 1,450 ICT by end of 2024 across the country’s wards to provide digital
literacy training, support content creation, and facilitate access to Government services. This will
create a foundation for digital transformation, enabling IT economy workers, young digital
creators and entrepreneurs to access a wealth of opportunities both locally and globally.
34. The Government committed to increase and fast-track broadband connectivity across the
country, by constructing at least 100,000 kilometres of National Fibre Optic connectivity. So far,
the Government has laid 13,712 kilometres of fiber cable and increased the number of Public-
Wi-Fi hot spots from 40 in 2022 to 1,222 in 2023, giving a total of 1,262 public Wi-Fi spots. The
Government’s flagship initiative under the Jitume Programme targets to empower over 1 million
youths in the country to access reasonable and sustainable income and to provide infrastructure
and over 23,000 digital devices to centres among other activities. In order to make Government
services more accessible and improve efficiency and service deliver, the Government has
digitized 20,855 services up from 350 in 2022, representing an increase of almost 6,000 percent
which has improved revenue collection.
35. Over the medium, the Government will continue to: increase and fast-track broadband
connectivity across the country by construction of national fibre optic connectivity network;
enhance Government service delivery through digitization and automation of all Government
critical processes; establish Africa Regional Hub and promote the development of software for
export; implement the Digital Master Plan will adhere to environmental agreements in which
Kenya is a signatory; and strengthen Konza Technopolis to bring together industry, academic
institutions, and other innovators to co-invest in emerging technologies to create high-quality
jobs that leverage artificial intelligence, robotics, and other technologies.

1.2.5.2 Creative Economy

36. The Government is committed to supporting the creative economy which plays a key role
in fostering creativity and addressing the high unemployment rates. The sector offers the
opportunity to enhance our cultural values, heritage, and national identity. Currently, the creative
economy is growing at faster rate than any other economy in the region and has a potential to
contribute significantly to GDP. The sector interlinks the arts, business and technology, which
are intensive in creative skills and can generate income through trade and intellectual property
rights. Acknowledging this potential, the Government is expanding and supporting the creative
economies as part of economic diversification strategies and efforts to stimulate economic
growth.
37. To further support the creative economy, the enactment of the Creative Economy Support
Bill, 2024 will establish a legal framework for the support of persons in the creative industry and
further enhance entry and contribution to the industry. Further, the Bill seeks to establish a
Creatives Fund for purposes of financing creative initiatives by various creatives in the industry
and for supporting the implementation and execution of creative projects.

1.3 Enablers
38. Actualization of the Government’s Bottom – Up Economic Transformation Agenda
(BETA) for inclusive green growth will be underpinned by sound and innovative policy and
structural reforms targeted at all socio-economic sectors. These include: building efficient
infrastructure; harnessing the manufacturing sector; climate-change mitigation and adaptation
mechanisms; building human capital; social protection; as well as enhancing governance and the
rule of law. The following enablers will be prioritized to enhance the attainment of the Agenda:

9 Draft 2025 Budget Policy Statement

1.3.1 Infrastructure

39. Infrastructure remains a key enabler to the implementation of BETA through provision of
cost-effective public utilities and essential services geared at promotion socio-economic
transformation across the country. For this reason, the Government will intensify investments in:
construction of water pans, small, large and mega dams and associated irrigation infrastructure;
expansion of roads and transport network, clean energy generation and distribution capacity;
exploration and commercialization of oil and gas; to foster an enabling environment for inclusive
green growth, enhance Kenya’s competitiveness, and facilitate cross-border trade and regional
integration. These infrastructure developments are also designed to stimulate business growth,
attract private investment, and contribute to long-term economic prosperity and poverty
reduction.

1.3.1.1 Water and Irrigation

40. To enhance access to safe water for domestic, irrigation and industrial use, the Government
has made significant progress over the last two years. Notably, the Government has increased
access to improved water services by connecting an additional 5,843,258 people; improved
access to sanitation services by connecting an additional 280,000 households; increased water
storage per capita from 107 cubic metres to 108 cubic metres by completion of Karimenu Dam,
Yamo Dam, Pemba Dam and Bakuli Dam; operationalized bulk water supply at the Karimenu II
(70,000 cubic metres per day) and Northern Collector Water Diversion Tunnel (140,000 cubic
metres per day); and completed groundwater mapping for Wajir, Turkana, and Marsabit counties.
Additionally, the Government has developed an additional 181,069 acres under irrigation for
rice, maize and other value chains; completed 15 MCM Thiba Dam and expanded Mwea
Irrigation Scheme by 5,600 acres to 30,600 acres; harvested and stored 52.1 million cubic meters
of water for irrigation; reclaimed, rehabilitated and restored 3,183 acres of degraded land; and
equipped 25 public schools with boreholes, greenhouses and irrigation kits. To address the issue
of land degradation, the Government is finalizing the development of the Land Reclamation
Policy 2024 in order to enhance reclamation of degraded lands, marginal lands, wastelands, and
wastewater; establish a new legal and institutional framework to support land reclamation; and
secure land neutrality
41. Over the medium term, the Government will build on the progress made in order to provide
reliable safe and clean water through water harvesting for domestic use and recharge of ground
water in 23 ASAL counties, 100 small towns and 300 schools. This will entail supporting 1,150
water harvesting projects for irrigation to provide 517.5 million cubic metres of water in ASALs;
construction of small dams and water pans, and drilling of boreholes; water harvesting from
“laggahs” and exploitation of ground water for irrigation in arid counties; and building capacity
on uptake of irrigation in schools by drilling and equipping 465 boreholes and installing 510
greenhouses. In addition, the Government will facilitate construction of the following multi-
purpose dams: Arror, Kimwarer, High Grand Falls, Muny, Lower Ewaso Ng’iro, Ewaso Ng’iro
North River, and Oloshoibor ; and two (2) dams at Kieni Integrated Irrigation Project, desilting
ten (10) tributaries at Integrated Ecosystem Irrigation in Athi River Basins; construction of a
fruit and vegetable processing plant through the Kimira Oluch Smallholder Farm Improvement
Project Phase II, and construction of a sugar mill through the Tana Delta Sugar Irrigation Project
42. Further, the Government will expedite the enactment of the Water (Amendment) Bill, 2023
to promote private investment in the water sector through the Public-Private Partnerships (PPPs)
model. The amendments seek to expand the role of National Government entities such as the
Water Works Development Agencies (WWDAs) and National Water Storage Authority (the
NWSA) to provide water services by allowing them to enter into bulk water purchase agreements

10 Draft 2025 Budget Policy Statement

under the PPP Act, 2021 which was previously the preserve of county water service providers
(WSPs).

1.3.1.2 Roads and Bridges

43. In order to expand road and bridges in the country, the Government has over the last two
years, constructed 2,766 kilometres of roads; rehabilitated 280 kilometres of roads; maintained
10,320 kilometres of roads under Performance Based Contracts; maintained 117,294 kilometres
of roads under routine maintenance; maintained 2,389 kilometres of roads under periodic
maintenance; and constructed 77 bridges. These efforts aim to enhance transportation networks,
support inclusive green growth, and improve overall connectivity across the country. To
streamline transport accident investigations, the Government established the Kenya Transport
Accident Investigation Bureau (KTAIB) in October 2023 as part of institutional and legal
reforms. The KTAIB will investigate accidents involving road, rail, and water transport. It will
also promote the sharing of best practices, resources, and safety lessons between different modes
of transport
44. Over the medium term, the Government will prioritize: completion of 1,542 kilometres of
roads; construction of 62 bridges across the country; rehabilitation of 675 kilometres of roads;
maintenance of 84,988 kilometres of roads under routine maintenance programme; maintenance
of 1,633 kilometres of roads under periodic maintenance programme; and maintenance of 30,234
kilometres of roads under Performance Based Contracts. The Government will also: upgrade and
maintain rural access roads to open up the rural areas to enable farmers to get their produce to
markets faster and cheaply; and improve road infrastructure in urban informal settlement and
critical national and regional trunk roads that have the highest immediate economic impact. To
streamline transport and reduce traffic congestion, the Government will commence the
construction of Bus Rapid Transport (BRT) Line 5; and Establish the National Intelligent Traffic
System (ITS) and Junction Improvement.

1.3.1.3 Electricity

45. Access to clean, sustainable and affordable energy remains a key enabler for inclusive green
growth and transformation as envisioned by the Bottom-Up Economic Transformation Agenda.
To expand access to electricity, the Government has over the last two years, installed an
additional 240MW of electricity thus increasing total installed capacity by 5.4 percent from
3,076MW in 2022 to 3,243 MW in October 2024; constructed 675 kilometres of transmission
lines and built 4 high voltage substations; installed 1,266.7 kilometres of medium voltage
distribution lines and constructed 30 distribution substations; and installed 54,577 street lighting
points to enhance security and promote a 24-hour economy. Consequently, 774,000 more
customers were added to electricity including 1,702 public facilities, increasing the total number
of customers connected to electricity to 9,693,954 in October 2024 from 8,919,584 in 2022.
46. Over the medium term, the Government will build on the progress made by strengthening
policy guidelines and laws to enhance energy generation, transmission and distribution aimed at
connecting 1,440,000 new customers and 1,080 public facilities to electricity. Some of the
interventions will involve: drilling of 34 geothermal wells; construction of 1,742 kilometres
transmission lines and 21 transmission substations; construction of 1,050 kilometres distribution
lines and 33 distribution substations; installation of 19,500 street lighting points; and
construction of 55 institutional and 1,800 household biogas plants to enhance power grid
resilience, improve service delivery, and ensure long-term energy sustainability.

11 Draft 2025 Budget Policy Statement

1.3.1.4 Petroleum and E-mobility

47. BETA aims to promote clean, affordable, and quality alternative renewable energy sources
for inclusive green growth and transformation. Towards this end, specific interventions include:
expansion of energy centres from 16 to 47; installation of 4,350 solar PV systems; installation
of 50,823 stand-alone systems; development of 10 small hydro’s; installation of 80 wind masts
and data loggers; development of two (2) bio fuel plants for value addition; construction of 300
biogas plants in counties; development of 195 energy efficient charcoal kilns; and promotion of
clean cooking solutions; promotion of energy efficiency and conservation including E-mobility,
green building and reduction of GHGs; electrification of institutions and community boreholes;
development of Kenya green hydrogen; and promotion of energy production from municipal
waste.

Petroleum

48. In order to boost local production of petroleum products, the Government has reviewed
South-Lokichar Field Development Plan to facilitate development of the oil fields; developed
and gazetted Petroleum (Importation) Regulations, 2023 and Petroleum (Pricing) Regulations,
2022 of the Petroleum Act, 2019; demarcated land for development of oil fields in South-
Lokichar, and registered 23 of 63 communities and their Community Land Management
Committees in Turkana County.
49. Over the medium term, the Government will prioritize the advancement of the oil and gas
sector to strengthen energy security and foster inclusive green growth. Key initiatives will
include: acquisition of Geo-Scientific data in 3,600 square kilometres to establish oil and gas
potential; completion of evaluation of gas potential in Petroleum Blocks 9, L4 and L8 in
Marsabit, Garissa & Lamu, and Kilifi Counties respectively; provision of clean cooking gas to
600 public learning institutions. Additionally, the Government will distribute 6 kilogram LPG
cylinders and accessories to 210,000 low-income households; import and distribute 22.6 million
metric tons of petroleum fuels; and complete land acquisition in South-Lokichar for the
development of the oil fields, and water make-up and crude oil pipelines.

E-Mobility

50. Transitioning to electric mobility (e-mobility) remains a priority intervention of the

Government’s inclusive green growth and climate action plan aimed at reducing greenhouse gas
emissions and air pollution while at the same time meeting the mobility needs of consumers.
Significant developments and encouraging efforts have been realized. The arrival and use of
electric vehicles and motorcycles in Nairobi, marks a significant turning point towards this
transformation. In addition to lowering carbon emissions, these vehicles and motorcycles are
economically friendly. Additionally, electric vehicles and motorcycles are an important
breakthrough toward bettering air quality and easing traffic in busy cities because of their quiet
operation and lower running costs as compared to fuel diesel buses.
51. As a significant step towards e-mobility, the Government launched the first batch of locally
assembled electric buses in partnership with BasiGo and Kenya Vehicle Manufacturers (KVM)
in April 2024. This initiative is aligned with the national goal of transitioning to a fully electric
bus fleet by 2027. In order to promote local manufacturing and assembly of electronic vehicles
and motorcycles, the Government has developed draft National E-Mobility Policy. Once
finalized, the Policy will guide the development of electric mobility in all transportation modes
– road, rail, air and maritime, by providing a transition framework from the use of conventional
internal combustion engine (ICE) vehicles. The Policy will also support establishment of E-
mobility charging infrastructure, reduction in emissions, lower operating costs, decrease reliance
on imported fuels, and create green jobs. Additionally, the Government has partnered with
12 Draft 2025 Budget Policy Statement
BasiGo and KVM to assemble electric buses locally, with BasiGo planning to deliver 1,000
electric buses in the next three years. These efforts are aimed at reducing carbon emissions,
improving transport infrastructure, and creating green jobs.

1.3.2 Manufacturing Sector

52. The manufacturing sector in Kenya plays an important role in accelerating inclusive green
growth and development, creating jobs directly and indirectly through backward and forward
linkages with other sectors; and enhancing competiveness of the country in export markets. To
realize these objectives, the Government under the Bottom-Up Economic Transformation
Agenda has embarked on interventions aimed at revamping and improving competitiveness of
local industries by focusing on value chains development. To support value chains development,
special emphasis has been placed on boosting productivity and value addition, addressing input
constraints, strengthening extension services, and enhancing market for locally manufactured
products. Key value chains prioritized include: agro-processing; leather and leather products;
building and construction materials; textiles and apparel; dairy products; edible and crop oils;
tea and coffee, and sugar. The Government has implemented and or plans to implement the
following initiatives under each value chain:

1.3.2.1 Agro-Processing

53. Agro-processing remains a priority of the Government’s efforts to support value addition
across the agricultural value chain to create jobs and increase wealth for Kenyans. A major
challenge in agriculture is post-harvest losses, which range from 20 percent to 50 percent due to
poor storage and handling. To address this, 200 integrated fresh produce markets are at various
stages of construction to support farmers and traders. Additionally, the Government is
constructing 18 County Aggregation and Industrial Parks (CAIPs) that will provide value
addition centers and storage facilities for agricultural products. The project will initially be rolled
out in 18 counties, and will expand to all 47 counties by FY 2025/26, reducing post-harvest
losses and boosting farmers' incomes. CAIPs are a collaborative effort between the National and
County Governments. By fostering collaboration among farmers, processors, exporters, and
research institutions, CAIPs are expected to increase employment, exports, and farmers'
incomes, while promoting economic growth and industrialization.
54. Building on the progress made, the Government will continue to increase production, value
addition, marketing and attracting investments in value addition of products from agriculture,
fisheries, and livestock farming. These will be achieved through: raising productivity of key
value chains; revamping under-performing and collapsed exports crops; and promoting emerging
ones. Targeted opportunities for agro-processing are: cash and food crops (tea, coffee, sugarcane,
cashew nuts and macadamia, legumes, cereals, fruits, vegetables, oil crops, roots, and tubers);
livestock (dairy, meat, honey); and fisheries (marine, fresh water and aquaculture). In addition,
the project targets to: promote the manufacture of animal feeds and valorization of agricultural
residue; establish aggregation centres, rural transformation centres and cold storages; establish
and operationalize Integrated Agro-Industrial Park; and establish food processing hubs in
Kisumu, Eldoret, Kilifi, Miritini, Nakuru and Taita Taveta to enhance value addition in
agricultural, livestock and fisheries products.

1.3.2.2 Leather and Leather Products

55. To transform the leather and leather products value chain, the Government has invested
resources towards the upgrade of the Ewaso Ng’iro South Development Authority’s leather
factory through: acquisition of modern equipment; building of a footwear factory; and mopping
up hides and skins. Machinery for increasing processing capacity at the factory has already been

13 Draft 2025 Budget Policy Statement

procured and installed. To supply quality hides and skins, 703 flayers have been trained and
subsidised flaying equipment provided to 680 slaughter points. At the same time, the
construction of the Kenya Leather Industrial Park at Kenanie, Machakos County, is 85 percent
complete. This park will have a common effluent treatment plant, 2 tanneries, 2 leather
manufacturing plants and 100 acres for investors to set up leather factories by the end of the year
2024.
56. To further support the growth of the leather industry in the country, the Government will
build on the ongoing interventions geared towards boosting productivity along the leather and
leather products value chain; increasing income from leather to Ksh 120 billion; increasing job
opportunities from 17,000 to 100,000 jobs; availing three (3) million hides and 18 million skins
to the tanneries; and increasing recovery of hides and skins from abattoirs, slaughterhouses and
home slaughter and consequently increasing tannery utilization from 25 percent to 100 percent.
Towards this end, the Government is developing local capacity to handle hides and skins to
provide quality raw material, tanning as well as the local manufacturing of finished leather goods
such as shoes, bags, and belts.
57. To enhance production and improvement of quality of raw materials for processing and
value addition, the Government will: review Hides and Skin and Leather Trade Act (Cap 359)
to reinstate licensing of the value chain actors and attract more MSMEs in the value chain;
finalize Kenya Leather Value Chain Development Policy; finalize the Leather Development
Authority (KLDA) Bill to improve the legal and policy framework underpinning the leather
industry; map and sensitize MSMEs on leather value chains; develop and disseminate policies
and strategies focused on MSMEs in the leather value chain; establish hides and skins collection
centres; support collection, preservation and delivery of hides and skins to tanneries; mobilize
livestock farmers into cooperatives; manufacture leather and leather products; and build capacity
of the value chain actors including MSMEs to improve the quality of hides and skins, leather and
leather products.
58. To enhance leather value addition, the Government will among other things complete:
construction of Kenya Leather Industrial Park – Kenanie; establishment of Common Effluent
Treatment Plants and tanneries in Eldoret, Isiolo and Mombasa; establishment of leather
processing clusters in Isiolo, Uasin Gishu, Narok, Kisumu and Mombasa; construction of 10
common manufacturing facilities; optimization of Ewaso Ng’iro South Development Authority
tannery to produce finished leather products; and establishment and operationalization of
Kariakor manufacturing facility. The Government will also promote establishment of leather
cottage industries through capacity building of leather operators on designing, finishing and
fashion of leather and leather goods.
59. To boost market for leather and leather products, the Government will: complete
development and operationalization of public Special Economic Zones (SEZs) in Naivasha,
Kisumu, Lamu and Dongo Kundu; link MSMEs with large enterprises and Government
institutions (uniformed forces and schools); continue enforcement of Access to Government
Procurement Opportunities (AGPO) and 40 per cent Local Content preferential procurement to
promote local demand; sensitize exporters on market requirements and opportunities; export
market development and promotion, including market diversification; strengthening of
commercial representation; identification of unfair import trade practices threatening leather
industry; and sensitization of manufacturers on unfair import trade practices.

1.3.2.3 Building and Construction Materials

60. The Government has continued to support building and construction value chains to boost
job creation and foreign exchange earnings. In part, the Government has continued to develop
production capability of jua kali MSMEs and attract investments in provision of affordable

14 Draft 2025 Budget Policy Statement

construction materials, especially green construction materials and products for local and
international markets in the construction industry. To accelerate local manufacturing, the
Government imposed levies on the importation of clinker, saving the country Ksh 20 billion in
foreign exchange, as clinker imports dropped to zero. The Government also imposed levies on
imported steel billets, enabling 11 steel factories that had closed in the past 6 years to come back
into operation, now hired 16,000 workers and saved Ksh 110 billion in foreign exchange.
61. Over the medium term, the Government will consolidate the gains realized by continuing
to: support establishment of industrial park for construction materials; enhance local
manufacturing of construction materials (clinker, cement, cabros, prefabs) and electrical and
electronics fittings, cables and products; and ring-fence certain components of the low cost
housing project for MSMEs. Value addition will be enhanced through: stimulating domestic
investment into housing and construction sectors; modernization of East Africa Portland Cement
Company; promotion of use of alternative building technologies; establishment of heavy clay
plant; promotion of cottage construction industries; establishment of waste recycling plants for
power generation; establishment of MSMEs industrial parks and incubation centres in every
TVET; establishment of MSMEs business development centres in every Ward; establishment of
cooperative social housing schemes; development of standards for MSMEs products;
accreditation of construction bodies; and modernization and linking of CIDCs to TVET

1.3.2.4 Textiles and Apparel

62. Cotton is recognized as a strategic crop under MTP IV of Kenya’s Vision 2030 and a
priority value chain within the Bottom-Up Economic Transformation Agenda. To revitalize the
textiles and apparel sub-sector, the Government has continued to implement measures geared
towards enhancing local production of cotton. These measures include: mobilization of cotton
growers into cooperatives; distribution of 70 metric tons of certified cotton seeds (Bio
Technology cotton and hybrid) to farmers through existing and established cooperatives; availing
1,320 metric tons of seed cotton through Food Security and Crop Diversification Project;
increasing acreage under cotton from 26,000 acres to 200,000 acres through distribution of Bio
Technology cotton in the 24 cotton growing counties; promoting use of alternative fibre (natural
and artificial); sensitization and mobilization of MSMEs within cotton catchment areas; supply
of subsidized fertilizer to farmers; establishment of aggregation centres in CIDCs within the
catchment areas; and prioritization of financial inclusion funds for textile and apparels value
chain.
63. In addition, the Government is on course to increase cotton production and modernise
ginneries. The Government will distribute 15,700 kilograms of seeds to farmers in Busia and
another 20,000 kilograms to farmers in Meru, Makueni, Kitui and Machakos. Subsidised
fertiliser will be provided through the tried and tested e-voucher system. Additionally, 5,000
acres have been harvested in Lamu. The Government has also worked with stakeholders to
negotiate a price increase for farmers from Ksh 54 a kilo to Ksh 72.
64. Over the medium term, the Government will build on the ongoing interventions in order to:
establish textile value addition centres in Nyando and Kieni (aggregation cooperatives); establish
seven (7) modern cooperative society ginneries in Homa Bay, Siaya, Meru, Lamu, Kwale,
Kirinyaga and Bungoma counties; modernize existing ginneries; equip CIDCs with common
user tailoring facilities; construct industrial warehouses with associated basic infrastructure
facilities to attract investors in apparel processing; conduct capacity building on fashion and
design of clothing and textile products; construct eight (8) large industrial sheds; and develop
railway sliding related infrastructure at Export Processing Zone (EPZ) in Athi River. In addition,
the Government has developed draft National Cotton, Textile, and Apparel (CTA) Policy 2024
to guide the development of cotton value chain in Kenya. The policy seeks to revitalize and

15 Draft 2025 Budget Policy Statement

enhance the competitiveness and sustainability of the Cotton, Textile and Apparel sector in
Kenya and the within the region.
65. Efforts to enhance market access will involve: sensitization of exporters on market
requirements and opportunities; export market diversification; capacity building of commercial
attachees on textile and apparels sector development; “Made in Kenya” global campaigns;
linkage of tailors with large entrepreneurs, schools, colleges and Government training
institutions; identification and sensitization of manufacturing on unfair trade practices
threatening textile industry; and attracting both local and foreign investments through packaging
and promotion of bankable investment projects in the value chain to private sector for
investments or co-investments.

1.3.2.5 Dairy Products

66. Dairy and livestock sub-sectors remain an integral part to the Government’s plan to improve
food security, create jobs and boost exports. To support value chains under the dairy sub-sector,
the Government targets to double dairy productivity through appropriate feeding, enhancement
of export up to one (1) billion litres of milk, increase farm gate price to at least Ksh 40 per litre;
create 500,000 jobs and increase farmers’ monthly income to an average of Ksh 6,000 per cow.
Towards this end, the Government has supported value addition in the sub-sector through:
modernizing New Kenya Cooperative Creameries; establishment of camel milk processing
factory, collection, and cooling centres; provision of cooler plants to dairy cooperative societies;
fabrication of dairy products machinery and equipment; promotion of investment in dairy cold
chains and build capacity of enterprises.
67. Over the medium term, the Government will build on ongoing interventions including::
establishment and equipping of a feed centre in every Ward; production of animal feeds at the
Nasewa Industrial Park; distribution of subsidized fertilizers to sustain production of dairy
products; capacity building and mobilization of dairy farmers into cooperatives; installation of
dairy mechanization equipment (feeds equipment, lab equipment, silage wrapping machines,
forage choppers, hay baling, tractors, milk parlours and bulk coolers); establishment of dairy
cottage industries for animal feeds; sensitization of MSMEs on opportunities in animal feeds;
and prioritization of financial inclusion for dairy value chain. Additionally, the Government will
lead the distribution of bulk milk coolers to dairy farmers across various counties. A total of 230
coolers will be provided to dairy cooperative societies in 40 counties, supporting local milk
producers. This initiative is designed to improve milk aggregation, value addition, and market
access, thereby increasing the competitiveness of the dairy value chain. It will also significantly
reduce post-harvest milk losses, and boost the volume of milk collected and processed.
68. In order to enhance market access, the Government will fast track implementation of the
following interventions: completion and accreditation of national dairy laboratory; local and
export markets promotion and diversification; sensitization of exporters on market requirements
and opportunities; ‘Made in Kenya’ global campaigns; development of export markets and
products; establishment of export warehouses; identification of unfair import trade practices
affecting dairy value chain; and sensitization of manufacturers on unfair trade practices.

1.3.2.6 Edible and Crop Oils

69. Edible oils is the second import bill in Kenya after petroleum yet most edible oil crops are
traditional food value chain. The population especially in western and the coastal Kenya have an
existing practice and resilience on farming edible oil crops such as groundnuts, sunflower, soya
beans, sesame, among others. For this reason, the Government has continued to implement
measures targeted at enhancing local production and processing of edible oils including:
supporting farmers to access certified oil crops seeds (canola, sunflower and soya bean) and

16 Draft 2025 Budget Policy Statement

seedlings; supporting the production of oil palm seedlings; sensitizing farmers on opportunities
available in the edible oil value chain; and prioritization of financial inclusion for edible value
chains. The focus on edible oils value chain is expected to increase production of raw materials
in Kenya, promote value addition, and significantly reduce the import bill. Groundnuts like other
edible oils is a rich value chain offering smallholder farmers a commercial opportunity to
transform subsistence farming and raise the household income levels.
70. Progress has been made in the delivery of these interventions. In 2023, 70 tonnes of
sunflower seeds were purchased, with 40 tonnes distributed to farmers. Another 40 tonnes of
seed have been allocated to the Agricultural Development Corporation for seed multiplication.
Additionally, the Government, through the Agriculture and Food Authority, has procured and
distributed 500 metric tonnes of seeds, worth Ksh 241 million, to farmers in 24 counties. In the
FY 2024/25, Ksh 414 million has been budgeted for this programme under the National Edibles
Oils Promotion Project.
71. Building on the progress made, the Government will continue to support value addition in
the edible and crop oils value chain through: promotion of cottage industries; providing small
industries with processing machineries at Kenya Industrial Estate (KIE), Constituency Industrial
Development Centres CIDCs, Rural Technology Development Centre; providing cooperatives
with edible oil processing infrastructure; incubate, train, and facilitate oil crops SMEs with
equipment for value addition at the Ward level; and fabricate 50 machinery and equipment for
edible oils. Interventions to enhance market access entail: linking farmers with oil processors
through contract farming; stabilization of edible oil prices; establishment of aggregation centres;
sensitization of exporters on market requirements and opportunities; strengthening commercial
representation; and attracting both local and foreign investments through packaging and
promotion of bankable investment projects in the edible oils value chain to the private sector for
investments or co-investments.

1.3.2.7 Tea and Coffee Sub-sectors

72. Tea and coffee sub-sectors account for 23 percent of the country’s total exports and supports
over five million livelihoods including 650,000 farmers. The sub-sectors are however vulnerable
to climate change due to erratic weather patterns and price fluctuations, necessitating a shift to
more sustainable and profitable practices. For this reason, the Government is implementing
interventions to support value addition in the tea and coffee value chains, increase farmers’
incomes, create jobs, and boost a climate resilient and environmentally sustainable trade system
for Kenya’s tea and coffee.
73. To revitalize tea and coffee the sub-sectors, the Government will build on the ongoing
efforts including: reforming the legal and policy frameworks; promote value addition through
provision of processing equipment; export market development and export promotion; and
establishment of warehouse for value added tea and coffee in key development markets. The
Government’s reforms in the tea and coffee sub-sectors are bearing fruit. Notably, smallholder
tea farmers exported KETEPA’s value added teas to West Africa and China starting from
December 2022. In addition, the average prices at the Nairobi Coffee Exchange have risen by 25
percent and in the FY 2023/24, the country produced and exported 48,000 metric tonnes, earning
farmers Ksh 25 billion.
74. Over the medium term, the Government will continue to support value addition in the tea
and coffee sub-sectors through: mobilization of tea and coffee farmers into cooperatives,
provision of subsidized fertilizer to tea growers through tea and coffee factories and the provision
of processing equipment to tea and coffee cooperatives; promotion of tea and coffee cottage
industries; diversification to speciality teas and coffees; construction of tea and coffee research
and development factory; establishment of tea and coffee value addition hubs and warehouses;

17 Draft 2025 Budget Policy Statement

establishment of common user facility within Dongo Kundu SEZ; and the establishment of 10
orthodox tea manufacturing lines in smallholder tea factories.
75. To enhance market access, the project targets to: establish incubation centres for speciality
tea and coffee diversification; develop export market and products including showcasing of tea
products; implement a global marketing strategy for Kenya tea and coffee; engage in bilateral
agreements to address both tariff and non-tariff barriers; facilitate access to selected regional
markets such as negotiated concessionary airfreight cargo charges in West and Central Africa;
sensitize exporters on market requirements and opportunities; establish tea packaging industries;
strengthen commercial representation; and enhance ‘Made in Kenya’ global campaigns. It also
targets to attract local and foreign investments through packaging and promotion of bankable
investment projects in the tea value chain for private sector investments or co-investments and
developing or reviewing industry regulations.

1.3.2.8 Sugar Sub-sector

76. The sugar industry is a strategic sub-sector, whose value chains have been the mainstay of
the local economies of our sugar belt, and a generator of much-needed jobs. For this reason, the
Government has implemented targeted measures over the last two years aimed at restructuring
and restoring operations at public sugar mills to boost competitiveness of the sugar sub-sector,
raise farmer incomes and enhance their productivity. Notably, the Government has restored
operations in all the 17 sugar factories across the country, while four new sugar factories are
under construction. This has boosted domestic sugar production in the country to 84,000 metric
tonnes, meeting the local demand. The success is largely attributed to subsidised fertiliser for
sugarcane farmers, an additional 500,000 acres of land brought under production, and improved
management of the sugar sector, which have revitalised production. To further revitalize Kenya’s
sugar sub-sector, the Government enacted the Sugar Act 2024, to provide further policy
guidance. The new law re-establishes the Kenya Sugar Board to regulate, develop, and promote
the sugar industry; and the Kenya Sugar Research and Training Institute (KSRTI) to undertake
sugar research function geared at improving sugarcane yields, enhancing pest control and
providing training for farmers and millers.

1.3.3 Blue Economy

77. The blue economy presents an immense opportunity for Kenya to drive inclusive green
growth and transformation as envisioned by the Bottom-Up Economic Transformation Agenda.
By leveraging its rich marine and freshwater resources, Kenya can empower coastal
communities, improve livelihoods, and contribute to national economic growth. It is currently
estimated that the blue economy contributes Ksh 20 billion to the economy annually and is
expected to increase to over Ksh 80 billion in 5 years. The transformation will create thousands
of jobs and stimulate regional economy through increased investment in various industries,
enhanced export manufacturing and expanded overall economic activity.
78. In order to harness the potential of the blue economy, the Government has invested
resources that have: facilitated completion or rehabilitation of 8 fish landing sites and markets
equipped with cold chain storage facilities across the country; supported 12,668 small scale
farmers with aquaculture inputs; and issued grants to 618 common interest groups across the
coastal region for alternative livelihoods. To further boost the fishing industry, the Government
is fast-tracking the completion of the Phase One of Liwatoni Fish Processing Plant and Shimoni
Fish Port, Kenya’s first dedicated fish port, which is now 82 percent complete. Once complete,
the Port will increase the handling capacity by 50,000 metric tons of fish annually, thereby
promoting value addition for both domestic and export markets. The infrastructure development

18 Draft 2025 Budget Policy Statement

will enhance fish value chain with the by-products from the fish being stored at the landing sites
used to feed light and small industries to spur economic growth at the grassroots.
79. To promote and enhance aquaculture and mariculture in the country, the Government has
invested resources towards the development of the National Mariculture Resource and Training
Centre (NAMARET) in Shimoni, Kwale County. The centre will serve as a catalyst for the
growth of productive and profitable mariculture. It will function as a marine fish seed breeding
and multiplication centre, facilitate research and innovation in mariculture, and offer training for
fish farmers and students. To increase fish production and facilitate the transition of fisherfolk
to deep-water and Exclusive Economic Zone (EEZ) fishing, the Government has procured and
distributed 123 fishing boats to local communities. Additionally, the Government plans to
acquire deep-sea fishing vessels for offshore fishing, with a total budget of Ksh 600 million
allocated for this purpose. To make the landing sites vibrant, the Government has embarked on
forming cooperatives for Beach Management Units (BMUs) to ensure fishermen pool and sell
their fish as one unit to fetch good price.

1.3.4 The Services Economy

1.3.4.1 Financial Services

80. Safeguarding financial stability and expanding access to affordable finance remain key
priorities under the Government’s Bottom - Up Economic Transformation Agenda (BETA).
Towards this end, the Government continues to take steps to improve prudential regulation and
supervision, with a view to addressing the increased sophistication of the financial sector. To
expand access to affordable financing to individuals and Micro, Small and Medium Enterprises
(MSMEs) excluded at the bottom of the pyramid, the Government will continue implementing
the Financial Inclusion Fund, or the ‘Hustlers’ Fund. The Government will also convert the
Credit Guarantee Scheme into the Kenya Credit Guarantee Scheme Company (KCGSC) to
ensure sustainability and develop a Credit Guarantee Policy whose objective is to provide a clear
framework for a sustainable model for credit guarantee scheme for MSMEs.
81. To promote agricultural productivity and transformation, the Government will continue to
implement the Rural Kenya Financial Inclusion Facility (RK-FINFA). The project aims to
contribute to income growth, climate change resilience and improved livelihoods in rural areas
through: (i) strengthening the capacities of financial institutions for innovation, rural outreach
and green finance services in Kenya; and building the capacities of MSMEs and smallholder
farmers for sustainable investment and financial literacy skills particularly tailored to reach
women, youth and marginalized groups; (ii) operating two rural investment instruments of Rural
Credit Guarantee Scheme, and Green Financing Facility; and (iii) promoting policies and
institutional arrangements that support the medium and longer-term development of a more
conducive operational environment for the rural investment instruments.
82. The Kenya banking sector remains stable and resilient and continues to play its role of
mobilizing funds and channelling them to the deserving productive economic activities. The
banking sector remained profitable with a growth in assets of 0.3 percent from Ksh 7.72 trillion
in February 2023 to Ksh 7.74 trillion in February 2024. Credit from commercial banks to the
private sector stood at an annual growth rate of 6.9 percent in April 2024 and benefited key
sectors of the economy.
83. In order to position the banking sector to effectively play its role in Kenya's socio-economic
transformation, three recent key reforms have been implemented:
i) Licensing and oversight of Digital Credit Providers to address inherent challenges including
high cost of credit, unethical debt collection, inadequate disclosure and lack of transparency,

19 Draft 2025 Budget Policy Statement

 breach of data privacy, and abuse of personal information. As at the end of March 2024, 51
Digital Credit Providers had been licensed;
ii) Issuance of the draft Kenya Green Finance Taxonomy for public participation by the CBK
in April 2024, that will serve as a tool to classify whether particular economic activities are
'green' or environmentally sustainable and serve as a guide for banking sector and other
market participants in making informed investment or financing decisions; and
iii) Revision of the Anti-Money Laundering, and Combating the Financing of Terrorism and
Proliferation Financing supervisory framework by the CBK to eliminate money laundering
vulnerability in the banking sector through implementation of risk-based supervision,
undertaking institutional and sectoral risk assessments, and enhancing staff complement and
capacity for supervision.
84. The Kenyan financial services sector is exposed to dynamic global, regional, and local
developments necessitating continuous reforms. To strengthen the resilience and safeguard the
stability of the financial services sector, the Government will continue to stress preservation of
capital and liquidity buffers; develop macro-prudential policy and crisis management
framework; enhance surveillance while encouraging banks to strengthen their governance
frameworks and business models; embark on mergers and acquisitions, and other capital
strengthening efforts; and closely foreign exchange loans, deposits, and on-and off-balance sheet
exposures in the banking system.
85. As part of the process, CBK intends to progressively increase the minimum core capital for
banks from the current Ksh 1.0 billion to Ksh 10.0 billion. The CBK will engage the market for
an appropriate time table to achieve this goal. This is intended to strengthen the resilience and
increase the bank's capacity to finance large scale projects while creating sufficient capital buffer
to absorb and withstand shocks posed by the continuous emerging risks associated with adoption
of technology and innovations as institutions expand. Additionally, CBK plans to amend the
Banking Act to provide for stiff dissuasive penalties that are proportionate to the violations
committed, support a strong compliance culture in banks, and align to international best
practices.
86. The Government is also keen to continue enhancing efficiency, stability and access of
financial services to Kenyans. Towards this end, the Government will fast track the review and
harmonization of all laws governing the retirement benefits sector through the National
Retirement Benefits Policy that aims to among things, addresses some of the pertinent challenges
that have slowed down the growth of the retirement benefits sector. The Government will also
speed up the approval of the National Insurance Policy and its implementation in order to grow
the insurance industry in Kenya. To deepen capital markets, the Government will continue to
undertake a comprehensive review of the legal and regulatory framework to address emerging
issues in the capital markets space. This includes, among others, aspects on collective investment
schemes, public offers and listings, alternative investment mechanisms, and streamlining credit
rating operations in Kenya.
87. To strengthen digital finance in Kenya's, the Government will continue to implement the
National Payment Strategy (2022-2025) and fast-track finalization of a National Policy on
Digital Finance. Notably, the National Payments System has undergone major changes and
transformation, which include establishment of national payments infrastructure, automation and
upgrades of various payment systems. Building on the progress made, the Central Bank of Kenya
together with industry stakeholders, are working towards finalizing and launching a Fast-
Payment System that will enable seamless interoperability for all retail payment services offered
by bank and non-bank providers. To this end, the CBK is in the process of setting up the
appropriate institutional governance framework for the Fast Payment System as well as assessing

20 Draft 2025 Budget Policy Statement

the available technological infrastructure options suitable to implement a robust and efficient
Fast Payment System for the financial services sector in Kenya.
88. The implementation of the Fast Payment System solution, which is in line with emerging
global developments and international best practice will be implemented as a digital public
infrastructure through a public-private partnership arrangement and will enable Kenya to
leverage the benefits of technology such as increasing affordability of financial services,
payments innovation, enhancing the quality of financial inclusion, and enhanced oversight and
stability in the National Payments System.

1.3.4.2 Tourism Sector

89. Tourism sector remains a critical enabler for the realization of the Bottom-Up Economic
Transformation Agenda’s objective of socio-economic transformation through unlocking
employment opportunities and generating foreign exchange. For this reason, the Government
will continue to implement ongoing initiatives targeted at promoting tourism including:
maintaining and repositioning the “Magical Kenya” brand to include all niche products and
experiences as an upmarket destination with emphasis on elements of authenticity, diversity,
sustainability, and safety while also marketing Kenya through brand ambassadors, social media
influencers and digital media. The Government will also continue to engage Kenyans in diaspora
to market the destination in 12 source and emerging markets; develop and translate marketing
materials in 6 foreign languages; and hold 4 roundtable meetings annually with Kenyan
Ambassadors and diaspora community.
90. The Government will also undertake the following interventions geared towards
development of new and strengthening existing markets: development of marketing strategies
for invest-source-markets (high returns) targeting African market, and new and existing markets;
establishment of tourism desks in foreign missions; enhancement of the policy on a visa free
regime, development of marketing and promotional media contents targeting growing middle
class, employed youth population and retirees; and establishment and maintenance of
partnerships with low-cost carriers and tour operators to connect tourism destinations and trade
to incentivize travel. Further, the Government will promote sports tourism through the following
international sporting events: World Rally Championship Safari Rally, Magical Kenya Open
Golf, Magical Kenya Ladies Golf, Kipkeino Classic, Safari Sevens Rugby and Standard
Chartered Nairobi Marathon.

1.3.4.3 Aviation Sector

91. The aviation sector is a major contributor to Kenya’s economy as well as a key enabler of
the Government’s Bottom-Up Economic Transformation Agenda. As one of the most visited
countries in Eastern Africa, aviation is essential for the tourism industry and to connect the
country with the rest of the world, strengthening trading ties and generating new business
opportunities. In order to entrench Kenya’s position as a regional aviation hub, the Government
has continued to expand and modernize airstrips to connect various parts of the country. As part
of the process, the Government refurbished Terminals 1B and C at Jomo Kenyatta International
Airport (JKIA), and rehabilitated 15 aerodromes.
92. Over the medium term, the Government will build on the progress made in order to facilitate
expeditious and safe movement of aircraft in Kenya’s airspace and improve passenger handling
services through the expansion and modernization of aviation facilities and services. This will
involve the construction of a control tower at Kisumu and Diani airports; t construction of an
additional terminal facility at JKIA with a capacity of handling 20 million passengers annually;
upgrading of facilities in terminal 1E to permanent status; the installation of equipment and

21 Draft 2025 Budget Policy Statement

systems for air navigation services; completion of construction of Kisumu Airport Control
Tower; and completion of rehabilitation of terminal building and Apron at Ukunda Airport.

1.3.5 Environment and Climate Change

93. Provision of a clean, secure and sustainable environment as well as climate change
mitigation and adaptation are central for the realization of the aspirations of the Bottom –Up
Economic Transformation Agenda and the Kenya Vision 2030. For this reason, the Government
has continued to mainstreaming issues of environment conservation, climate change mitigation
and adaptation, halt and reversal of deforestation, biodiversity loss and land degradation, in all
Government programmes and in both levels of Government.
94. As part of environmental conversation and management efforts, the Government continues
to implement the National Tree Growing Programme. The Programme aims to grow 15 billion
trees across the country by 2030 to promote and support more resilient livelihoods. The project
adopts Whole-of-Government and Whole-of-Society approaches which involve: supporting
production of 7.9 billion seedlings; the expansion of the existing 300 Kenya Forestry Service
tree nurseries to produce 300 million seedlings annually; the refurbishing existing 300 and
establishment of 50 new tree nurseries; drilling and equipping of 300 boreholes in all tree
nurseries; equipping the 11 constructed seed centres; and constructing and equipping of seven
(7) new seed centres. It also covers procurement and growing of 1.75 billion tree seedlings from
private tree nurseries; and rehabilitation and restoration of 175,000 Ha of degraded public natural
forest areas.
95. As part of climate change mitigation and adaptation efforts, the Government has
strengthened actions to prevent deforestation, halt and reverse biodiversity loss, combat
desertification and restore degraded landscapes as part of a broader programme to fulfil the
commitments to reduce emissions by 32 percent by 2030 as contained in Kenya’s Nationally
Determined Contribution (NDC). In addition, the Government has adopted a Bottom-Up 3P
solutions with greater focus on the People, Planet and Profit through prioritizations of biomass
energy (wood fuel), agro-forestry and solid waste management value chains. To facilitate
attainment of these goals, the Government has developed and is implementing policies and
strategies to tap into the global carbon market opportunities, green and climate financing
mechanisms such as Green Climate Fund, promote green bonds and debt for climate swaps
among others. In part, the Government in collaboration with County Governments and
Development Partners will continue to commit funds towards the National Tree Growing
Programme through the Financing Locally-led climate Action (FLLoCA) Program.
96. Over the medium term, the Government will prioritize modernization and
commercialization of the charcoal value chain by adopting modern kilns, decriminalize the
charcoal trade, supporting scaling up of clean cooking technologies and promoting youth-owned
and operated briquette-making enterprises. To support the solid waste management value chain,
the Government will focus on adopting the Extended Producer Responsibility (EPR) model
based on household level separation, organize waste collectors into cooperatives and provide
circular economy waste separation sites/infrastructure. Under the agroforestry value chain, the
focus is on development of a policy and regulatory framework to attract climate finance funds to
facilitate establishment of 5 million acres (20,000 square kilometres) agro-forestry woodlots in
dry lands.

1.3.6 Education and Training

97. Education and training remain a key enabler of the Government’s Bottom-Up Economic
Transformation Agenda for inclusive growth. To boost education and training outcomes in the
country, the Government has invested significant resources and implemented radical changes in

22 Draft 2025 Budget Policy Statement

the education sector, including: resolving uncertainty around the Competency Based Curriculum
(CBC); roll-out of a new student-focused higher education funding model, with special emphasis
for students from vulnerable families which has offered scholarships to 112,741 students and
loans to 113,140 students; and launched the Open University of Kenya was also launched as a
specialized university offering Seven undergraduate degree programmes and currently with an
enrolment of 2,300 students. Additionally, the Government launched the National Education
Management Information System. This online platform generates accurate and reliable data,
allowing the Government to address efficiency, accountability and transparency issues in the
Education sector.
98. The investment by Government has: improved the student enrolment in primary and
secondary schools as well as tertiary institutions; significantly improved student-teacher ratio by
employing 56,000 teachers for primary and secondary schools and 2,000 tutors for Technical
and Vocational Education and Training (TVET) institutions; facilitated construction and
operationalization of 614 secondary school classrooms and 392 laboratories, and 842 sanitation
blocks, 3500 classrooms for grade 9; 143 TVET institutions; and supported procurement of
training equipment for 97 TVETs institutions. In subsequent years, the Government is committed
to recruit more to further bridge the teacher-student ratio gap. Government has also engaged
52,000 teacher interns to equip Kenyan youth with practical skills and competencies.
99. Over the medium term, the Government will continue to undertake education reforms;
expand infrastructure in all learning institutions; and strengthen linkages between industry and
training institutions in order to enhance access to education at all levels. Priority will be given
to: recruitment and training of teachers; enrolment of school children of pre-primary age in
schools; expanding school feeding programme and providing learners with day meals; provision
of sanitary hygiene packs to school going girls at puberty stage; rehabilitation and equipment of
schools; providing water, sanitation and hygiene facilities; expansion of Junior and Senior school
education infrastructure, and awarding capitation grants including minimum essential package;
and integrating Duksi and Madrassa into formal basic education. In addition, the Government
will facilitate: construction and equipping of TVET institutions in 52 constituencies; equipping
72 existing TVET institutions; recruiting 2,000 technical trainers and instructors; establishing
incubation centres in every TVET institution; and online learning in TVET institutions and
universities. In order to enhance equity in provision of learning opportunities and resources for
learners who may be excluded or marginalized, the Government will provide resources for
infrastructural development for special needs education (SNE)/PWDs in schools and
universities; and capacity building of teachers and trainers on SNE.
100. In order to enhance access to quality and relevant education, the Government will continue
to review the curriculum for primary and secondary schools as well as tertiary institutions, will
continuously be reviewed to make sure the students are in touch with global change. This will
involve designing the curriculum and support materials; designing course content and outline;
reviewing the Competency Based Assessment Framework from the exam-based system of
academic progression to alternative progression criteria; capacity building of CBC implementers
and stakeholders; and developing measures to ensure tertiary institutions and universities deliver
on Competency Based Education. The Government will also prioritise the teaching and learning
of digital skills, including coding, from the primary school to tertiary education, including TVET
institutions; as well as developing and operationalizing the National Skills Management
Information System; and Integrated Higher Education Information Management System.

1.3.7 Women Agenda

101. The Constitution of Kenya provides for equal treatment of both men and women, including
the right to equal opportunities in political, economic, cultural and social spheres. In compliance
with this provision, the Government through Bottom-Up Economic Transformation Agenda has
23 Draft 2025 Budget Policy Statement
continued to promote greater inclusion of women in order to realise gender equality, especially
representation in decision making and economic empowerment, and breaking the silence on
Gender Based Violence (GBV) and Female Genital Mutilation (FGM).
102. Specifically, the Government has provided financial inclusion and capacity building for
women through the Hustler Fund in women-led cooperative societies, chamas, merry-go-rounds
and table banking initiatives, and to take measures to protect them from predatory lending.
Notably, over the last two years, the Government has: lent a total of Ksh 23 billion to 8.8 million
women have borrowed from the Hustler Fund, out of the Ksh 47 billion cumulatively disbursed
by the Fund; disbursed Ksh 942 million to 1.4 million women who are members of 53,000
women groups that are already accessing affordable financial facilities through the Women
Enterprise Fund; and developed and submitted a proposed legislative framework on two thirds
gender principle to National Assembly for consideration. Additionally, over the last two years,
the Government has disbursed a total of Ksh 3.3 billion to Affirmative Action Groups and
provided 132,562 needy students with bursaries and scholarships through National Government
Affirmative Action Fund (NGAAF); issued sanitary towels to 2.29 million girls in 23,492 public
primary schools; and built capacity of 46,745 resource persons and duty bearers on Anti- Female
Genital Mutilation.
103. To prevent and protect women against domestic violence, the Government launched
Protection against Domestic Violence Rules (PADV). The protection Against Domestic
Violence rules provides for individuals who suspect or fall victim to aggressive behaviour, a
legal redress to report their circumstances to relevant authorities and receive justice. The
Government has also deployed increased personnel at the gender desks in police stations, and
enhanced funding for the Anti-female Genital Mutilation Campaign, as well as upholding the
dignity of girls and women, especially in learning institutions by providing menstrual hygiene
products free of charge.
104. Over the medium term, the Government will continue to empower women economically
through capacity building and facilitating access to affordable credit and markets through the
Hustler Fund, Women Enterprise Fund and other affirmative action funds. The Government will
also prioritize implementation of measures to ensure zero tolerance to FGM and gender violence
as well as femicide through awareness campaigns, providing GBV essential services to
survivors, establishing rescue centres and safe houses, and establishing gender desks in all police
stations; and capacity building of GBV duty bearers and police officers on GBV. The
Government will further promote gender equality by integrating gender perspective in designing,
implementing, monitoring and evaluation of all policies, programmes and projects. This will
entail: training MDACs on gender-responsive budgeting; analysing levels of compliance of
MDACs on gender mainstreaming policies; and development of a framework for the
implementation of the two-thirds gender principle in elective positions and a legal framework to
operationalize the two-third gender principle.

1.3.8 Social Protection

105. Social Safety Nets Programs remain a priority intervention of the Government’s Bottom-
Up Economic Transformation Agenda geared towards poverty reduction, jobs creation and
provision of income opportunities for economically excluded segments of the population. For
this reason, the Government has continued to develop and expand social safety nets, and provide
financial resources to vulnerable groups. Over the last three years, the Government has: provided
cash transfers to 1,251,721 older Persons; 44,954 households with Persons with Disabilities
(PWDs); and 259,043 households with Orphans and Vulnerable Children (OVCs) under the Inua
Jamii Programme; registered and issued disability cards to 152,403 PWDs, issued assistive
devices to 10,969 PWDs; provided sunscreen lotions to 3,840 Persons with Albinism; Assisted
237,638 children through the child-helpline-116; Provided scholarships to 22,300 OVCs under
24 Draft 2025 Budget Policy Statement
the Presidential Secondary School Education programme; and registered 175,467 Community
Self-Help Groups and linked them to various Micro-finance Institutions.
106. Building on the progress made, the Government will streamline the cash transfer
programme for elderly and vulnerable households in order to improve operational efficiency,
prompt payment, accountability, and coverage. This will entail: i) enactment of the Social
Assistance (Amendment) Bill and operationalization Social Assistance Fund; ii) linkage of social
protection management information systems to relevant Government information systems; iii)
upgrading of the single registry; enhancing of Consolidated Cash Transfer Programme -
Management Information System (CCTP-MIS); and iv) graduation for the vulnerable groups
through economic empowerment. The Government will also continue to empower affirmative
action groups through access to financial facilities through the National Government Affirmative
Action Fund. To cushion the most vulnerable from extreme hunger, the Government will scale
up the Hunger Safety Net Programme for provision of cash transfers to households in ASALs.
107. Further, the Government will continue to promote and protect rights and welfare of PWDs.
Specific interventions will include: i) merging of the National Fund for the Disabled of Kenya
with National Council for Persons with Disabilities; registration of PWDs to access services;
provision of market-oriented skills for self-reliance; ii) implementation of albinism and autism
programmes; and iii) enrolment of learners with special needs and disabilities in public primary
schools. To rescue, rehabilitate, re-socialize, and re-integrate street families into society, the
Government will establish a model National Street Families Rehabilitation Centre, develop a
Street Families’ Rehabilitation Management Information System, and undertake national street
families’ census.
108. To ensure attainment of 100 percent in health insurance coverage for senior citizens, the
Government will continue to implement the Social Health Insurance Act, 2023 that established
the three funds: the Primary Healthcare Fund, the Social Health Insurance Fund (SHIF), and the
Emergency, Chronic, and Critical Illness Fund. The Act extends health insurance to all Kenyans
based on member contributions, with Government-subsidized coverage for the poor; and
expanded cash transfer programmes for elderly and vulnerable households to improve
operational efficiency. To enhance savings rate and reduce old age poverty, the Government will
continue to prioritize retirement contributions to National Social Security Fund (NSSF) and
strengthening of National Informal Sector Retirement Savings Scheme that is administered
through the Kenya National Entrepreneurs Savings Trust.

1.3.9 Sports, Culture and Arts

1.3.9.1 Sports and Arts
109. The Government’s Bottom-Up Economic Transformation Agenda recognises the central
role of sports in talent development, community empowerment, healthcare improvement and
economic transformation through employment creation, income generation throughout the sports
economy value chain. To realize these benefits, the Government continues to facilitate: the
development of legal framework, sports and arts infrastructure, development of creative and film
industry; promote sports tourism; promote anti-doping campaigns; and organisational
mechanisms to promote the effective and sustainable monetisation of all talent in sports and
creative economies.
110. Significant progress has been realized following implementation of these measures. These
include: i) Kenya successfully won the Pamoja bid for AFCON 2027 (Kenya, Tanzania and
Uganda); ii) facilitation of 112 teams to represent Kenya in various competitions and won 138
medals (49 gold, 35 silver, 54 bronze); iii) Kenya hosted 34 international sports competitions in
2023 e.g. WRC Safari Rally, Kip keino Classic, Magical Kenya Open Golf, and Nairobi City
Marathon; iv) registration of a total of 707 sports organizations, licensed 11 professional sports
25 Draft 2025 Budget Policy Statement
bodies and 58 professional sportspersons; reaching out to 44,500 persons through anti-doping
education and conducted 3,520 intelligence-based tests on athletes; and v) training 6,252 athletes
as well as 2,610 coaches, referees and umpires in various sports disciplines, including football,
chess, basketball, volleyball, hockey and Kabaddi.
111. Over the medium term, the Government will implement ongoing initiatives including the
Talanta Hela to: i) promote talents among the youths and revitalize the creative economy through
identifying, nurturing and monetization of youth talents in sports and creative, digital space (Ai)
and Bottom-up Football Tournament; ii) train 8,900 athletes and 5,200 technical personnel; iii)
facilitate participation of 43 national teams in international sports competitions; iv) conduct
4,500 tests and sensitize 57,000 persons on Anti-Doping; v) streamline the collection and
distribution of royalties to artists (including skiza tunes); and vi) review the inter-county
licensing regime; and host eight (8) international sports competitions (WRC-Safari Rally
Championship, World U17 Chess Championship, Sirikwa World Cross Country Championship,
Kaptagat Marathon, Nairobi City Marathon, World Athletics Continental Tour, African cycling
Championship and Magical Kenya Golf Open).
112. To promote development of sports and arts infrastructure, the Government will: complete
construction of Talanta Sports City and facilitate upgrade of three (3) Stadia (Moi International
Sports Centre Kasarani; Nyayo; and Kipchoge Keino Eldoret) in readiness for hosting the CHAN
2025 and AFCON 2027 Pamoja Bid; upgrade the existing stadia into international standards, and
complete stalled regional stadia; expedite completion of second phase of Kenya Academy of
Sports Complex); construction of one international standard stadium; and support establishment
of constituency community multipurpose sports and arts facilities including construction of 160
constituency sports academies.
113. To promote the development of creative and film industry, the Government will: i) establish
a National Creative Economy Council to regulate the creative sector; ii) develop programmes to
support protection from exploitation of IP and other rights host international art and creatives
festival exhibitions; iii) develop Government-powered arts and crafts industry information
portal; engage artists in mentorships and apprenticeships programmes; iv) strengthen existing
institutions like the Kenya Academy of Sports, the new Kenya Rallying School, the Kenya Film
Commission and the Kenya National Theatre; and v) issue licenses to exhibitors, distributors and
new film makers. To effectively anchor these reforms, the Sports Act and Sports Policy are
undergoing review, while enactment of the Creative Economy Policy, the Creative Economy
Support Bill 2024 is being fast tracked. The Bill seeks to establish a supportive environment for
creatives, enhance the industry’s economic impact, and create a dedicated Creative Fund.
1.3.9.2 Culture and Heritage
114. The Government’s Bottom-Up Economic Transformation Agenda aims to ensure that
Kenya’s diverse cultures and heritage are conserved, and indigenous knowledge is
commercialized. To protect and promote all forms of national culture and the cultural heritage
of communities, the Government has developed and will fast track enactment of the Culture Bill,
National Kiswahili Council of Kenya Bill, and the National Heritage and Museums Bill. The
Government has also: i) empowered 6,000 women in bead craft production on beadwork
enterprise for women in pastoralist communities; ii) established a curio mall at Sekenani under
Ushanga Kenya Initiative; iii) documented 16 traditional cuisines for preservation of cultural
services; iv) rehabilitated 32 traditional homesteads at Bomas of Kenya to improve access to
cultural tourism; v) digitized 180,000 heritage collections for heritage knowledge conservation;
and vi) digitized 450,000 records for preservation and conservation of public archives and public
records.
115. Over the medium term, the Government will prioritize empowerment of the cultural
practitioners through: i) the establishment of a national arts gallery and promotion of the Kenya

26 Draft 2025 Budget Policy Statement

National Music and Cultural Festival; ii) conducting cultural exchange projects (cultural
festivals, inter-cultural exchange and dialogue); iii) mapping and documenting Kenya’s
indigenous languages; iv) establishing an integrated national cultural and creative industries
information management system; and v) identification and honouring heroes and heroines during
national holiday celebrations to commemorate their heroic deeds and providing support services
to the heroes and heroines in need. The Government will also build capacity of 500 women and
youths in modern designs and technologies; digitize and commercialize beaded products from
target pastoralist communities; protection and preservation of Ushanga products and trade mark;
promote development of Ushanga and Johari products for target markets and portfolio; and
operationalize Ushanga State Agency; and construction of an Ushanga Mall at Sekanani Gate in
Narok County.

1.3.10 Youth Empowerment and Development Agenda

116. Youth empowerment and development remains an integral part of the Government’s
Bottom-up Economic Transformation Agenda and essential to the entire plan. For this reason,
the Government has implemented initiatives anchored on the Kenya Young People’s Agenda
with aim of developing entrepreneurial and life skills and enhancing employability of the youth,
and unlocking the potential of Micro, Small and Medium Enterprises (MSMEs) owned by the
youth. Notable progress has been made on this front over the last three years. In part, the
Government has: trained 201,418 youth on life skills, core business skills, job-specific skills and
entrepreneurship skills that led to creation of 187,451 employment opportunities; disbursed loans
worth Ksh 1.24 billion to 95,664 youth entrepreneurs; operationalized 83 Youth Empowerment
Centres (YECs), completed construction of YECS, and facilitated 1,059,480 youth to access
services at the Centers; Identified and nurtured 5,200 youth talents and engaged 3,915 youth in
green jobs.
117. Building on the progress made, the Government will over the medium term: disburse Ksh
1.35 billion to 47,361 youth entrepreneurs; continue to enhance skills development among the
youth through training 80,000 youth on apprenticeship, life skills, and market specific technical
skills for employment creation; engage 219,042 youth in intergenerational dialogue, and 215,702
youth in environmental conservation; equip 150 Youth Empowerment Centres (YECs) and
facilitate 2,500,000 youth to access youth empowerment services at YECs; train 43,000 youth in
leadership and governance, enrol 32,100 young people in the President’s Award programme;
and collaborate with the TVET ecosystem to bridge the gap between industry and training; and
transforming the youth labour market through evidence and credible data.

1.3.11 Governance

118. Corruption including wastage of public resources remain serious threats to the realization
of the aspirations of the Bottom-Up Economic Transformation Agenda. To strengthen the
framework for governance and anti-corruption including improving accountability and
transparency, the Government has implemented a number of reforms that include:
i) Published the Kenya's Access to Information (General) Regulations in 2023 that guides on
the procedure for proactive disclosure of information by public entities and private bodies;
and the procedure for requesting access to information thereby improving access to
information by the public;
ii) Developed the Conflict-of-Interest Bill in line with best practices, to ensure responsible use
of public funds would help elevate trust in government and public financial management.
The Governance shall fast track enactment of the Bill that is currently is being reviewed by
a meditation committee comprising of members of the National Assembly and the Senate.

27 Draft 2025 Budget Policy Statement

 Going forward, the Government committing to full automation and publication of asset
declarations of high-level public officials; and
iii) Strengthened the capacity of the Judiciary for efficient adjudication of corruption cases and
improving access to justice through facilitating judicial appointments and provision of
adequate infrastructure.
119. Consequently, the Government was able to: complete 377 investigation files on corruption
cases; process 681 files on economic crimes; avert Ksh 10.9 billion in potential losses; recover
Ksh 17.7 billion from corruptly acquired assets; and reach 37.77 million Kenyans through
awareness and sensitization on ethics & anti-corruption over the last three years. Over the
medium term, the Government will build on the progress made by: prioritizing implementation
of key reforms to address deficiencies in governance, anti-corruption frameworks and
AML/CFT, including leveraging on the requested governance diagnostic by International
Monetary Fund; scaling up the implementation of the provision of the Constitution;
strengthening the rule of law; increasing access to justice; and ensuring respect for Human rights,
equality and inclusion. This will enhance the effective implementation of BETA priorities,
enhance public policy credibility and garner public trust, and provide an enabling environment
for private investment, including finance to build climate resilience.
120. As part of the process, the Government will champion broader engagement through timely
and open communication and public participation throughout public policy making process
including to enhance accountability and renew political and social support. Further, the
Government will continue to strengthen various institutions that are mandated to fight corruption
in the country, implement reforms on good governance and enhance the capacity to recover
corruptly acquired assets. In part, the Government will prioritize judicial and legal services
transformation through the expansion of infrastructure, automation of court processes, and
recruitment of personnel. Specific interventions will include:
i) To enhance accountability and promote responsibility for the use of public resources, the
Government will introduce measures to levy a surcharge against any accounting officer or
other public officer who has, by their actions or omissions, occasioned loss of public
resources in accordance with Articles 226 (5), 201 (d); and 232 (b) of the Constitution;
ii) To facilitate expeditious investigation and prosecution of all offences related to corruption
and economic crimes, the Government will fast track amendments of the relevant statutes,
including the Evidence Act and the Criminal Procedure Code, and provide for their
determination within 6 months;
iii) To make it easier and safer for citizens and whistle-blowers to come forward and report
corruption and economic crimes, the Government shall consider relevant amendments to the
Witness Protection Act to enhance appropriate incentives; and
iv) To manage conflicts arising in the discharge of official duties, the Government will fast track
enactment of the Conflict of Interests Bill. The Bill prohibits public officers from engaging
in activities that conflict with public interest, imposes obligations to declare potential
conflicts, and creates penalties for violations.
1.3.11.1 Public Service Transformation
121. The Government continues to implement Public Service Transformation Strategy aimed at
creating an efficient and effective public service, and a highly motivated human resource
capacity for efficient public service delivery as envisaged under Bottom-Up Economic
Transformation Agenda and the Kenya Vision 2030. The Strategy seeks to enhance responsible
and accountable public service in the wake of globalisation, digital governance, and online
enterprise. Progress has been made in the implementation of the Strategy. In particular, the

28 Draft 2025 Budget Policy Statement

Government has: upgraded the Government Human Resource Information System (GHRIS); and
sensitized 9,616 officers on the Public Service Guidance and Counselling Policy.
122. Over the medium term, the Government will strengthen implementation of ongoing reforms
to transform the Public Service that is centred on performance management and productivity.
Accordingly, the Government will introduce a robust and integrated performance management
architecture that provide for standardised tools for measuring service delivery across the Public
Service, including State corporations and public universities, and across both levels of
Government. To realize this, the Government will employ the Whole-of-Government Approach
to revamp, re-institutionalise and drive a citizen-centric performance management system.
Further, the Government will implement a Unified Personal Identification system for all
personnel working across all the arms of Government, including constitutional commissions.
The System seeks to improve human resource management and eliminate the ‘ghost worker’
payroll fraud at all levels of Government. The Government will also introduce a legal and
institutional framework for mandatory and continuous vetting of all public officers. The same
framework will provide the repository of wealth declarations across the entirety of Government
under one office.
123. To strengthen and nurture strong leadership within the Public Service, the Government will
continue to implement the Public Service Emerging Leaders Fellowship (PSELF) and Public
Service Internship Programme (PSIP). To improve the sustainability and institutionalisation of
the Public Service Internship Programme, the Government will develop a framework to partner
with private sector organisations; and anchor the programme in law by amending the Public
Service Commission Act.
1.3.11.2 Strengthening Leadership Accountability and De-Personalising Politics
124. The Government continues to implement various initiatives and strategies geared towards
enhancing transparency, accountability and leadership effectiveness. Specifically, the
Government has: been conducting public participation and consultations throughout policy
making processes through town hall meetings and other forums for citizens to engage and hold
the Government accountable in compliance with the Constitution; made efforts to improve the
efficiency and professionalism of the civil service through hiring, training, and performance
evaluation of civil servants; developed Public Policy Handbook and Guidelines for the
development of Government Policy and Legislation; and developed the Government Legislative
Agenda schedule (repository).
125. The Government will build on the progress made to strengthen overall leadership and
accountability by developing a framework to promote open governance; promoting a culture of
adherence to the rule of law; strengthening electoral and political processes, democracy and
public participation; and reviving and roll-out an integrated public complaints referral
mechanism system. The Government will also promote coordination of Government Legislative
Agenda (GLA) and Parliamentary liaison across all Ministries and State Departments; and
promote inter-agency coordination and synergy in the development of legislation and policy, and
strengthen the relationship between Parliament and the Executive for the efficient dispatch of
Government business.
1.3.11.3 Strengthening Devolution
126. The implementation of the devolved system of governance has recorded significant
progress, including the transfer of functions and resources to County Governments, development
of policies, laws and legislations to support devolution, and alignment of sectoral laws to the
Constitution. The total equitable share allocation to the counties amounted to Ksh 3.3 trillion
since inception of devolution in 2013. The county equitable share of national revenue increased
from Ksh 190 billion in 2013/2014 to Ksh 385 billion in FY 2023/24.

29 Draft 2025 Budget Policy Statement

127. Over the medium term, the National Government will continue disbursing funds to counties
in a more efficient and timely way; and supporting counties to improve their capacity to generate
their own source revenue reduce over-reliance on transfers from the National Government.
Government will also complete transfer of all functions constitutionally earmarked to counties
and develop a framework for ensuring that state-owned firms carrying out devolved or shared
functions adhere to the principles of governance and ensure that the principle of funding-follows-
functions is adhered to with respect to all devolved functions. Further, the Government will
enhance intergovernmental cooperation and consultations through the intergovernmental sector
forums, convening Intergovernmental Budget and Economic Council and Summit meetings that
facilitate coordination of both levels of Government, and internally within counties and National
Government institutions.
1.3.11.4 Security
128. The security and safety of all citizens remains a critical enabler for sustaining socio-
economic transformation, attaining the Bottom-Up Economic Transformation Agenda and other
priority programmes as outlined in the Fourth Medium Term Plan of Vision 2030. For this
reason, the Government has continued to invest significant resources and implement a wide
range of reforms to improve the capacity of the security forces to protect Kenyans and their
property against internal and external threats.
129. Progress has been made in the implementation of these reforms over the last three years
including: reduced crime rate per population of 100,000 from 148 to 142; equipment of forensic
laboratory with up to 51.8 percent level of equipping to aid investigations; completion of 7
previously stalled construction projects; operationalization of 18 Administration Police Sub-
County Headquarters for better delivery of policing services; completion of investigation of
102,275 out of 110,080 reported traffic cases; and completion of the construction of the National
Police Service Referral Hospital –Mbagathi.
130. Building on the progress made, the Government will continue to strengthen the security
capabilities through the recruitment of additional police, prison and military officers and
expansion of prison, police and military infrastructure and equipment. To improve the welfare
of security personnel, priority will be accorded to development of infrastructure in support of
their operations, training, healthcare and housing requirements. The Government will also
prioritize: digitization of police stations and services; modernization of security products and
services including national ID, unique personal identifier and passports to enhance access to
services.

1.3.12 Foreign Policy and Regional Integration

131. The Kenya’s Foreign Policy is anchored on five interlinked pillars of diplomacy that guides
the country’s relations and diplomatic engagements with the rest of the world. These include: i)
Economic and Commercial Diplomacy Pillar; ii) Peace Diplomacy Pillar; iii) Environmental
Diplomacy Pillar; iv) Cultural Diplomacy Pillar; and v) Diaspora Diplomacy Pillar. The
Government has continued to enhance Kenya’s role in the international arena by focusing on the
following key result areas: i) project, promote and protect Kenya’s interests and image globally;
ii) promote global and regional peace, security and stability; iii) safeguard Kenya’s sovereignty
and territorial integrity; iv) promote economic cooperation, and commercial diplomacy; v)
strengthen public diplomacy and stakeholders engagement; vi) enhance provision of consular
services; and strengthen policy, legal and institutional capacity.
132. Notable achievements have been realized for the past two years. The Government has:
facilitated high-level visits (outbound 84 and 80 inbound); operationalized five (5) fully-fledged
diplomatic Missions in Abidjan, Rabat, Bern, Jakarta and Maputo; three (3) Consulates in Goma,
Jeddah & Arusha and a Liaison Office in Hargeisa; successfully lobbied for the election of 23
30 Draft 2025 Budget Policy Statement
Country and 21 individual candidatures into international policy-making organs; facilitated
Evacuation of 1,329 Kenyans in distress as well as the repatriation of 74 mortal remains of
deceased Kenyans abroad; Offered mobile consular services (I.Ds, Passports, Birth certificates)
to 13,500 Kenyans in 46 countries around the world; coordinated 57 Joint Commissions for
Cooperation (JCC)/Joint Permanent Commissions for Cooperation (JPCC); and coordinated
processing to conclusion of 168 international agreements and MOUs.
133. Over the medium term, to entrench Kenya’s significance in world affairs, the Government
will finalize the review of the Kenya Foreign Policy 2024 to make it relevant, effective, and
inclusive in advancing the country's national interests and the common good through diplomatic
means. The Policy provides a comprehensive framework for guiding the nation’s foreign
relations and diplomatic efforts as Kenya prepares to transition from the 2014 Foreign Policy
framework. The Foreign Policy objectives are structured around seven interlinked focus areas,
including peace and security diplomacy, economic and commercial diplomacy, socio-cultural,
diaspora, digital, environmental and climate diplomacy.

1.3.12.1Economic and Commercial Diplomacy

134. Economic and commercial diplomacy is one of the pillars of Kenya's Foreign Policy. The
goal of Economic and Commercial Diplomacy in Kenya is to create a strong and sustainable
economic transformation to achieve social and economic development in line with the goals of
the Bottom-Up Economic Transformation Agenda and the Kenya Vision 2030. Towards this
end, the Government will prioritize implementation of reforms aimed at: i) increasing capital
flows to Kenya and the East African region; supporting export promotion and investment by
Kenyan enterprises within the region and beyond; ii) promoting the country as a favourite
destination for foreign direct investment, tourism, and conferencing; iii) expanding access to
traditional markets and explore new destinations for Kenya’s exports; iv) enhancing
technological advancement by exploring new sources of affordable and appropriate technology;
v) supporting the exploration of alternative sources of traditional and renewable energy; vi)
strengthening regional economic communities and organizations to serve as competitive spring
boards to emerging and global markets; and vii) promoting fair trade and equitable bilateral,
regional and multilateral trade agreements.
135. Kenya is a member of the multilateral trading system such as the World Trade Organization
(WTO) and the United National Conference on Trade and Development (UNCTAD). At the
continental level, Kenya is an active member of the Africa Continental Free Trade Area
(AfCFTA), and an African Caribbean and Pacific (ACP) country signatory to the Cotonou
Agreement, The East Africa Community (EAC), the Common Market for Eastern and Southern
Africa (COMESA) and the Tripartite arrangements i.e. COMESA-EAC-SADC. To unlock the
potential of Kenya’s commercial and trade relations, the Government will continue to promote
bilateral cooperation in trade and investment, increase the uptake of Kenya’s trade and
investment opportunities in the EAC region; enhance the regional integration by providing a
better business environment through liberalization of regional trade, investment facilitation, and
facilitation of the movement of goods, services, capital and people across regional borders.
1.3.12.2Anchor State
136. The Government will continue to strengthen Kenya’s profile as regional role as an anchor
state in regional, continental, and global affairs. Underlying Kenya’s Peace and Security
Diplomacy is the recognition of peace and stability as necessary pre-conditions for development
and prosperity. Linked to this, is Kenya’s conviction that its own stability and economic
wellbeing are dependent on the stability of the sub-region, Africa and the rest of the world.
137. Kenya’s importance as security actor and anchor state has grown overtime. The country,
which served on the UN Security Council in 2021-2022, is one of the only African members of

31 Draft 2025 Budget Policy Statement

the Ukraine Defence Contact Group. Kenya participates in Operation Prosperity Guardian, a
maritime taskforce launched by the United States in response to Houthi attacks against vessels
in the Red Sea. With the support of the United States, the country is leading a new Multinational
Security Support mission in Haiti, where gangs have taken over much of the capital.
138. Over the medium term, the Government will continue to strengthen Kenya’s profile as
regional role as an anchor state by: i) promoting the resolution of conflicts by peaceful means; ii)
collaborating with other African countries to strengthen the conflict prevention, management and
resolution capacity of regional institutions, including the East African Community (EAC), Inter
Governmental Authority on Development (IGAD), Common Market for Eastern and Southern Africa
(COMESA) and the African Union (AU) with the aim of promoting sustainable peace and
development; iii) supporting peace efforts by the African Union and the United Nations through
contributing troops and providing leadership in peacekeeping missions within the continent and
globally; and iv) creating conflict analysis and prevention capacity nationally and in the region
through the Foreign Service Academy. In pursuing these objectives, Kenya’s foreign peace
diplomacy continues to draw on Kenya’s experiences in mediation, conflict resolution and
peacekeeping. Further, Kenya will continue to support institutions that are involved in peace keeping
in the Continent which include International Peace Support Training Centre and East African
Standby Force Command, among others.
1.3.12.3 Global Citizenship
139. The Government continues to deepen bonds with long-standing international and bilateral
partners including the African Union, the East African Community and the United Nations and
its affiliates to address various issues such as peace and security, trade, human rights and
environmental protection shaped by its foreign policy objectives, economic interests, and
regional dynamics. The Government’s involvement with global debate on Sustainable
Development has given the country leverage in building blocks for an enhanced role and
contributions particularly emerging issues such as Climate Change, Oceans and Blue Economy
and the quest for the reformation of international organizations to ensure equity and fair
representation of all member states. In undertaking this renewed role at the global level, Kenya
has established its credentials as a global champion for multilateralism and a proponent of as
rule-based multilateral system. Furthermore, Kenya has assumed a lead role in the African
Union’s efforts to strengthen relations with the People of African Descent, the 6th Regional
Constituency; under the framework of the Organization of African, Caribbean and Pacific States.
1.3.12.4 Diaspora
140. Kenyans living abroad have huge potential to contribute to development through increased
remittances to a tune of Ksh 1 trillion by 2027. To realize this, the Government will prioritize
programmes on facilitating increase in diaspora savings, investments, and remittances;
promoting continuous dialogue and engagement with Kenyans abroad, protecting Diaspora
rights and championing their welfare; and enhancing diaspora labour mobility, placements and
enabling technology transfers. As part of the process, the Government will prioritize
implementation of the Diaspora Policy 2024 that seeks to protect, empower and prosper, promote
continuous dialogue and engagement with Kenyan diaspora and integration them into the
national development agenda. The Government will also facilitate implementation of the
Diaspora Integrated Information Management System (DIIMS) and operate a 24-hour response
centre for both evacuation and repatriation of diaspora during distress period.

32 Draft 2025 Budget Policy Statement

II. RECENT ECONOMIC DEVELOPMENTS AND MEDIUM-
TERM OUTLOOK
2.1 Global Economic Outlook
141. Global economy has stabilized with global growth projected at 3.2 percent in 2024 and
2025 from 3.3 percent in 2023 supported by easing of global inflation and supply chain
constraints (Table 2.1). The outlook reflects stronger-than-expected growth in the USA, some
large emerging market economies such as India, and improved growth prospects in the UK. The
main risks to the global growth outlook relate to disruptions to the disinflation process,
potentially triggered by new spikes in commodity prices amid persistent geopolitical tensions, a
possible resurgence of financial market volatility with adverse effects on sovereign debt markets,
a deeper growth slowdown in China and an intensification of protectionist policies which would
exacerbate trade tensions, reduce market efficiency, and further disrupt supply chains.
Table 2.1: Global Economic Performance

Source: IMF World Economic Outlook, October 2024. *National Treasury Projection
142. Growth in the advanced economies is projected to remain stable at 1.8 percent in 2024
and 2025 from 1.7 percent in 2023. In the United States, growth is projected at 2.8 percent in
2024 on account of stronger outturns in consumption and non-residential investment and demand
factors in the labour market. Growth is anticipated to slow to 2.2 percent in 2025 as fiscal policy
is gradually tightened and a cooling labor market slows consumption. Growth in the euro area is
expected to recover as a result of better export performance, in particular of goods, stronger
domestic demand, rising real wages which are expected to boost consumption, and a gradual
loosening of monetary policy which is expected to support investment. However, growth in
Japan in expected to slowdown reflecting temporary supply disruptions and fading of one-off
factors that boosted activity in 2023, such as the surge in tourism.

33 Draft 2025 Budget Policy Statement

143. Growth in emerging markets and developing economies is projected to remain stable at
4.2 percent in 2024 and 2025, with divergence across major economies. At the regional level,
growth in Sub-Saharan Africa is expected to rebound to 4.2 percent in 2025 from 3.6 percent in
2024 and 2023. This growth is driven by improved economic activities as the adverse impacts
of prior weather shocks subside and supply constraints gradually ease.

2.2 Domestic Economic Performance

144. The Kenyan economy remained strong and resilient in the first three quarters of 2024
despite its growth being relatively slower than the corresponding period in 2023. In the first three
quarters of 2024, the economic growth averaged 4.5 percent (5.0 percent Q1, 4.6 percent Q2 and
4.0 percent in Q3) compared to an average growth of 5.6 percent (5.5 percent Q1, 5.6 percent
Q2 and 6.0 percent in Q3) in 2023. The growth in the first three quarters of 2024 was primarily
underpinned by strong performance in the agriculture sector, a slight recovery of the
manufacturing sector, and the resilience of services sector. All the economic sub-sectors except
mining and construction recorded positive growth rates in the first the quarters of 2024, though
the magnitudes varied across the economic activities (Table 2.2). The diversified structure of the
Kenyan economy remains a key source of resilience to domestic and external shocks.

Table 2.2: Sectoral GDP Performance

Source of Data: Kenya National Bureau of Statistics

145. The primary sector grew by an average of 4.2 percent in the first three quarters of 2024
(5.0 percent in the first quarter, 4.4 percent in the second quarter and 3.2 percent in the third
quarter) mainly supported by strong agricultural activities despite a contraction in mining and
quarrying. In the first three quarters of 2024, the agriculture sector remained robust growing by
6.1 percent in the first quarter, 4.8 percent in the second quarter and 4.2 percent in the third
quarter. This growth was supported by favorable weather conditions and the impact of
Government interventions to lower the cost of production. However, the sectors’ performance

34 Draft 2025 Budget Policy Statement

was somewhat curtailed by heavy rains and floods, between March and June 2024, that led to
loss of livestock and damage to croplands.
146. Activities in Mining and Quarrying contracted in the first three quarters of 2024 mainly
due to a decline in production of most minerals such as titanium, soda ash and gemstone. This
was as a result of the closure of Kwale miner Base Titanium which formally shut down its mining
activity in Kenya in December 2024 due to depletion of commercially viable ore.
147. Industrial sector performance remained subdued, with growth of the sector slowing
down to an average of 0.8 percent in the first three quarters of 2024 (1.0 percent Q1, 0.8 percent
Q2 and 0.6 percent Q3). This was mainly on account of a slowdown in activities from
electricity& water supply and contraction of the construction sub-sectors. The slowed growth in
electricity& water supply was due to a decline in generation of electricity from geothermal, wind
and solar while the contraction in construction sector is due to a slowdown in public sector
infrastructure projects. Activities in the manufacturing sector, which accounts for nearly half of
the industrial sector output, was supported by significant growths in the manufacture of food
while the non-food manufacturing activities recorded varied performance.
148. The activities in the services sector continued to sustain strong growth momentum in the
first three quarters of 2024 averaging 5.6 percent (6.2 percent Q1, 5.3 percent Q2 and 5.3 percent
Q3). The performance was largely characterized by significant growths in accommodation and
food service, financial and insurance, information and communication, real estate, and wholesale
and retail trade sub-sectors. Accommodation and restaurant service sub-sector benefited from
several high-profile international conferences held in Nairobi between April and June 2024 that
attracted significant international participation. Growth in the information and communication
sub-sector was supported by increased voice traffic, internet use and mobile money despite a
decline in the use of domestic Short Messaging Services (SMSs).
149. Taking into account the performance of the economy in the first three quarters of 2024
and the slowdown in private sector credit growth to key sectors of the economy growth is
estimated to expand overall by 4.6 percent in 2024 and 5.3 percent in 2025. These projections
are mainly supported by: a robust services sector and recovery of manufacturing sector; robust
agricultural productivity and improvement in exports. The outlook will be reinforced by
implementation of policies and reforms under the priority sectors of the Bottom-Up Economic
Transformation Agenda (BETA) and improvement in aggregate demand. Additionally,
implementation of prudent fiscal and monetary policies will continue to support economic
activity (Figure 2.1).

Figure 2.1: Annual Real GDP Growth Rates, percent

Source of Data: Kenya National Bureau of Statistics

35 Draft 2025 Budget Policy Statement

Inflation Developments

150. Overall inflation declined and has remained below the mid-point of the target band of 5.0
percent since June 2024, mainly reflecting significant declines in energy prices and continued
easing of food prices. Inflation declined to 3.0 percent in December 2024 from 6.6 percent in
December 2024 and a peak of 9.6 percent in October 2022 (Figure 2.2). Easing inflation has been
supported by abundant supply of food arising from favorable weather conditions, lower fuel
inflation attributed to appreciation of the exchange rate and lower international oil prices, and
the decline in non-food non-fuel (NFNF) inflation reflecting impact of previous monetary policy
tightening.

Figure 2.2: Inflation Rate, Percent

Source of Data: Kenya National Bureau of Statistics

151. Food inflation remained a key driver of overall year-on-year inflation though it declined
to 4.8 percent in December 2024 from 7.7 percent in December 2023. The easing of food prices
was supported by increased food supply arising from favorable weather conditions, continued
Government interventions particularly through subsidized fertilizer, and the general easing of
international food prices. Prices of most vegetable food items increased in the month of
December 2024 compared to the same period in 2023 while those of non-vegetable food items
declined significantly during the same period.
152. Fuel inflation declined to -1.0 percent in December 2024 from 13.7 percent in December
2023. The decline largely reflected the easing global oil prices and appreciation of the Kenya
Shilling’s which resulted in a downward adjustment of pump prices; and lower electricity prices.
Core (non-food non-fuel) inflation has remained low and stable reflecting the impact of tight
monetary policy and muted demand pressures.
153. Given that inflation is below the mid-point of the target range and the exchange rate has
stabilized, the Central Bank of Kenya through the Monetary Policy Committee (MPC) has
gradually eased monetary policy by lowering the Central Bank Rate (CBR), initially to 12.75
percent from 13 percent in August 2024 to 12.0 percent in October 2024 and further to 11.25
percent in December 2024. The easing of the monetary policy stance is aimed at improving credit
to the private sector thereby supporting economic activities.

36 Draft 2025 Budget Policy Statement

Monetary and Credit Developments

154. Broad money supply, M3, grew by 1.6 percent in the year to November 2024 compared
to a growth of 21.1 percent in the year to November 2023 (Table 2.3). The slowdown in growth
of M3 was due to a decline in the growth of Net Domestic Assets (NDA) particularly the
domestic credit. The primary source of the growth in M3 was the resilience in the Net Foreign
Assets (NFA) of the banking system, mainly reflected in the stability of commercial banks’
Foreign Assets.
155. Net Domestic Assets (NDA) contracted by 2.2 percent in the year to September 2024,
compared to a growth of 10.9 percent over a similar period in 2023. The slowdown in growth of
the NDA was due to a decline in growth of the domestic credit to the private sector. The domestic
credit extended by the banking system to the Government increased to grow by 16.6 percent in
the year to November 2024 compared to a growth of 14.4 percent in the year to November 2023.
Table 2.3: Money and Credit Developments (12 Months to November 2024, Ksh billion)

Source of Data: Central Bank of Kenya

156. Growth in private sector credit from the banking system declined by 1.1 percent in the
year to November 2024 compared to a growth of 13.2 percent in the year to November 2023,
due to the impact of exchange rate appreciation on foreign currency denominated loans and the
lagged effects of monetary policy tightening. Reduced credit growth was observed in
manufacturing, finance and insurance, trade (exports) and building and construction sub-sector.
These are some of the sub-sectors with significant foreign currency denominated loans.
157. The Monthly (month on month) credit flows to the private sector have slowed down since
December 2023 following the monetary policy action of increasing the central bank rate to
manage inflation expectation which resulted in the increased cost of credit (Figure 2.3). With
the strong easing of monetary policy stance, credit to the private sector is expected to recover as
lending rates decline. Sustained demand particularly for working capital due to resilient
economic activity and the implementation of the Credit Guarantee Scheme for the vulnerable
MSMEs will continue to support private sector credit uptake.

37 Draft 2025 Budget Policy Statement

Figure 2.3: Private Sector Credit

Source of Data: Central Bank of Kenya

Interest Rates Developments

158. Interest rates have declined in line with the easing of the monetary policy. The interbank
rate declined to 11.4 percent in December 2024 compared to 11.7 percent in December 2023 and
has remained within the prescribed corridor around the CBR (set at CBR± 150 basis points). The
91-day Treasury Bills rate also declined to 10.0 percent in December 2024 from 15.7 percent in
December 2023 (Figure 2.4).
Figure 2.4: Short Term Interest Rates, Percent

Source of Data: Central Bank of Kenya

159. Commercial banks average lending and deposit rates increased in the year to November
2024 in tandem with prevailing tight monetary policy stance thereby reflecting high cost of
investable funds. The average lending rate increased to 17.2 percent in November 2024 from
14.6 percent in November 2023 while the average deposit rate increased to 10.4 percent from
10.1 percent over the same period. Consequently, the average interest rate spread increased to
6.8 percent in November 2024 from 4.5 percent in November 2023.

38 Draft 2025 Budget Policy Statement

External Sector Developments
160. The current account deficit was at US$. 4,537.9 million (3.6 percent of GDP) in
November 2024 compared to US$ 4,354.5 million (4.4 percent of GDP) in November 2023,
reflecting strong performance of export of goods as well as increased remittances (Table 2.4).
Goods imports increased by 7.5 percent in the 12 months to November 2024, reflecting increases
in intermediate and capital goods. On the other hand, in the year to November 2024, goods
exports increased by 12.9 percent in the 12 months to November 2024, reflecting increased
exports of agricultural commodities and re-exports. The balance in the merchandise account
deteriorated by US$. 372.3 million to a deficit of US$. 10,539.7 million in November 2024
mainly because the increase in import bill more than offset the increase in exports.
Table 2.4: Balance of Payments (USD Million)

Source of Data: Central Bank of Kenya

161. Net receipts on the services account declined by US$. 13.1 million to US$. 675.7 million
in November 2024 compared to similar period in 2023. This was mainly on account of a decline
in receipts due to transport in spite of an increase in receipts from tourism as international travel
continued to improve. Remittances increased by 15.3 percent to USD 4,804 million in the 12
months to October 2024 compared to USD 4,165 million in a similar period in 2023.
162. The capital account balance increased by US$. 21.4 million to register a surplus of US$
152.5 million in November 2024 compared to a surplus of US$. 131.1 million in the same period
in 2023. Net financial inflows improved to US$. 5,420.6 million in November 2024 compared
to US$. 2,539.6 million in November 2023 reflecting a slowdown in inflows to the government
and other sectors. The net financial inflows were mainly in the form of other investments and
direct investments. However, portfolio investments and financial derivatives registered a net
outflow during the period partly due to Kenya’s limited access to international financial markets
owing to elevated borrowing costs.
163. The overall balance of payments position slowed down to a deficit of US$. 1,500.7
million (1.2 percent of GDP) in November 2024 from a surplus of US$. 979.9 million (1.0
percent of GDP) in November 2023.

39 Draft 2025 Budget Policy Statement

Foreign Exchange Reserves
164. The banking system’s foreign exchange holdings remained strong at US$. 16,312.1
million in November 2024, an improvement from US$. 14,211.1 million in November 2023. The
official foreign exchange reserves held by the Central Bank stood at US$. 9,578.0 million
compared to US$ 7,397.6 million over the same period in 2023 (Figure 2.5). Commercial banks
foreign exchange holdings decreased to US$. 6,734.1 million in November 2024 from US$.
6,813.5 million in November 2023.
165. The official reserves held by the Central Bank in November 2024 represented 4.9 months
of import cover as compared to the 3.9 months of import cover in November 2023. These
reserves continue to provide adequate cover and buffer against any short-term shocks in the
foreign exchange market.
Figure 2.5: Foreign Exchange Reserves (USD Million)

Source of Data: Central Bank of Kenya

Exchange Rate Developments

166. The foreign exchange market remained stable in 2024 despite increased global
uncertainties, effects of a stronger U.S. Dollar and geopolitical tensions in the Middle East. The
Kenya Shilling exchange rate was weaker at the turn of the year but strengthened against the
U.S. Dollar from mid-February 2024 and has now stabilized against major international
currencies. In December 2024, the exchange rate against the US dollar averaged at Ksh 129.4
compared to an average of Ksh 159.7 in January 2024, an appreciation of 19.0 percent. Against
the Euro, the Kenya shilling strengthened by 22.2 percent to exchange at an average of Ksh 135.6
in December 2024 compared to an average of Ksh 174.3 in January 2024 while against the
Sterling Pound the Kenyan Shilling strengthened by 19.3 percent to exchange at an average of
Ksh 163.6 compared to an average Ksh 202.9, over the same period (Figure 2.6).
167. The foreign exchange market was mainly supported by inflows from agricultural exports,
remittances and portfolio investors while demand was driven by pickup in economic activities
specifically in the manufacturing, wholesale, and retail sub-sectors. The appreciation and
stability of the exchange rate has created confidence and triggered inflows of foreign direct
investment and attracted investors to the Nairobi Securities Exchange. This appreciation has
helped to reduce debt service costs, improve performance of domestic borrowing and stabilize
interest rates.

40 Draft 2025 Budget Policy Statement

Figure 2.6: Kenya Shillings Exchange Rate

Source of Data: Central Bank of Kenya

Capital Markets Developments

168. Economic recovery, appreciation of the Kenya Shilling against major international
currencies and macroeconomic stability have created confidence and triggered inflows of foreign
direct investment and attracted investors to the Nairobi Securities Exchange. The NSE 20 Share
Index improved to 2,011 points in December 2024 compared to 1,501 points in December 2023
while market capitalization also improved to Ksh 1,940 billion from Ksh 1,439 billion over the
same period (Figure 2.7).
Figure 2.7: Performance of the Nairobi Securities Exchange

Source of Data: Nairobi Securities Exchange

41 Draft 2025 Budget Policy Statement

2.3 Fiscal Performance
169. Budget implementation for the FY 2024/25 was initially impended by the withdrawal of
the Finance Bill, 2024 and protests that led to a slowdown of economic activities. Additionally,
the FY2023/24 closed with unpaid exchequer requests (carryovers) of Ksh 218.5 billion and the
implementation of the Collective Bargaining Agreements has continued to put pressure on the
expenditures. To ensure seamless implementation of the FY 2024/25 budget and safeguard the
fiscal consolidation plan, the National Treasury rationalized expenditures through the
Supplementary Estimates I.

Revenue Performance

170. By end November 2024, revenue collection amounted to Ksh 1,088.1 billion against a target
of Ksh 1,169.8 billion resulting to an underperformance of Ksh 77.3 billion. The
underperformance was mainly on account of shortfall registered in ordinary revenue. Total
revenues grew by 7.6 percent by end November 2024 compared with a growth of 13.2 percent
by end November 2023 (Table 2.5a).
171. Ordinary revenue for the period to November 2024 was Ksh 937.4 billion against a target
of Ksh 1,009.0 billion translating into a shortfall of Ksh 71.6 billion despite recording a growth
of 6.7 percent. All broad tax categories of ordinary revenue fell short of the respective targets
during the review period. Value Added Tax (VAT) recorded the highest shortfall of Ksh 36.6
billion, Income tax recorded a shortfall of Ksh 15.2 billion, Excise duty of Ksh 11.7 billion and
Import duty of Ksh 6.9 billion. This revenue trend is expected to reverse as economic activities
pick up. Ministerial A-i-A amounted to Ksh 150.8 billion in November 2024 against a target of
Ksh 156.4 billion recording a shortfall of 5.7 billion.

Table 2.5a: Fiscal Performance as at 30th November, 2024

Source of Data: National Treasury

42 Draft 2025 Budget Policy Statement

Expenditure Performance

172. Total expenditure and net lending in the period to November 2024 amounted to Ksh 1,442.9
billion against a target of Ksh 1,509.5 billion, translating to a shortfall in expenditure of Ksh 66.6
billion. This was largely on account of below target disbursement towards recurrent expenditure
by Ksh 57.6 billion and County Governments by Ksh 26.0 billion (Table 2.5a). Development
expenditures surpassed target by Kshs 18.1 billion mainly due to over absorption of foreign
financed development projects by Ksh 14.8 billion and domestically financed projects by Ksh
5.2 billion. Revenue mobilization and financing challenges affected our ability to execute the
FY2024/25 budget in a timely manner leading to cash flow challenges.
173. Fiscal operations by end of November 2024 resulted in an overall deficit including grants
of Kshs 350.9 billion (1.9 percent of GDP) against a target of Kshs 339.7 billion (1.9 percent of
GDP). The deficit was largely financed through net domestic financing of Ksh 401.7 billion (2.2
percent of GDP) as net foreign financing was a repayment of Ksh 1.7 billion (0.01 percent of
GDP).

2.4 Fiscal Policy

174. The fiscal policy stance in the FY 2025/26 and over the medium term aims at supporting
the priority programmes of the Government under the Bottom - Up Economic Transformation
Agenda (BETA) and the MTP IV through a growth friendly fiscal consolidation plan. The plan
targets to slow down the annual growth in public debt and implement an effective liability
management strategy, without compromising service delivery to citizens. This is expected to
boost the country’s debt sustainability position. Fiscal consolidation will be supported by
continued efforts to enhance domestic revenue mobilization, reprioritize and rationalize
expenditure while safeguarding priority Government programmes and social spending.
175. Consequently, the Government’s total revenue including A-i-A is projected to rise from
16.9 percent of GDP in FY 2024/25 to 18.2 percent of GDP in FY 2025/26 and further to 18.6
percent of GDP in FY 2026/27. Of the total revenue, ordinary revenue is projected to rise from
14.6 percent of GDP in the FY 2024/25 to 15.7 percent of GDP in FY 2025/26 and further to
16.1 percent of GDP in FY 2026/27. Total expenditure is projected at 22.5 percent of GDP in
FY 2025/26 and FY 2026/27 from 21.5 percent of GDP in the FY 2024/25. Of the total
expenditures, recurrent expenditure is projected at 16.0 percent of GDP in FY 2025/26 and 15.9
percent of GDP in FY 2026/27 from 15.7 percent of GDP in FY 2024/25. The development
spending in the budget will increase progressively over the medium term so as not to impact on
growth momentum.

43 Draft 2025 Budget Policy Statement

Table 2.5 b: Fiscal Framework

Source of Data: National Treasury

2.4.1 Domestic Revenue Mobilization

176. Government will implement a mix of tax administrative and tax policy measures in order
to boost revenue collection efforts by the Kenya Revenue Authority (KRA) to over Ksh 4.0
trillion in the medium term thereby supporting economic activity. In particular, the Government
will focus on domestic resource mobilization efforts that include:
i) Implementation of the National Tax Policy and Medium-Term Revenue Strategy 2024/25-
2026/27;
ii) Strengthening tax administration for enhanced compliance through expansion of the tax
base, minimizing tax expenditures, leveraging on technology to revolutionize tax processes,
sealing revenue loopholes and enhancing the efficiency of tax system; and,
iii) Focus on non-tax revenues that Ministries, Departments and Agencies can raise through the
services they offer to the public.
177. Implementation of the tax administrative reforms will target to:
i) Reduce tax expenditures that now stands at 2.94% of GDP thereby adding revenues;
ii) Expand the tax base and strengthen tax compliance as envisaged under the MTRS;
44 Draft 2025 Budget Policy Statement
 iii) Rationalize tax structure to promote domestic production and encourage investments.

2.4.2 Expenditure Reforms

178. Government will sustain measures to strengthen expenditure control and improve
efficiency and effectiveness in public spending. These measures will include: implementation of
austerity measures aimed at reducing Government recurrent expenditure; roll out an end-to-end
e-procurement system to maximise value for money and increase transparency in procurement;
scale up use of Public Private Partnerships (PPPs) framework for commercially viable projects
to crowd-in the private in the provision of public services; and expediting governance reforms
targeting state corporations. Other expenditure measures will include:

Implementation of Treasury Single Account

179. To improve public cash management, the Cabinet approved implementation of Treasury
Single Account (TSA) over a three-year period. Treasury Single Account (TSA) is a unified
structure of Government bank accounts that enables the consolidation and optimum utilization
of government cash resources. The implementation is in line with Section 17(2) and Section 9(1)
of the Public Finance Management Act, 2012. The implementation of TSA will be rolled-out in
phases as follows: -
i) Phase 1: Comprises the migration to the TSA environment in the first year (FY 2024/25)
of all state organs including constitutional institutions and independent offices categorized
as Schedule I National Government entities as per Regulations 211(2) of the PFM (National
Government) Regulations, 2015.
ii) Phase 2: Comprises the migration of County Governments to the TSA in the second year
(FY 2025/26) in close consultation with Intergovernmental Budget and Economic Council.
iii) Phase 3: Comprises the migration in the third year (FY 2026/27), of all other national
government entities categorized as Schedule 3, Schedule 4 and Schedule 5 as per
Regulations 211 of the PFM (National Government) Regulations, 2015.

Accrual Accounting

180. To strengthen management of public resources, the Government is in the process of

transitioning from cash basis to accrual basis of accounting to improve cash management and
enhance financial and fiscal reporting. The accrual accounting will enable the Government to
account for all assets and liabilities including all Government assets. The transition to accrual
accounting process is guided by accounting standards (IPSAS 33) together with a Road Map to
be approved by the Implementation Steering Committee. The maximum transition period
allowed by the standard is three years and involves recognition of all assets and liabilities of
government in the balance sheet. All financial assets including bank accounts will be recognized
in the first year of transition. All other assets including natural resources will be recognized in
the second and third year of transition.

Zero-based Budgeting Approach

181. The Government will entrench the adopted Zero-Based Budgeting approach in preparing
the FY 2025/26 and future budgets. To implement Zero Based Budgeting, the National Treasury
has developed the Budget Costing Tool in the IFMIS Budget Module for the National
Government which has incorporated standardized costing methodologies to streamline

45 Draft 2025 Budget Policy Statement

calculation of budget baselines and prioritization to give credible base for preparation of budget
estimates.

Public Investment Management Reforms

182. To deliver value for money in public capital expenditure, the Government will continue to
implement the Public Investment Management (PIM) Regulations. These regulations are
designed to streamline the initiation, implementation, execution, and delivery of public
investment projects. Government Ministries, Departments and Agencies (MDAs) will be
required to complete ongoing projects before starting new ones, thereby minimizing the
Government’s exposure to stalled initiatives and reducing fiscal risks. Furthermore, all ongoing
and new projects approved under the PIM framework must assess environmental and climate-
related risks. This includes evaluating carbon emissions and disaster risk management as part of
the project assessments.
183. Over the medium term, the National Government will begin to roll out the PIM Regulations
to County Governments and enhance the capacity of the Public Investment Management
Information System (PIMIS) across all Ministries, Counties, Departments, and Agencies
(MCDAs) to improve the management of development projects in all sectors. All State
Departments, Semi-Autonomous Government Agencies (SAGAs), and State-Owned Enterprises
(SOEs) will be required to provide a comprehensive list of all their projects. To promote
transparency, accountability and digitization, the PIMIS system will be rolled out to all
Ministries, Departments, and Agencies (MDAs) and Parastatals. They will be required to submit
all project proposals through the PIMIS system. In addition, the Government will update the
PIM-PPP framework to enable capturing the PPP projects in PIMIS system.

National Assets and Liabilities Management Reforms

184. To enhance the management of assets and liabilities in the public sector, the Government
has initiated fiscal reforms geared towards automating and standardizing assets and inventory
management in MDAs as well as County Governments. In this regard, the National Treasury has
operationalized the Assets and Inventory Management Modules in the IFMIS. 52 State
Departments have already gone live on the IFMIS Asset module and are at various stages of
uploading their registers for six asset categories. Going forward, the modules will be rollout to
County Governments. This reform will enable Accounting Officers have visibility of all assets
and inventory under their control and facilitate optimal assets utilization. To enhance the
management and utilization of public assets, the Government initiated the development of Assets
Valuation Policy Framework for the public sector which will ensure completeness of the asset
registers and facilitate transition to accrual accounting. Further, the Government has been
undertaking physical verification to ascertain existence of assets reported by the MDAs registers.
Going forward, the Government plans to develop an asset tagging framework to facilitate
identification of public sector assets.
185. To effectively and efficiently discharge its mandate, the Government has adopted leasing
as an alternative to asset acquisition in order to bridge the prevailing resource gaps and avail key
resources, including land, to investors for capital investments. However, the absence of a
standardized leasing framework has resulted in inconsistencies in leasing practices across
ministries, departments, agencies (MDAs), and county governments. The National Treasury
therefore is in the process of developing a comprehensive leasing framework that will provide
clear, standardized guidelines and processes for the leasing of government assets across all public
sector entities.

46 Draft 2025 Budget Policy Statement

Pension Reforms

186. To sustain and strengthen the pension reforms, the Government will monitor and
completely separate and delink the governance of the Public Service Superannuation Scheme,
(PSSS) from that of the non-contributory scheme. Furthermore, the Government will revamp the
public service pension administration through digitization and re-engineering of the pension
management system. Digitization will streamline processes, improve accuracy, and facilitate
timely pensions payments. This also enable better monitoring and management of pension-
related matters while re-engineering will complement the digitization by availing an end to-end
Enterprise Resource Planning (ERP) solution that takes advantage of the modern IT
technologies. To ensure that the pension scheme remains sustainable and that beneficiaries
receive their entitled benefits, the Government will conduct an actuarial valuation of the future
obligations of the non-contributory defined benefits pension scheme.

2.4.3 Deficit Financing Policy

187. The Government will continue to mobilize resources from both domestic and external
sources to meet its borrowing requirements. The external sources will be from multilateral,
bilateral and commercial lenders while from domestic sources, resources will be from issuances
of Treasury bonds and Treasury bills. While focus will be to maximize loans on concessional
terms, non-concessional and commercial external borrowing will be limited to projects that
cannot secure concessional financing and are in line with the Government development agenda.
188. Despite the disruptions to global supply chains and finance that has led to tightening and
increased cost of external commercial financing, the Government will continue monitoring the
macro environment conditions before accessing the international capital market through issuance
of sovereign bonds and liability management operations. The Government will also explore other
sources of financing including green and climate change financing options, if the macro-
economic conditions improve. In addition, the Government may explore new markets through
issuing Panda and Samurai Bonds as part of instruments diversification and deficit financing
options.
189. The domestic debt market remains one of fundamental funding sources as it has contributed
to more than half of the total funding requirements over the years and mitigates against shocks
in the external debt markets. The Government is committed to continuous implementation of
reforms aimed at improving efficiency in the domestic market and diversify the investor base.
Further, the Government will continue to explore new financing options aimed at safeguarding
the stability of the domestic debt market. In promoting financial inclusion and a saving culture,
the Government has prioritized re-engineering the issuance of the M-Akiba bond process. The
Government will revamp the mobile-phone retail product platform to ensure more retail investors
are able to access government securities. The platform will be integrated into the new Central
Bank’s Central Securities Depository System thus providing an alternative investment
opportunity for the informal sector.
190. To moderate debt accumulation and reduce debt service over the medium-term, the
Government will sustain fiscal consolidation efforts over the medium term to restore fiscal space.

2.5 Fiscal Responsibility Principles

191. In line with the Constitution, the Public Finance Management (PFM) Act, 2012, the PFM
(National Government) Regulations, 2015 and in keeping with prudent and transparent
management of public resources, the Government has adhered to the fiscal responsibility
principles as set out in the statute as follows (Table 2.6).

47 Draft 2025 Budget Policy Statement

 a. Over the medium term a minimum of thirty percent of the national and county governments
budget shall be allocated to the development expenditure;
b. National government’s expenditure on the compensation of employees (including benefits
and allowances) shall not exceed 35 percent of the national government’s equitable share
of the revenue raised nationally plus other revenues generated by the national government;
c. Over the medium term, the national government’s borrowings shall be used only for the
purpose of financing development expenditure and not for recurrent expenditure;
d. Public debt and obligations shall be maintained at a sustainable level as approved by
Parliament for the national government and the county assembly for county government;
e. Fiscal risks shall be managed prudently; and
f. A reasonable degree of predictability with respect to the level of tax rates and tax bases
shall be maintained, taking into account any tax reforms that may be made in the future.
Table 2.6: Performance of Fiscal Responsibility Indicators

Source: The National Treasury

2.5.1 Allocation to Development Expenditure over the Medium Term

192. Consistent with the requirements of the law, the National Government’s allocation to
development expenditures has been set above the 30 percent of its Ministerial expenditures. In
FY 2023/24, the actual development spending for the National Government was 25.1 percent,
falling short of the principles outlined in the PFM Act Cap. 412. However, the forecast had
initially projected it to exceed 30 percent. This discrepancy was a result of spending
rationalization in the course of budget implementation.
193. The allocation to development expenditures is projected to increase to 32.6 percent in the
FY 2025/26 and remain above the recommended threshold over the medium term as shown in
Table 2.6 and Figure 2.8.

48 Draft 2025 Budget Policy Statement

Figure 2.8: Development Expenditures as a Percent of Total National Government Budget

Source: National Treasury

2.5.2 Compliance with the Requirement on Expenditure on Wages and Benefits

194. The law requires that the National Government’s expenditure on the compensation of
employees (including benefits and allowances) shall not exceed 35 percent of the National
Government’s equitable share of the revenue raised nationally plus other revenues generated by
the National Government pursuant to Article 209 (4) of the Constitution. In conformity to this
regulation, the National Government’s share of wages and employees benefits to revenues was
24.5 percent1 in the FY 2023/24 which is within the statutory requirement of 35.0 percent of the
National Government revenues, and is projected to decline to 22.8 percent in the FY 2024/25,
and to further decline to 20.9 percent by FY 2025/26 (Figure 2.9).
Figure 2.9: Wages as a Percentage of National Government Revenues

1Wages: For teachers and civil servants including the police. The figure includes the funds allocated for the pension
contributory scheme
Source: National Treasury

1 The 24.5 percent is exclusive of Ministry of Defense and NIS

49 Draft 2025 Budget Policy Statement

 2.5.3 Compliance with the Requirement to use National Government’s Borrowings
only for Financing Development Expenditure
195. The National Treasury raises resources through borrowing to finance development projects
as approved by Parliament in the National budget as per the PFM Act, 2012 Section 15(2) (c)
principle of ensuring that the National Government`s borrowing is used only for purposes of
financing development expenditure and not for recurrent expenditure. The Government is
committed and continues to adhere to this principle by ensuring that Government borrowing is
used to finance development expenditure. In the FY 2023/24, Ksh 350.7 billion (46.0 percent)
out of total borrowing (Ksh 768.6 billion) were used for development expenditure purposes. The
amount is projected to increase to Ksh 641.2 billion in FY 2024/25, Ksh 844.3 billion in FY
2025/26, and Ksh 1,383.3 billion over the medium term.

2.5.4 Maintenance of Public debt and Obligations at a Sustainable Level

196. The PFM Act, 2012 requires that the National Treasury maintains public debt and
obligations at sustainable levels. The debt sustainability analysis by International Monetary Fund
(IMF) indicates that Kenya’s public debt remains sustainable as a medium performer in terms of
Debt Carrying Capacity (DCC). However, there is an elevated risk of debt distress as a result of
global shocks leading to a slowdown of economic growth. The analysis of debt sustainability is
as follows:
197. Public debt rose in 2023 amid currency depreciation and higher borrowing costs but had
eased by end-June 2024 on exchange rate appreciation. The Present Value (PV) of overall public
and publicly guaranteed debt rose to about 68.7 percent of GDP in 2023 (Table 2.7). Public
debt/GDP ratio is projected to decline to the debt anchor of 55±5 percent of GDP in PV terms
by 2028, supported by the Government’s fiscal consolidation efforts. The decline in debt levels
post 2028 will be reinforced by the Government’s commitment to pursue the use of concessional
funding, lengthen the maturity profile of public debt through issuance of medium to long dated
bonds, and deepening of the domestic debt market to reduce cost of public debt and borrowing.
Table 2.7: Kenya’s Public Debt Sustainability Analysis
Indicators Benchmark Dec-23 Dec-24 Dec-25 Dec-26 Dec-27 Dec-28 Dec 29 Dec-34 Dec-44
PV of debt-to-GDP ratio 55 68.7 63.0 64.0 63.7 61.2 58.6 56.2 49.7 34.0
PV of public debt-to-revenue 406.2 356.2 348.4 334.3 313.8 296.0 282.9 249.9 179.4
and grant ratio
Debt service -to-revenue and 60.6 63.7 62.5 61.4 58.1 55.7 49.0 47.1 29.4
grant ratio
Source: IMF Country Report No. 24/316 - November 2024

198. The external Debt Sustainability Analysis (DSA) demonstrates that the PV of the external
debt to GDP ratio is below the 40 percent sustainability threshold throughout the projection
period. External debt burden indicators in terms of exports and revenues breach respective
thresholds but the ratios are expected to improve with the recovery of exports and economy
recovery. The debt service to revenue ratio breaches the threshold of 18 percent in 2024 through
to 2028. The high debt service to revenue ratio in 2024 was due to the international sovereign
bond that matured in June 2024 (Table 2.8).

50 Draft 2025 Budget Policy Statement

 Table 2.8: Kenya’s External Debt Sustainability
Indicators Thresholds 2023 2024 2025 2026 2027 2028 2029 2034 2044
PV of debt–to-GDP ratio 40 32.1 29.8 30.4 31.0 29.5 28.1 26.8 22.5 16.2
PV of debt-to-exports 180 274.8 274.2 260.2 241.9 222.3 208.1 195.0 152.5 98.1
ratio
PPG Debt service-to- 15 26.9 40.5 31.9 29.8 27.3 27.0 22.0 16.7 11.6
exports ratio
PPG Debt service-to- 18 18.8 25.2 20.6 20.4 18.9 18.6 15.5 12.6 9.8
revenue ratio
Source: IMF Country Report No. 24/316 - November 2024

199. The solvency indicator of PV of Public and Publicly Guaranteed (PPG) external debt-to-
exports and the liquidity indicator of debt service-to-exports remains above the thresholds of 180
percent and 15 percent through to 2029 due to anticipated maturities for commercial debt during
the period. (Table 2.8).
200. Standard stress test results highlight the sensitivity of debt burden indicators in terms of
exports and exchange rate depreciation. Under the most extreme shock scenario, the PV of debt-
to-exports and the debt service-to exports ratios breach the threshold over the entire medium-
term projection period. To improve the solvency ratios, the Government will continue to broaden
the export base through the Bottom-Up Economic Transformation Agenda (BETA) focusing on
value chain approach to support exports and increase remittances.
201. To reduce debt vulnerabilities, the Government will continue to implement its fiscal
consolidation program and optimising the financing mix in favour of concessional borrowing to
finance capital investments. Additionally, a steady and strong inflow of remittances and a
favourable outlook for exports will play a major role in supporting external debt sustainability.
The Government will further be proactive in public debt management through exploring
possibilities of various Liability Management Operations (LMOs) with the aim of extending the
maturity of existing debt to reduce immediate financial burden and manage cash flow more
effectively.

2.5.5 Prudent Management of Fiscal Risks

202. The Government has prudently managed its fiscal risks across several key areas to ensure
financial stability. To achieve this, the Government established a Fiscal Risk Committee which
will continue playing a key role in identification, quantification and management of fiscal risks
going forward. First, the Government continues to address fiscal risks associated with public
debt, maintaining sustainable levels to avoid undue pressure on public finances. Second, the
Government has taken steps to mitigate the crystallization of contingent liabilities by ensuring
that unforeseen obligations do not derail its fiscal objectives. Third, the Government is managing
fiscal risks related to devolution, including those arising from county-level financial activities.

2.5.6 Compliance with the Requirement to Maintain of a Reasonable Degree of

Predictability with respect to the Level of Tax Rates and Tax Bases
203. On the principle of maintaining a reasonable degree of predictability with respect to the
level of tax rates and the tax base, the National Treasury has developed and started
implementation of the National Tax Policy whose objectives is to provide guidelines on taxation
policy that support economic development and promote economic diversification, enhance the
country’s competitive edge, and establish tax incentive schemes that are aligned to the
Government’s development agenda, promote investment and foster a flexible fiscal space that
contains revenue-raising tax policy and administrative reforms to be undertaken over the

51 Draft 2025 Budget Policy Statement

medium-term. Further, the Government continues to carry out tax reforms through
modernization and simplification of tax laws in order to lock in predictability and enhance
compliance within the tax system. The main objective is to raise adequate tax revenues,
predictable tax environment and minimize tax expenditures.

2.6 Kenya’s Macroeconomic Outlook

204. Kenya’s economic performance is projected to remain stable over the medium term (Table
2.9 in calendar years and Annex Table 1 in fiscal years). Economic growth is expected to
slow down to 4.6 percent in 2024 from a growth of 5.6 percent in 2023 reflecting deceleration
of economic activities in the first three quarters of 2024 and the slowdown in private sector credit
growth to key sectors of the economy. Growth is expected to pick up to 5.3 percent in 2025 and
retain the same momentum over the medium term.
205. The projected growth in 2025 and over the medium term will benefit from the enhanced
agricultural productivity and a resilient services sector. Agriculture productivity is expected to
be largely driven by favourable weather conditions and productivity-enhancing government
interventions. However, the growth in the sector is expected to average around 3.0 percent in
line with trend. The services sector is projected to remain resilient growing at an average of 6.6
percent over the medium term. Reforms in ICT sector is expected to boost growth in financial
services, health, and public administration while Accommodation and restaurant subsectors will
be boosted by Government’s effort to revamp the sector, through promotion of high-profile
international conference, cultural festivals and promoting wildlife safaris. The industrial sector
is projected to grow from 0.9 percent in 2024 to 2.2 percent in 2025 and above 3.0 percent over
the medium term. Growth in industry will be supported by reduction in costs of production and
easing of exchange rate pressures. Additionally, the ongoing initiatives by the Government to
support value addition is expected to boost growth in industry.
206. On the demand side, aggregate domestic demand is expected to remain resilient even as
public sector consolidates with the private sector playing a stronger role in the medium-term
recovery. This growth will be supported by improvement in the external account supported by
strong export growth and resilient remittances.
207. Consumption is projected to average around 87.4 percent of GDP in 2025 and over the
medium term driven by lower recurrent spending by the Government and relatively lower
household disposable income as credit to the private sector gradually recovers. The easing of
inflationary pressures will result in strong household disposable income, which will in turn
support household consumption. Moreover, remittance inflows to Kenya are projected to remain
resilient, providing further support to household incomes.
208. Aggregate investment is projected to rise from 16.2 percent of GDP in 2025 to 16.8 percent
of GDP over the medium term driven by increased investments by both the Government and the
private sector. Private investments will be boosted by stable macroeconomic conditions coupled
with measures aimed at improving competitiveness, inclusivity, market efficiency, positive
business sentiment, and access to the international market. Interventions by the Government to
avail credit to the private sector will strengthen MSMEs thereby strengthen the private sector led
growth opportunities. Investment will also benefit from an increased focus on Public Private
Partnerships (PPPs) that are expected to partly fill the investment financing gap in the wake of
ongoing fiscal consolidation efforts which would reduce government domestic borrowing and
lower yields on government securities.
209. Development spending in the budget will increase progressively over the medium term so
as not to impact on growth momentum. This spending will support sustained Government
investments in the Bottom-Up Economic Transformation Agenda. Particularly, investments in
52 Draft 2025 Budget Policy Statement
the nine priority value chains (Leather, Cotton, Dairy, Edible Oils, Tea, Rice, Blue economy,
Natural Resources (including Minerals and Forestry), and Building Materials). Government
interventions towards climate change adaptation and mitigation measures that include
rehabilitation of wetlands and reforestation are expected to support growth over the medium
term.
210. Kenya’s external position is expected to remain supportive of macroeconomic stability.
Overall, the current account deficit is expected to be stable in the medium term. Exports are
expected to recover, both from improvements in the global and regional trade outlook, and
domestic conditions. Growth will also be supported by implementation of trade initiatives
including the Kenya–EU Economic Partnership Agreement, and export promotion measures.
Increased remittance inflows and tourism receipts are expected to further provide foreign
exchange buffer. Imports are expected to grow as domestic demand recovers, particularly of raw
materials, fuels, and intermediate goods, consistent with investment growth and the stability in
the foreign exchange market.
Monetary Policy Management
211. The monetary policy stance over the medium term will aim at achieving and maintaining
overall inflation within the target range of 5±2.5 percent while maintaining a competitive
exchange rate and stable interest rates. Inflation is expected to remain within the target range
supported by low and stable food prices on account of improved supply attributed to favorable
weather conditions while fuel inflation is expected to remain low due to base effects, stable
exchange rate and easing international oil prices. The main risks to inflation relate to uncertainty
on the evolution of international oil prices due to the escalation of geopolitical conflicts (Middle
East and Russia-Ukraine).
212. The ongoing implementation of reforms to modernize Monetary Policy Framework and
Operations continues to enhance monetary policy transmission, support anchoring of inflation
expectation and improve distribution of liquidity in the interbank market. In particular, the
interest rate corridor, initially set at CBR ± 250 basis points was narrowed to ± 150 basis points
in June 2024 to ensure that the interbank rate (operating target) closely tracks the CBR.
Additionally, the reduction of the applicable interest rate to the Discount Window from the initial
600 basis points above CBR to 400 basis points above CBR and further to 300 basis points above
the CBR has improved access to the Window. To further enhance efficiency in the interbank
market and strengthen alignment of the policy rate with the interbank rate. The Central Bank of
Kenya has recently undertaken the following major reforms in the operation of the interbank
foreign exchange market:

i) Introduction of electronic matching systems (EMS) in the interbank market;

ii) Requirement of maximum spread of 20 cents on indicative quotes in the interbank market
removed; and
iii) The CBK published exchange rate is now a weighted average rate of all interbank
transactions executed the previous day. Previously, the published rate was based on the
indicative rate provided by selected major players in the interbank market.

213. Additionally, the implementation of the DhowCSD, an upgraded Central Securities

Depository infrastructure, has greatly enhanced efficiency in investment in Government
Securities. The DhowCSD also continues to improve the functioning of the interbank market by
facilitating collateralized lending amongst commercial banks and further reducing segmentation
in the interbank market.

53 Draft 2025 Budget Policy Statement

Table 2.9: Kenya’s Macroeconomic Indicators and Projections

Source: The National Treasury

54 Draft 2025 Budget Policy Statement

2.6 Risks to the Economic Outlook
214. Kenya’s growth outlook portrays a stable macroeconomic environment in the medium term.
However, there are downside risks to this macroeconomic outlook emanating from domestic as
well as external sources. External risks include further escalation of geopolitical tensions –
particularly the wars in the Middle East and Ukraine; potential worsening of supply disruptions
due to the shipping crisis in the Red Sea and Suez Canal, which could result in higher import and
production costs; and uncertainty about the evolution of international oil prices. Internally,
extreme weather (drought or floods) could weaken agricultural output, lead to destruction of
capital, increase food insecurity and lead to a surge in cases of water-borne diseases.
215. Lower than anticipated global economic growth and particularly in major exports
destination could reduce Kenya’s exports, tourism receipts, and remittances growth, while
increase in global fuel prices could increase Kenya’s imports bill. Tight global financial
conditions arising from lower-than-expected return of global inflation to target levels could
aggravate Kenya’s vulnerabilities towards meeting external financing requirements. However,
the government’s commitment to fiscal consolidation and prioritizing concessional borrowing is
expected to mitigate this risk.
216. The upside risk to the domestic economy relate to fast-tracked implementation of structural
reforms under BETA and the Fourth Medium-Term Plan (MTP) IV. Early normalization in
global financing conditions and lower international fuel and food prices would strengthen
Kenya’s external balances. Faster than projected rebound in economic activities that would result
in higher Government revenues providing fiscal space that would support fiscal consolidation.
Continued coordination between monetary and fiscal policies are expected to result to a stable
macroeconomic condition which is a necessary condition for investment and savings thereby
promoting economic growth.
217. The Government continues to monitor the domestic and external environment and will take
appropriate policy measures to safeguard the economy against the adverse effects of the risks if
they were to materialize.

55 Draft 2025 Budget Policy Statement

III. BUDGET FOR FY 2025/26 AND THE MEDIUM TERM
3.1 Fiscal Framework for FY 2025/26 and Medium-Term Budget
218. The FY 2025/26 and the medium-term budget is based on the Government’s policy
priorities and macroeconomic policy framework set out in Chapter I and Chapter II. To support
the Bottom - Up Economic Transformation Agenda, the Government will continue with the
growth friendly fiscal consolidation plan by containing expenditures and enhancing mobilization
of revenues in order to slow down growth in public debt without compromising service delivery.
Revenue Projections
219. In the FY 2025/26 total revenue including Appropriation-in-Aid (A-i-A) is projected at Ksh
3,516.6 billion (18.2 percent of GDP) from the projected Ksh 3,060.0 billion (16.9 percent of
GDP) in FY 2024/25. Of this, ordinary revenue is projected at Ksh 3,018.8 billion (15.7 percent
of GDP) from the projected Ksh 2,631.4 billion (14.6 percent of GDP) in FY 2024/25 (Annex
Table 2 and 3). Revenue performance will be underpinned by the on-going reforms in tax policy
and revenue administration geared towards expanding the tax base and improving tax
compliance.
Expenditure Projections
220. The overall expenditure and net lending is projected at Ksh 4,329.3 billion (22.5 percent of
GDP) in FY 2025/26 from the projection of Ksh 3,880.8 billion (21.5 percent of GDP) in FY
2024/25. The FY 2025/26 comprise: recurrent expenditure of Ksh 3,076.9 billion (16.0 percent
of GDP); development expenditure of Ksh 804.7 billion (4.2 percent of GDP); transfer to
Counties of Ksh 442.7 billion and Contingency Fund of Ksh 5.0 billion, respectively.
Deficit Financing
221. Reflecting the projected expenditures and revenues, the fiscal deficit including grants is
projected at Ksh 759.4 billion (3.9 percent of GDP) in FY 2025/26 compared to the projected
fiscal deficit of Ksh 768.6 billion (4.3 percent of GDP) in FY 2024/25.
222. The fiscal deficit in FY 2025/26 will be financed by a net external financing of Ksh 213.7
billion (1.1 percent of GDP) and a net domestic financing of Ksh 545.8 billion (2.8 percent of
GDP

3.2 FY 2025/26 and Medium-Term Budget Priorities

223. The FY 2025/26 and the Medium-Term Framework will focus on the implementation of
the Bottom-up Economic Transformation Agenda (BETA) as prioritized in the Medium-Term
Plan (MTP) IV for Kenya Vision 2030. The Agenda is geared towards economic turnaround and
inclusive growth, and aims to increase investments in the five core pillars envisaged to have the
largest impact to the economy as well as on household welfare. These include: Agricultural
Transformation and Inclusive Growth; Micro, Small and Medium Enterprise (MSME); Housing
and Settlement; Healthcare; and Digital Superhighway and Creative Industry.
224. The Government will also prioritize implementation of strategic interventions under the
following key enablers: Infrastructure; Manufacturing; Blue Economy; Services Economy,
Environment and Climate Change; Education and Training; Women Agenda; Social Protection;
Sports, Culture and Arts; Youth Empowerment and Development Agenda; Governance; and
Foreign Policy and Regional Integration.

56 Draft 2025 Budget Policy Statement

3.3 Budgetary Allocations for the FY 2025/26 and the Medium-Term
225. The total budget for FY 2025/26 is projected at Ksh 4,485.7 billion. The allocations to the
three Arms of Government including sharable revenues to the County Governments is
summarized in Table 3.1.
Table 3.1: Summary Budget Allocations for the FY2025/26 – 2027/28 (Ksh Million)

Source of Data: The National Treasury

Criteria for Resource Allocation

226. Resource allocation for the BETA priority programmes will be undertaken through a value
chain approach under five clusters namely: Finance and Production Economy; Infrastructure;
Land and Natural Resources; Social Sectors; and Governance and Public Administration. The
nine (9) identified key value chain areas for implementation include: Leather; Cotton; Dairy;
Edible Oils; Tea; Rice; Blue Economy; Natural Resources (including Minerals and Forestry);
and Building Materials. This process ensures there is no break in the cycle in the resource
allocations for a value chain. The process will ensure adequate resources are allocated to any
entity along the value chain and elimination of duplication of roles and budgeting of resources.
Spending in these essential interventions is aimed at achieving quality outputs and outcomes
with optimum utilization of resources. The momentum and large impact they will create will
raise economic vibrancy and tax revenues.
227. MDAs are expected to ensure efficiency in allocation of resources through zero based
budgeting and reviewing the portfolio of externally funded projects. MDAs are also encouraged
to restructure and re-align their spending plans with the Government priority programmes.

57 Draft 2025 Budget Policy Statement

Realization of these objectives will be within the hard budgetary constraint and ceilings provided
in this BPS. The following criteria will serve as a guide for allocating resources:
i) Linkage of programmes with the value chains of the Bottom-Up Economic
Transformation Agenda priorities;
ii) Linkage of the programme with the priorities of Medium-Term Plan IV of the Vision
2030;
iii) Linkage of programmes that support mitigation and adaptation of climate change;
iv) Completion of ongoing projects, viable stalled projects and payment of verified pending
bills;
v) Degree to which a programme addresses job creation and poverty reduction;
vi) Degree to which a programme addresses the core mandate of the MDAs, Expected
outputs and outcomes from a programme;
vii) Cost effectiveness, efficiency and sustainability of the programme; and
viii) Requirements for furtherance and implementation of the Constitution.
228. The baseline estimates reflect the current ministerial spending levels in sector programmes.
In the recurrent expenditure category, non-discretionary expenditures take first charge. These
include payment of public debts and interest therein, salaries and pensions.
229. Development expenditures have been allocated on the basis of the flagship projects in
Vision 2030, the Bottom - Up Economic Transformation Agenda and the MTP IV Priorities. The
following criteria was used in apportioning capital budget:
a. On-going projects: emphasis was given to completion of on-going capital projects and
in particular infrastructure projects with high impact on poverty reduction, equity and
employment creation;
b. Counterpart funds: priority was given to adequate allocations for donor counterpart funds
which is the portion that the Government must finance in support of the projects financed
by development partners; and
c. Strategic policy interventions: further priority was given to policy interventions covering
the entire nation, regional integration, social equity and environmental conservation.

3.4 Details of Sector Priorities

230. Table 3.2 provides the projected baseline ceilings for the FY 2025/26 and the medium-
term, classified by sector. Annex Table 4 provides a summary of expenditures by programmes
for the FY 2025/26– 2027/28 period.

58 Draft 2025 Budget Policy Statement

Table 3.2: Summary of Budget Allocations for the FY2025/26 – 2027/28 (Ksh Million)

Source of Data: National Treasury

Agriculture Rural and Urban Development Sector

231. The Agriculture Rural and Urban Development Sector is a major player in the delivery of
national development agenda as envisaged in Kenya Vision 2030, the Kenya Kwanza Plan -
Bottom-Up Economic Transformation Agenda (2022-2027), Agricultural Sector Transformation
and Growth Strategy (ASTGS) and the Sustainable Development Goals (SDGs) and among other
national and international policies and obligations.

59 Draft 2025 Budget Policy Statement

232. During the 2021/22 - 2023/24 Medium-Term Expenditure Framework (MTEF) period, the
Sector issued 1,246,019 land title deeds and geo referenced 139,415 land parcels; settled 29,986
landless households; produced 2.3 Million straws of cattle and goat semen; availed 3980
improved breeds to farmers; produced 79.4 Million doses of assorted livestock vaccines and
analyzed 177,300 animal samples for antimicrobial resistance; completed
development/rehabilitation of 8 fish landing sites; supported 12,668 small scale fish farmers with
aquaculture inputs and issued grants amounting to KSh.1.6 billion to 618 common interest
groups to the coastal counties for alternative livelihoods; provided 1,060,285.65 MT of assorted
subsidized fertilizers to 1,436,715 farmers; supported technology transfer and crop
diversification through provision of 965,317 assorted seedlings, 172 MT of drought tolerant
seeds and 5800 MT of Irish potato seed; facilitated compulsory land acquisition for 63
infrastructural development projects for the National and County Governments; and issued 7,124
letters of allotments in urban areas
233. During the FY 2025/26 and the Medium Term, the sector plans to: Register and issue
1,310,000 title deeds countrywide; Digitalize land records in 15 land offices; Settle 47,000
landless households; Issue 22,800 allotment letters for public land; Facilitate compulsory land
acquisition for 80 infrastructural development projects; Address 6,193 land disputes through
Historical Land Injustice (HLI) and Alternative Dispute Resolution (ADR); and make 2,980
recommendations of appropriate redress for land cases; Train 1,000 fishing crew annually to
create adequate technical capacity for exploitation of Kenya's Exclusive Economic Zone;
Construct 52 Fish Landing sites along the Indian Ocean and in inland lakes and dams; Support
22,668 fish farmers with technical extension services; Support 1,525,658 farmers with 570,138
MT of subsidized assorted fertilizers; Provide 265 MT of assorted oil crop seeds; 300 MT of
Cotton and canola seeds to farmers; 300 MT of Rice seeds and 800,000 assorted fruit seedlings
to farmers; Provide Agri-credit facilities to 5,070 MSMEs; Produce and distribute 10.5 million
doses of semen and 45,000 improved breed embryos; Distribute 640 milk coolers in all the
counties; and Complete Kenya Leather Industrial Park at Kenanie.
234. To implement the above interventions, the sector has a resource allocation of Ksh 86.1
billion, Ksh 99.9billion, and Ksh 105.7 billion for the FY 2025/26, FY 2026/27 and FY 2027/28
respectively.
The Energy, Infrastructure, and ICT (EII) Sector
235. The Energy, Infrastructure, and ICT (EII) Sector emerges as a pivotal force, strategically
propelling and expediting socio-economic progress within the country. Functioning both as a
driver and an enabler to the other Sectors of the economy, EII steadfastly advances sustainable,
efficient, and effective infrastructure aligned to the Bottom-Up Economic Transformation
Agenda (BETA), the Fourth Medium-Term Plan (MTP IV) 2023-2027 of Kenya Vision 2030,
regional infrastructure commitments, Africa Agenda 2063 and Sustainable Development Goals
(SDGs).
236. During the FY 2021/22 - 2023/24, the Sector realized the following achievements:
Constructed 2,766Km and rehabilitated 280Km of road; Constructed 77 bridges; undertook
Periodic maintenance of 117,294Km and Routine maintenance of 2,389Km of roads;
Constructed 23.5Km and rehabilitated 793.74Km of railway lines; Acquired Standard Gauge
Rail (SGR) and Meter Gauge Rail (MGR) rolling stock and wagon ferry (MV Uhuru II);
Completed Kipevu Oil Terminal; Refurbished Terminals 1B and C, at Jomo Kenyatta
International Airport (JKIA); Rehabilitated 15 airstrips; Enhanced Aviation Security Oversight;
Developed National Road Safety Action Plan and Road Safety Regulations; and acquired 249Km
of land along the LAPSSET corridor. In addition, the Sector inspected all the eligible ships that
docked the Port of Mombasa and 1,700 small boats and vessels to enhance maritime Safety and

60 Draft 2025 Budget Policy Statement

Security; Trained 10,549 youths in various maritime courses; Recruited 3,872 Seafarers in
international vessels; Developed the National Maritime Transport, and Maritime Education and
Training Policies; Completed construction of 1,067 housing units in various locations, while
construction of 33,081 housing units is ongoing and is at average of 25.7%; Facilitated 692 Civil
Servants with mortgage facility to own houses; Completed construction 17 Markets while 6
markets are ongoing on an average of 82% completion level; and Issued 1,020 title deeds in
selected informal settlements of Nakuru and Kilifi to regularize land tenure.
237. The Sector Completed construction of Mtangawanda and New Mokowe Jetties; Developed
28 footbridges to enhance pedestrian mobility; Inspected and audited 5,040 buildings to ensure
safety; Trained 156,506 Contractors, Skilled construction workers and site supervisors;
Registered 32,336 Contractors; and accredited 69,207 skilled construction workers and site
supervisors; Deployed 3,141 Km new build Fibre Network; Provided internet connectivity to
7,009 public institutions; Installed 1,537 Public WIFIs across Counties; Connected 39 hospitals
to internet; operationalized the Office of the Data Protection Commissioner and established 7
Regional Offices; on-boarded 5,084 Government services to e-citizen portal; and Trained and
linked 2,079,658 youths to online jobs under Ajira Digital Programme; Produced printed and
disseminated the Kenya Yearbook publications, Agenda Kenya publications, Cabinet Series
publications, Big Four Agenda publications; Standardized and published public sector
advertisements in the weekly MyGov publications; established two additional Studio Mashinani
to create employment opportunities for the youth; Accredited 27,552 journalists and media
practitioners; trained 2,385 Media Practitioners in information and cinematic arts at Kenya
Institute of Mass Communication; and increased the National Digital TV coverage from 86% to
98%.
238. The Sector increased electricity installed capacity by 193MW thus raising the total installed
capacity from 3,051MW in June 2022 to 3,244MW in June 2024; constructed 675 Km of
transmission line, 4 new high voltage substations, 1,266.7 Km of medium voltage distribution
lines and 30 distribution substations; Connected 1,681,404 customers to electricity, including
1,702 public facilities thus increasing total number of customers to 9.2 million; installed 54,577
street lighting points across the country to promote 24-hour economy and enhance security;
Reviewed the South-Lokichar draft Field Development Plan (FDP) and demarcated the required
land for development of the South-Lokichar Oil Fields; Acquired geoscientific data in Petroleum
Blocks L16, L17, and L18 in Kilifi, Mombasa, and Kwale Counties, covering 3,465 km²;
Developed and gazetted the Petroleum (Importation) Regulations, 2023, and the Petroleum
(Pricing) Regulations, 2022; Imported and distributed 20.072 million Metric Tonnes (MT) of
petroleum fuels; and Tested 68,619 samples of petroleum products at dispensing stations across
the country to mitigate against adulteration and diversion of petroleum products meant for
export. Further, the Sector implemented 811 Capital Projects during the period under review,
where 164 projects were completed; 64 projects were between 90-99% completion level by the
end of June 2024; 45 were between 75-89% completion level; 85 projects were between 50-74%
completion level; and 294 projects were below 50% completion level. Out of the 772 projects,
122 were completed prior to the FY 2023/24 but payments were yet to be cleared by 30th June,
2024.
239. During the FY 2025/26 and the Medium Term, the Sector will implement 25 Programmes
with the following targets: Under Roads Construct 1,098.06Km and rehabilitate 675Km of roads;
Construct 62 bridges; Undertake Routine Maintenance of 84,988Km and Periodic Maintenance
of 1,633Km of roads; and Train 16,230 Plant Operators, Contractors and Technicians. Under
Transport the sector will Complete construction of the Riruta-Lenana-Ngong Railway Line and
fast-track construction Phase I of the Nairobi Railway City (NRC) Project; Complete the new
MGR link connecting Mombasa SGR Terminus to Mombasa MGR station, along with

61 Draft 2025 Budget Policy Statement

construction of a railway bridge across the Makupa Causeway; Acquire a new ferry for Lake
Victoria; Complete construction of the control tower at Kisumu Airport; Complete rehabilitation
of the terminal building and apron at Ukunda Airport; and Automate and upgrade nine motor
vehicle inspection centres, and establish five new motor vehicle inspection centres. Under the
Shipping and Maritime the sector will develop the maritime spatial plan; Construct a survival
training and certification centre; Inspect all eligible Ships that dock at Mombasa Port; train
20,000 and recruit 15,500 Seafarers; Develop a centralized maritime databank; and Develop 5
Maritime Regulations. Under the Housing and Urban Development, the sector will construct
217,654 affordable housing units and 80,909 social housing units; and 65,297 institutional
housing units; Implement the Second Kenya Informal Settlement Improvement Project (KISIP
II) in 33 counties; implement the Second Kenya Urban Support Programme (KUSP II) in 79
municipalities across 45 counties; and construct 505 markets.
240. Further under Public Works, the sector will design, document and supervise 855 public
buildings for various MDCA; Construct 44 footbridges across the country to enable safe river-
crossings and access to social amenities; Build 5 jetties and 5,800 meters of seawall; Inspect and
audit 5,000 buildings and structures for safety, and test 220 buildings for structural integrity;
Register 29,500 contractors and accredit 156,000 skilled construction workers and site
supervisors; and Build capacity in the construction industry through training programs for
contractors, skilled construction workers, and site supervisors. Under the ICT and Digital
Economy, the sector will instal 38,871Km of backbone fibre network; Provide internet
connectivity to 44,575 public institutions and install 18,510 public Wi-Fi hotspots; Onboard
13,800 government services on the e-Citizen platform; Complete construction of the Horizontal
Infrastructure Phase 1 project at Konza Technopolis; and Complete construction and
operationalization of the Kenya Advanced Institute of Science and Technology. In addition,
under Broadcasting and Telecommunication Complete the rollout of National Digital Signal
Coverage; Install 42 KBC stations with solar power; Accredit 27,000 journalists; Train 9,800 on-
the-job journalists and 2,998 mass media practitioners; and Publish three Kenya Yearbook
editions and 15 editions covering the BETA pillars.
241. The sector will also drill 34 geothermal wells; Construct 1,742Km of transmission lines and
21 transmission substations; Construct 1,050 Km of distribution lines and 33 distribution
substations; Connect 1,440,000 new customers and 1,080 public facilities to electricity; Install
19,500 street lighting points; and Construct 55 institutional and 1,800 household biogas plants.
The sector will also acquire geo-scientific data over 3,600 Km² area to evaluate oil and gas
potential in Petroleum Blocks; Evaluate gas potential in Petroleum Blocks 9, L4, and L8 in
Marsabit, Garissa, Lamu and Kilifi Counties; Acquire land for development of South Lokichar
Oil Fields; Provide Clean Cooking Gas to 600 public learning institutions and distribute 6Kg
Liquefied Petroleum Gas (LPG) cylinders to 210,000 low-income households; Import and
distribute 22.6 million Metric Tonnes Petroleum Fuels; and Develop a National Petroleum
Master Plan
242. To implement these programmes, the Sector has been allocated Ksh 554.8 billion, Ksh
554.1 billion and Ksh 597.3 billion in FY 2025/26, FY 2026/27 and FY 2027/28 respectively.

General Economic and Commercial Affairs Sector

243. The General Economic and Commercial Affairs (GECA) Sector plays a crucial role in
promoting the economic growth and development of the country through developing and
implementing policies, programmes and projects that stimulate trade, industrialization,
investment, enterprise development, market access, private sector development, job and wealth
creation and overall economic competitiveness locally, regionally and internationally.

62 Draft 2025 Budget Policy Statement

Additionally, the sector ensures that programme and project development and implementation
take cognizant of environmental conservation and climate change mitigation.
244. During the Fiscal Years 2021/22-2023/24, the sector implemented sixteen (16) programmes
and achieved a wide range of outputs key among them: Increased the value of wholesale and
retail trade by 2.74% from Kshs.814 billion in 2022 to Ksh 836.7 billion in 2023; Disbursed Ksh
5.4 billion to farmers across 26 coffee growing counties in Kenya and facilitated recovery of
outstanding remittances to SACCOS totalling Ksh 1.428 billion; Refurbished and
operationalized 21 Constituency Industrial Development Centres (CIDCs) across the country
creating 3927 jobs directly and indirectly; Mapped out and equipped CIDCs in the leather, textile,
diary, construction and building and edible oils priority value chains; On-boarded 22 million
Kenyans within the Financial Inclusion Fund (Hustler Fund) platform with a repeat customer
base of 7.5million; Attracted investments worth Ksh 480 billion in Domestic Direct Investment
(DDI), and USD 1.504B in Foreign Direct Investment (FDI) for the FY 2023/2024; Cumulatively
eliminated 273 Non-Tariff Barriers (NTBs) which resulted to an increase in Kenya’s exports to
the EAC market from Ksh 226 billion to Ksh 305 Billion; Capacity built a total of 1,888 cross
boarder Women, Youth and PWDs on EAC trade rules, regulations and procedures; Established
County Aggregation and Industrial Parks (CAIPs) in eighteen (18) counties to support agro-
processing and value addition; International arrivals increased from 1.65 Million in FY 2022/23
to 2.18 million in the FY 2023/24 while total tourism earnings increasing from 297.3 billion to
Ksh.352.54 billion in the same period; and Distributed food and non-food items to 818,370
people affected by El-nino and floods during October November December short rains in 2023
and March April May long rains in 2024 respectively.
245. During the FY 2025/26 and the Medium Term, the sector has prioritized to implement
sixteen (16) programmes in line with the Fourth Medium Term Plan (MTP IV) for Kenya Vision
2030 and BETA priorities. The programmes prioritized for the period are: Accelerated ASALs
Development; Integrated Regional Development Co-operative Development and Management;
Domestic Trade Promotion and Regulation; Fair Trade Practices and Compliance with
Standards; International Trade Development and Promotion; Industrial Promotion and
Development, Standards and Quality Infrastructure and Research, Promotion and Development
of MSMEs; Product and Market Development for MSMEs; Digitization and Financial Inclusion
for MSMEs; Investments Development and Promotion; Tourism Promotion and Marketing;
Tourism Product Development and Diversification; East African Affairs and Regional
Integration; and General Administration, Support Services and Planning.
246. To implement the above interventions, the sector has a resource allocation of Ksh 64.4
billion, Ksh 80.3 billion and Ksh 85.1 billion in the FY 2025/26, FY 2026/27 and FY 2027/28
respectively.

Health Sector
247. The Health Sector is an important contributor to the national economic growth through
ensuring that all Kenyans are productive and live a healthy life. The Constitution underscores
the “right to health” while the Kenya Vision 2030, the MTP IV as well as the Bottom-Up
Economic Transformation Agenda recognize provision of equitable, accessible and affordable
health care of the highest attainable standards to all Kenyans. Through the Bottom-Up Economic
Transformation Agenda (BETA) and in an effort to deliver Universal Health Coverage the
Ministry of Health in collaboration with County Governments and key stakeholders in the spirit
of Afya bora Mashinani will continue to prioritize Kenya Vision 2030 Flagship Projects for the
Health Sector as outlined in MTP-IV including Social Health Protection, Community Health
High Impact Interventions, Family Health & Strategic Public Health Programme, National

63 Draft 2025 Budget Policy Statement

Health Institutions, Local Manufacture of Life-Saving Essential Health Products and
Diagnostics, Human Resources for Health, Health Infrastructure and Medical Tourism.
248. Significant achievements over the past three fiscal years include expanded access to
advanced healthcare services, enhanced maternal and child health outcomes, and substantial
gains in communicable disease prevention. Availability of specialized equipment and skills
enabled an increase of locally available services for heart surgeries, cancer screening and
treatment and other specialized services through the referral health facilities.
249. Programs addressing HIV/AIDS, malaria, and tuberculosis (TB) made considerable strides,
with treatment success rates improving markedly with TB treatment success rate of 89%.
Immunization services (Penta 3) have flat-lined at 84% and there is a need to address gaps for
higher performance. The fill and finish facility under the Kenya BioVax is 90% complete and
will contribute towards the self-sustenance of vaccine availability. The country has attained the
80% global threshold in terms of effective treatment for malnourished children under 5 years of
age, pregnant and lactating women.
250. On training, the tertiary institutions have continued to provide high-quality workforce for
the sector with regulatory bodies undertaking their registration, accreditation and oversight
functions. There is a need to address the unregulated cadres within the sector to ensure
operational consistency with guidelines. A total of 93,390 Community health promoters were
engaged and kitted by the end of the FY 2023/2024. The performance demonstrates increasing
coverage with quality health services across the various entities and delivery approaches.
251. In the FY 2025/26 and Medium Term, the sector aims at expanding UHC and strengthen
the health system’s resilience. UHC priorities over this period include expanding primary
healthcare infrastructure, focusing on maternal and child health, and improving supply chains
for essential health products. This includes digital health investments in infrastructure to connect
healthcare facilities with the National Optic Fibre Backbone Infrastructure (NOFBI), targeting
expanded coverage to over 6000 health facilities by 2028. Emphasis on evidence-based and data-
driven decision-making the digital health superhighways will include the full implementation of
the Electronic Community Health Information System (eCHIS) and integration of UHC tracking
in real-time through the Kenya Health Situation Room.
252. To implement these programmes, the Sector has been allocated Ksh 204.9 billion, Ksh
214.8 billion and Ksh 231.0 billion in the FY 2025/26, 2026/27 and 2027/28 respectively.

Education Sector

253. Education Sector is a critical player in promoting political, social, and economic
development through education and training to create a knowledge-based economy.
254. The achievements for the previous Fiscal Years 2021/22 -2023/24 are: increased enrolment
in tertiary and universities, funding of 242 research projects, expansion of infrastructure in
learning institutions as well as rollout and implementation of the Competency-Based Curriculum
and Assessment of Pre-primary 1 to Grade 7. Other achievements are on teacher education;
recruitment, promotion and training of teachers & trainers; enhanced ICT integration; improved
pupil-book ratio, Curriculum design for lower and middle school developed; and Increased
disbursement of scholarship and loans to university students and TVET trainees; and Roll out of
Recognition of Prior Learning
255. In the FY 2025/26 and the Medium Term the sector focuses on reaching important
benchmarks in education's relevance, quality, equity, and accessibility. Basic education is
currently implementing the Competency-Based Curriculum (CBC), which will necessitate
increased funding for instructional materials, teacher preparation, and infrastructure. In support

64 Draft 2025 Budget Policy Statement

of Kenya's industrialization goal, the sector will prioritize funding for Tertiary and Higher
Education to make sure that Kenyans receive the knowledge, skills and attitudes they need to
satisfy labor market demands and encourage entrepreneurship. Furthermore, the sector
underscores the need to expand digital learning programs and the provision of ICT infrastructure.
This is to empower learners with the knowledge and digital skills required to thrive in a fast-
evolving global marketplace. The sector will also focus on investing in teacher welfare and
capacity development. Teachers are central to the successful delivery of education reforms, and
as such, this budget prioritizes professional development, recruitment, and enhanced teacher
support, particularly in underserved regions.
256. The sector will also continue to undertake major reforms in line with the Presidential
Working Party on Education Reform Report. These reforms aim to promote quality and inclusive
education, training and research for sustainable development and ensure socio-economic
development.
257. To implement these programmes, the Sector has been allocated Ksh 718.8 billion, Ksh
759.6 billion, and Ksh 847.1 billion in FY 2025/26, FY 2026/27 and FY 2027/28 respectively.

Governance, Justice, Law and Order Sector

258. Governance, Justice, Law and Order (GJLO) Sector consists of sixteen sub-sectors with the
primary role of enhancing governance, justice, law, and order, a key pillar in the socio-economic,
and political development of the Country. During the Fiscal Years 2021/22 – 23/24, the Sector
achieved notable results across sub- sectors. The Prison Services contained 63,178 inmates in
safe custody, rehabilitated 124,246 offenders, supported 3,480 probationers with educational
opportunities, supervised 125,117 on probation and 128,353 on Community Service Orders.
Migration services issued 539,810 passports, 666,475 Electronic Travel Authorizations, 824,364
second-generation ID cards, and 972,630 Maisha cards. A total of 1,168,151 births and 204,498
deaths were registered. The e-Citizen platform integrated 17,692 government services,
connecting 19 agencies to the Maisha database, and expanded operational civil and immigration
offices. Policing achievements included constructing the NPS Referral Hospital, equipping a
forensic lab to 51.88%, operationalized 18 Administration Police Sub-County Headquarters.
Field administration trained 1,441 officers, sensitized 892,757 Kenyans on climate-related
conflicts, registered 1,500 Public Benefits Organizations, and reached over 10 million parents
and caregivers through awareness campaigns on positive parenting. Legal services concluded
5,214 cases against the government, processed 681 international cooperation requests, issued
2,940 international law advisories, and registered Ksh 1.01 billion in assets and cash forfeitures.
259. Additionally, they finalized 13,197 estates, registered 110,023 marriages, and generated
Ksh 3.31 billion in revenue through 414,474 business entity registrations. Anti-corruption efforts
completed 377 investigation files, processed 681 economic crime cases, and recovered Ksh 17.68
billion in assets while reaching 37.77 million Kenyans through awareness. Public prosecution
services maintained a conviction rate of 93.12%, enhanced alternatives to trials, and improved
case management through the Judiciary’s E-filing system. The Prosecution Training Institute
was operationalized, adding new facilities and diploma programs. Political party regulation saw
the registration of 15 parties and the establishment of five new county offices, while witness
protection services reduced relocation and resettlement times, increasing the number of protected
witnesses to 167. Human rights efforts resolved 8,614 complaints, filed 34 PIL cases, trained
3,860 organizations, sensitized 10 million people, reviewed 79 laws, and conducted 73
compliance audits. Electoral processes were strengthened by defending 14 election petitions and
initiating reforms. The Police Service Commission recruited 5,900 officers and 1,121 civilian
staff, resolved 548 disciplinary cases, provided psychosocial support to 64,880 officers, and
digitized 1.5 million documents. Efforts to promote gender equality included auditing 77
65 Draft 2025 Budget Policy Statement
institutions and processing 78% of gender discrimination complaints. Police oversight processed
11,003 misconduct complaints, investigated 2,633 cases, submitted 463 files for prosecution,
and inspected 2,285 police facilities
260. In the FY 2025/26 and the Medium Term , the Sector will ensure safe containment of
inmates; treatment of youthful offenders in boys and girls in Borstal institutions and Youth
Corrective Training Centre (YCTC); Operationalize of Magereza Level IV Hospital; modernize
prison infrastructure; supervise offenders serving community services and probation orders;
rehabilitate and reintegrate non-custodial offenders; upscale police modernization; inspect police
premises and facilities across the country and make appropriate recommendations; monitor
police operations; recruit and train constables and serving officers; acquire and distribute
assorted security equipment; equip the National Forensic Laboratory; provide security coverage
across the country; implement Maisha ecosystem, offer immigration services and e-citizen
services; delinking, decentralization and automation of State Law Office(SLO) & Department of
Justice (DOJ) services; coordinate security operations, Government programmes, projects,
directives and initiatives, train National Government Administrative Officers(NGAO); establish
ports of entry and exits; provide training on peace building and conflict management and
carryout sensitization on Alcohol and Drug Abuse Preventive and Management Guidelines.
261. The sector will also implement National Ethics and Corruption Policy; implement
alternatives to prosecutions; digitization of ODPP Processes; integrate and implement the
Uadilifu Case Management system; conduct capacity building of the Prosecutors; register voters,
conduct electoral operations and education; upgrade, support and maintain electoral technology;
implement electoral legal reforms; admit, maintain threatened and intimidated witnesses;
enhance redress, accountability and access to Justice through human rights complaints
resolution; registration and regulation of political parties; funding of Political Parties Fund
(PPF); provide counselling and psychosocial support to police officers; implement Maraga
Taskforce police reforms and investigate cases of police misconduct and recommended for
prosecution within 2 months.
262. The sector has been allocated Ksh 267.7 billion, Ksh 310.1 billion and Ksh 334.3 billion in
FY 2025/26, FY 2026/27 and FY 2027/28 respectively to implement the planned programmes
and projects.

Public Administration and International Relations Sector

263. Public Administration and International Relations Sector is key in coordinating,

management, and over-sighting of the planning, administrative, public Finance, and Legislative
functions of the Government, and promoting Kenya’s International Relations.
264. During the implementation of the FY 2021/22 – 2023/24 budgets, the Sector realized
various achievements of the targeted outputs and outcomes including coordination of national
and sectoral development planning; promotion of prudent public finance management and
accountability in the public sector; enhanced oversight role in the public sector, development of
the Government Legislative Agenda Schedule and Public Policy Handbook; management of
Kenya’s Foreign Policy as well as support for devolution and coordination of government
activities. Additionally, the Sector ensured an effective and efficient public service, youth
empowerment, employment creation, and the enforcement of administrative justice and access
to information.
265. In the FY 2025/26 and the Medium-Term Budget, the Sector has prioritized programmes
and projects aligned with the Bottom-Up Economic Transformation Agenda and the Fourth
Medium Term Plan of Kenya Vision 2030. The Sector will implement 44 programmes and 120
sub-programmes designed to address citizen’s needs thereby enhancing service delivery. In

66 Draft 2025 Budget Policy Statement

addition, the Sector will continue to enhance efficiency and effectiveness in service delivery and
promote comprehensive public financial management, intensify resource mobilization and
strengthen monitoring and evaluation.
266. To implement these programmes, the Sector has been allocated Ksh 360.9 billion, Ksh
306.5 billion and Ksh 316.5 billion in the FY2025/26, FY2026/27 and FY2027/28 respectively.

National Security Sector

267. The Sector plays a key role in creating a conducive environment for socio-economic and
political development. It is therefore a critical actor and enabler in the realization of Kenya
Vision 2030, and the Bottom-up Economic Transformation Agenda (BETA).
268. The Sector will continue to address contemporary and emerging threats to national security
that undermine peace and development. These include terrorism, radicalization, human and drug
trafficking, money laundering, cyber-crime and other socio-economic and political challenges.
269. In order to implement the prioritized programmes and minimize the above-mentioned
threats, the Sector has been allocated Ksh 279.0 billion, Ksh 300.7 billion and Ksh 391.1billion
in FY 2025/26, FY 2026/27 and FY 2027/28, respectively.
Social Protection, Culture and Recreation Sector
270. The Social Protection Sector plays a crucial role in the country’s socio-economic
transformation in line with the aspirations of the Fourth Medium Term Plan (MTP IV) 2023-
2027 of the Kenya Vision 2030 and the Bottom-Up Economic Transformation Agenda (BETA).
Specifically, the Sector promotes sustainable employment, maintains best labour practices,
develops and nurtures talents including sports, promotes gender equality and equity, empowers
communities and vulnerable groups, as well as promotes and preserve diverse cultures and
heritage.
271. During the review period, FY 2021/22 to FY 2023/24 the Sector implemented 22
Programmes with corresponding 43 sub-programmes. Specifically the Sector: won the Pamoja
bid for AFCON 2027; facilitated 112 national teams in international competitions and won 138
medals; facilitated inscription of Historic Town and Archaeological Site of Gedi on the
UNESCO World Heritage list; repatriated migrated archives from United Kingdom; identified
and honoured 681 heroes and heroines; trained 201,418 youth on life skills, core business skills,
job-specific skills and entrepreneurship skills that led to creation of 187,451 employment
opportunities; and operationalized 83 Youth Empowerment Centres (YECs) and constructed 29
YECS. The Sector further disbursed loans worth Ksh 1.24 billion to 95,664 youth entrepreneurs;
placed 306,963 youths on employment both locally and abroad; provided cash transfers to
1,251,721 Older Persons, 44,954 households with PWDs, and 259,043 households with Orphans
and Vulnerable Children; disbursed Ksh 3.3 billion to Affirmative Action Groups, provided
132,562 needy students with bursaries and scholarships; and disbursed Ksh 5.7 billion to 365,737
women entrepreneurs.
272. In the 2025/26-2027/28 MTEF period, the Sector will implement 19 Programmes and with
corresponding 39 sub-programmes. The Sector has prioritized programmes and projects that are
aligned to the Bottom-Up Economic Transformation Agenda and Fourth Medium Term Plan of
Kenya Vision 2030. Priority has been accorded to vulnerable groups programmes while also
taking into consideration programmes that will regulate the labour sector, promote employment,
promote Kenya’s diverse culture and heritage, and develop creative arts and sports talent
273. To implement these programmes, the Sector has been allocated Ksh 78.7 billion, Ksh 91.2
billion and Ksh 94.9 billion for FY 2025/26, FY 2026/27 and FY 2027/28, respectively

67 Draft 2025 Budget Policy Statement

Environment Protection, Water and Natural Resources Sector
274. The Environment Protection, Water, and Natural Resources (EPWNR) Sector is essential
to the country's sustainable development, playing a vital role in conserving natural resources,
enhancing economic growth, and addressing climate change.
275. In the period the Fiscal Years 2021/22 – 2023/24, the Environment Protection, Water, and
Natural Resources Sector made significant strides. This sector developed an additional 91,499
acres for irrigation which targeted the cultivation of rice, maize, and horticulture thus enhancing
agricultural productivity. The expansion of the Mwea Irrigation Scheme to 30,600 acres, coupled
with the construction of the Thiba Dam—capable of holding 15.6 million cubic meters, resulting
to a remarkable increase of 346,175 tons in paddy rice production, enabling consistent double
cropping. Further, the sector experienced improved access to water services increasing from 70%
in FY 2021/22 to 73% in FY 2023/24, while safely managed sanitation rose from 27.7% to 33%,
benefiting an additional 200,000 people through the completion of nineteen (19) new projects
and twenty-four (24) projects in low-income urban and rural areas. The EPWNR sector also
experienced a positive growth in mineral revenue collection, rising from Ksh 2,833 million to
Ksh 3,286.24 million. Mineral export and import permits doubled from 2,000 to 4,108,
demonstrating enhanced regulatory capacity and support for mineral trade. At the same time five
regions were mapped to support artisanal mining efforts of the low-level citizens.
276. To address Human-Wildlife Conflict (HWC), Ksh 2,045.3 million was disbursed for
compensation which was piloted in six hotspot counties of Meru, Baringo, Laikipia, Narok,
Kajiado, and Taita Taveta. Additionally, the Wildlife Conservation Trust Fund was established
under new Public Finance Management (Wildlife Conservation Trust Fund) Regulations 2023,
to support conservation funding and ensure sustainable financing for wildlife initiatives.
277. The sector further developed the Meteorology Policy 2023, six mining regulations, and
amended the Climate Change Act, 2016 to incorporate Carbon Markets. Moreover, NEMA was
designated as the national authority for Article 6 mechanisms under the Paris Agreement,
emphasizing Kenya’s commitment to carbon markets. The sector ratified four Multilateral
Environmental Agreements (MEAs): Minamata convention on Mercury; Kigali amendment to
the Montreal protocol; Bamako Convention; and Nairobi Convention to reduce mercury
emissions in environment, reduce production and consumptions of substances that deplete ozone
layer, minimize and control transboundary movements of hazardous wastes within the African
continent and to protect, manage and develop the Western Indian Ocean respectively. Besides,
the sub-sector launched the National Climate Change Action Plan III (2023-2027), updated the
National MRV registry, and advanced meteorological services to 84% modernization, including
issuing 984 weather forecasts and initiating a 21% weather modification capacity.
278. The sector also made progress towards Kenya's Goal of 15 billion trees by 2032, by
producing 70,000 kg of tree seeds and 126.47 million tree seedlings. Through collaboration with
state and non-state actors, 0.356 billion trees were planted across the country. The sector
developed the National Landscape and Restoration Strategy (2023-2032) and finalizing the
National Forest Policy, 2023.
279. During the FY 2025/26 and the Medium Term, the sector plans to increase the area under
irrigation by 500,000 acres through development of irrigation infrastructure in Bura, Mwea,
Turkana, Lower Nzoia, Galana Kulalu project & National Expanded Irrigation Programme.
Further, water storage capacity will be increased by 441 million cubic metres through
construction of Mwache dam, Umaa dam, Siyoi-Muruny dam, and community & household
water pans. Increase paddy rice and maize production by 250,000 tons and 10,000 tons through
rice production expansion programme in Mwea, Bura, Hola and Ahero irrigation development
projects. Seventy (70) public schools will be equipped with boreholes and greenhouses under

68 Draft 2025 Budget Policy Statement

micro-irrigation for schools’ programme. Five hundred thousand fruit trees will be grown
through the National Expanded Irrigation Programme, Community Based Irrigation
Programme, Small Holder Irrigation project, Household Irrigation Water Harvesting Project,
Micro Irrigation Programme for Schools and Dams Irrigated area (Siyoi -Murruny, Umaa,
Mwache). The National Land Reclamation Bill will be finalized.
280. The sector plans to raise the population’s access to improved water services from 73% to
80% and sanitation services from 33% to 40% by expanding infrastructure and fast-tracking
ongoing projects. The share of non-revenue water will be reduced from 43% to 25%. The per
capita freshwater endowment will be increased from 620 m³ to 700 m³ by 2027 through Sub-
Catchment Management Plans (SCMPs), water quality monitoring, pollution control,
groundwater assessments and mapping for effective management, protection, and conservation
of water resources. Raise per capita water storage from 107 m³ to 234 m³ by 2027 through
constructing large and small dams and water pans such Thwake dam and Maragwa IV dam.
281. The sector will also conduct geological mapping of 6 topo sheets, explore 12 and 8 Counties
for industrial minerals and Agro-Minerals respectively. It will ensure compliance by inspecting
1,190 mining operations and 580 mineral dealership operations. A total of Ksh 16.8 billion will
be collected as mining royalties while 13,500 mineral import and export permits, and 7,830
Commercial explosives licenses and permits will be issued. The sector will establish Artisanal
Mining Committees in all the 47 Counties, facilitate formation of 85 marketing co-operatives for
artisanal miners, and train 7,500 Artisanal and Small-Scale Miners on Mine Safety, Health and
Environment. In the extractive sector, there will be review Mining Act Cap 306, Geologists
Registration Act of 1993, and Commercial Explosive Act Cap 115. Through planting program,
a total of 1.7 million trees will be planted.
282. The sector will grow revenue generation to Ksh 23,776 million through an increase of park
visitors to approximately 4 million. Six categories of specialized equipment for modernization
of anti-poaching technology will be acquired and construct 210km, rehabilitate 215 km &
maintain 6,250 km of fence. 166 houses will be constructed and 666 houses will be rehabilitated
for forest rangers. Additionally, 7,050km of park roads and 908km of roads in conservancies will
be maintained. 6000 hectare of degraded habitat land will be land restored. Undertake 30 wildlife
population count, construct 40 water pans and drill 38 boreholes to communities. Approximately
1000 hectares of wildlife and dispersal areas will be mapped. 100% of all verified and approved
human wildlife conflict claims will be settled, conduct 6 climate studies, adopt 6 wildlife
technologies, Map 6 invasive species areas and conduct 300 zoonotic forensic DNA analysis.
Research and training facilities at Naivasha will also be rehabilitated.
283. The sector will domesticate 4 ratified MEAs on the Minamata convention on Mercury,
Kigali amendment to the Montreal protocol, Bamako Convention and Nairobi Convention.
Restore 1,570 hectares of degraded land & rehabilitate 400 hectares of water towers and also
raise 175,000 bamboo seedlings. A total of 12,000 Environmental Impact Assessment (EIA)
licenses will be issued, undertake 3,000 inspections on EIA and 1000 enforcement actions on the
ban of single use plastics carrier bags. Identify and stop 400 effluent discharge points along the
Athi-Galana-Sabaki River System. It will also establish 4 waste demonstration centres in
Nairobi, Mombasa, Kiambu and Kwale Counties and generate Ksh 5 billion on carbon markets.
Issue 984 weather forecasts & 6 sector specific early warning system and modernization of
meteorological services,
284. The sector will further produce and distribute 100,000 Kgs of tree seeds, produce 405.5
million tree seedlings and establish and maintain 10,700 Ha of forest plantations. The sector
intends to protect 2.6 million Hectares of closed canopy forest and establish 4,500 Ha of
commercial farm forests. Rehabilitate 63,586 Ha of degraded natural forests, 253 Ha of bamboo
forests in communal lands and 782 Ha of degraded dryland areas. A total of 41 Forest research
69 Draft 2025 Budget Policy Statement
technologies will be developed and 11 newly constructed seed centers will be equipped. 140 Ha
and 6 Ha of seed sources will be maintained and established. Develop 200 nature-based
enterprises, refurbish tree nurseries & establish 5 seed processing units.
285. To achieve these outputs, the Sector’s total allocation is Ksh 134.2 billion, Ksh 169.6 billion
and Ksh 191.8 billion for the FY 2025/26, FY 2026/27 and 2027/28 respectively.

3.5 Public Participation/ Sector Hearings and Involvement of Stakeholders

286. Public participation and involvement of stakeholders in the medium-term budget process is
a Constitutional requirement. In fulfilment of this requirement, while preparing the 2025 Budget
Policy Statement (BPS), the resolutions adopted by Parliament on the previous Budget Policy
Statements were taken into account.
287. The PFM Act, 2012 (CAP 412A) requires that the input of the public be taken into account
before the budget proposals are firmed up. In this regard, the Sectors Public Hearings were
conducted from 20th to 22nd November, 2024 at the Kenyatta International Convention Centre.
Virtual platforms were made available on WebEx as well as live streaming on Face Book to
ensure that stakeholders who could not attend the Public Hearings physically had access to the
Hearings. Annex Table 5 explains how the resolutions by Parliament on the 2023 BPS and 2024
BPS have been taken into account in the 2025 BPS and the reasons thereof. Annex Table 6
provides a summary of the comments received and the actions taken and or response given during
the Public Hearings.

70 Draft 2025 Budget Policy Statement

IV. COUNTY FINANCIAL MANAGEMENT AND DIVISION OF
REVENUE
4.1 County Governments’ Compliance with Fiscal Responsibility Principles
288. The following Fiscal Responsibility Principles (FRPs) need to be adhered to in line with
the relevant legal provisions:
i) Development budget: In accordance with the PFM Act 2012, a minimum of thirty percent of
the County Governments' budgets shall be allocated to development expenditure over the
medium term. Therefore, it is essential to ensure adherence to this fiscal responsibility
principle both at the budget approval stage and during the actual implementation of the
budget.
ii) Wages: Regulation 25(1)(a) and (b) of the PFM (County Governments) Regulations 2015
provides that County Governments' expenditure on wages and benefits for public officers
shall not exceed thirty-five percent (35%) of the County Government’s total revenue.
Compliance with this fiscal rule has been insufficient, highlighting the necessity for a
concerted effort to ensure that the wage bill remains within the legally established threshold.
iii) Borrowing: Regulation 25(1)(d) of the PFM (County Governments) Regulations 2015
provides that the county public debt shall not exceed twenty percent (20%) of the total
revenue of the County Government at any given time. Any County Government seeking to
borrow must comply with this legal requirement.
iv) Taxes: In accordance with provisions of Section 15(2)(e) of the PFM Act 2012, County
Governments should uphold a reasonable degree of predictability regarding tax rates and tax
bases, considering any potential future tax reforms while implementing legislation for the
collection of own-source revenue. It is advisable for County Governments to consider the
principles of public finance management and taxation when levying taxes and fees.
Prioritizing the establishment of adequate legal frameworks regarding the principal
legislation governing the imposition of taxes and fees is essential to ensure that these actions
are conducted in accordance with the law.
v) Fiscal risk: County Governments are required to manage fiscal risks prudently in accordance
with Section 15(2)(e) of the Public Finance Management (PFM) Act.
289. Table 4.1 provides a summary of total expenditures, total recurrent expenditures, total
development expenditures and total revenues for medium term from FY 2021/22 to 2023/24.
Total wages as a percentage of total revenue is also captioned in the table.

71 Draft 2025 Budget Policy Statement

 Table 4.1: Summary of County Revenues and Expenditures from FY 2021/22 to 2023/24
Item FY 2021/22 FY 2022/23 FY 2023/24
Ksh, billions Approved Actual Approved Actual Approved Actual
Budget Budget Budget Budget Budget Budget
Total Revenue 529.2 436.5 491.9 466.0 562.75 492.47
Total Expenditures 535.7 401.0 515.2 428.9 446.76
Total Development 193.5 98.5 160.5 98.0 189.93 109.23
Total Recurrent 342.2 302.5 354.6 330.9 372.82 337.53
Wages 190.1 195.1 209.84
Other recurrent 112.4 135.8 127.69
% of Development in Total Budget 36% 25% 31% 23% 33.8 24.4
% of Recurrent in Total Budget 64% 75% 69% 77% 66.2 75.6
% of wages in Total Revenue 44% 42% 42.6%
Source: National Treasury

4.1.1 Allocation to Development Expenditure over the Medium-Term

290. Table 4.1 indicates that the total approved development expenditures for County
Governments over the medium term (FY 2021/22, 2022/23 and 2023/24) account for 36 percent,
31 percent, and 33.8 percent of the total budget respectively. This translates to an average of 33.6
percent of the total budget. Section 107 (2) (b) of the Public Finance Management Act (PFMA)
2012 provides that County Governments should allocate a minimum of 30 percent of their budget
for development expenditures over the medium term. Figure 4.1 presents the development
budget allocations of County Governments as a percentage of the total approved budget for FY
2023/24.
Figure 4.1: FY 2023/24 County Governments' Development Budget Allocation as a
Percentage of Total Budget

Source of Data: Controller of Budget

4.1.2 Actual Development Expenditure over the Medium Term

291. The total actual development expenditure for the FY 2021/22, FY 2022/23, FY 2023/24
accounted for 25%, 23% and 24% of the total actual expenditure for the same period respectively.
This translates to an average development expenditure of 24% of actual total expenditures (Table

72 Draft 2025 Budget Policy Statement

1). In FY 2023/24, only Mandera County met the requirement on at least 30% development
expenditure as a percentage of total budget over the medium term. In FY 2023/24, nine counties
spent at least 30% of their total expenditure towards development. These counties are; Marsabit
(38.6%), Narok (34%), Homa Bay (33.3%), Mandera (33.3%), Siaya (32.6%), Trans Nzoia
(31%), Kitui (30.8%), Kilifi (30.6%) and Turkana (30.6%). The counties with the lowest
development expenditures as a percentage of their total expenditures in the period under review
include; Kiambu (19.2%), Taita Taveta (18.6%), Kisumu (17.5%), Mombasa (16.2%), Kisii
(13.7%) and Nairobi City (10.3%) (Figure 4.2).
Figure 4.2: FY 2023/24 County Governments Development Expenditure as a Percentage of
Total Expenditure

Source of Data: Controller of Budget

292. From this analysis, it is evident that most counties allocate expenditures just for approval
by the respective county assemblies in line with the legal requirement. However, most counties
do not adhere to this provision during budget execution. Over the medium term, there are notable
fluctuations in consistently meeting the 30% minimum expenditures on development. This
therefore implies that county development and service delivery may be negatively hampered as
counties spend more on recurrent expenditures as opposed to development expenditures.
293. The relevant institutions, including the Controller of Budget, need to enhance compliance
to this legal provision. Counties have not reported any borrowing to finance their development
expenditure.

4.1.3 Compliance with the Requirement on Expenditure on Wages and Benefits

294. Regulation 25 (1) (a) and (b) of the PFM (County Governments) Regulations 2015 provides
that the County Governments’ expenditure on wages and benefits for its public officers shall not
exceed thirty-five (35) percent of the County Government’s total revenue. During the FY
2023/24, County Governments’ expenditure on wages amounted to Ksh 209.8 billion,
accounting for 47.6% of the total revenue of Ksh 440.7 billion.,. As revealed in Figure 4.3, most
County Governments are spending a larger portion of their revenue on wages than the
recommended threshold. Three Counties namely: Tana River, Narok, and Kilifi were able to
maintain their allocation to wages and salaries below the threshold.

73 Draft 2025 Budget Policy Statement

Figure 4.3: County Governments’ Actual Expenditures on Wages and Benefits as a
Percentage of Total Actual Revenue for FY 2023/24

Source of Data: National Treasury and Controller of Budget

4.1.4 Prudent Management of Fiscal Risks

295. Section 107(2)(f) of the Public Finance Management (PFM) Act, 2012, mandates County
Treasuries to prudently manage their fiscal risks. During the review period, several fiscal risks
were identified in revenue and expenditure performance, including:
i) High levels of pending bills, which impede efficient delivery of public services and hinder
the growth of local businesses;
ii) Non-remittance of statutory deductions by certain county governments, particularly pension
contributions, which jeopardizes the social security of retirees;
iii) Excessive expenditure on wages, reducing county governments' capacity to fund essential
operations, maintenance, and development activities; and
iv) Underperformance in Own-Source Revenue (OSR), leading to unfunded budgets and an
accumulation of pending bills.
4.1.4.1 Pending Bills

296. According to Section 94 (1) (a) of the PFM Act, 2012, failure to make any payments as and
when due by a State Organ or a Public Entity may be an indicator of a serious material breach or
a persistent material breach of measures established under the Act. In this context, Article 225
of the Constitution read together with Section 96 of the PFM Act gives the Cabinet Secretary
responsible for Finance powers to stop transfer of funds to the concerned State Organ. As at 30th
June, 2024, counties reported accumulated pending bills amounting to Ksh. 181.98 billion. This
was an increase of Kshs 17.22 billion from Kshs 164.76 billion reported in the previous period.
This amount is as reported by County Governments to the Office of the Controller of Budget and
therefore not audited (Table 4.2).
297. The increasing stock of pending bills in the County Governments is a threat to fiscal
discipline and sustainability. The National Treasury has initiated transition from cash to accrual
basis of accounting which is expected to gradually reduce the stock of pending bills. Through
Kenya Devolution Support Programme II (KDSP II), County Governments have been supported

74 Draft 2025 Budget Policy Statement

to develop and implement repayment plans and ensure adherence to Regulation 55 (2) b of the
Public Finance Management (County Governments) Regulations, 2015. Table 4.2, presents
County Governments’ pending bills as at 30th June 2024
Table 4.2: County Governments Pending Bills as of 30th June 2024 (In Ksh)
County Executive County Assembly
County Recurrent Development Sub Total Recurrent Developmen Sub Total Grand Total
t
Baringo 243,387,349 125,863,182 369,250,531 - - - 369,250,531
Bomet 88,008,922 360,758,925 448,767,847 - - - 448,767,847
Bungoma 1,978,302,057 1,528,214,428 3,506,516,486 14,700,000 - 14,700,000 3,521,216,486
Busia 1,310,232,841 110,359,586 1,420,592,427 - - - 1,420,592,427
Elgeyo-Marakwet 1,492,200 - 1,492,200 - - - 1,492,200
Embu 923,910,054 888,655,736 1,812,565,790 3,725,140 - 3,725,140 1,816,290,930
Garissa 17,031,929 360,167,253 377,199,182 741,066 - 741,066 377,940,248
Homa Bay 93,107,438 600,604,237 693,711,674 37,182,349 8,226,489 45,408,838 739,120,512
Isiolo 671,996,503 437,765,312 1,109,761,816 5,812,806 8,094,676 13,907,481 1,123,669,297
Kajiado 890,814,132 1,455,782,205 2,346,596,337 61,824,457 34,552,896 96,377,352 2,442,973,689
Kakamega 543,846,663 1,109,793,717 1,653,640,381 104,315,256 61,710,217 166,025,472 1,819,665,853
Kericho 181,301,858 953,411,837 1,134,713,695 - - - 1,134,713,695
Kiambu 4,069,015,330 2,318,872,476 6,387,887,806 77,228,246 23,153,446 100,381,692 6,488,269,498
Kilifi 620,073,974 586,137,042 1,206,211,016 12,346,776 - 12,346,776 1,218,557,792
Kirinyaga 415,041,433 166,204,622 581,246,055 - - - 581,246,055
Kisii 485,084,888 1,828,433,549 2,313,518,437 1,555,210 55,431,914 56,987,124 2,370,505,561
Kisumu 1,661,420,756 1,340,669,158 3,002,089,914 143,210,851 2,099,049 145,309,900 3,147,399,814
Kitui 100,133,497 293,843,290 393,976,787 - - - 393,976,787
Kwale 1,117,867,909 1,015,720,218 2,133,588,127 - - - 2,133,588,127
Laikipia 883,462,160 760,607,838 1,644,069,998 3,979,393 - 3,979,393 1,648,049,391
Lamu 21,198,181 18,336,383 39,534,564 - - - 39,534,564
Machakos 1,730,056,963 2,388,349,707 4,118,406,670 81,073,515 - 81,073,515 4,199,480,185
Makueni 364,448,192 170,410,250 534,858,442 135,155,753 2,030,000 137,185,753 672,044,195
Mandera - 2,226,355,164 2,226,355,164 - - - 2,226,355,164
Marsabit - 700,000,000 700,000,000 910,432 425,135,347 426,045,779 1,126,045,779
Meru 133,999,742 452,824,205 586,823,947 - - - 586,823,947
Migori 360,712,911 379,244,575 739,957,485 84,427,109 40,005,433 124,432,542 864,390,028
Mombasa 2,738,362,340 1,702,209,902 4,440,572,242 - - - 4,440,572,242
Murang'a 1,183,396,100 205,092,392 1,388,488,492 72,106,370 - 72,106,370 1,460,594,862
Nairobi 112,563,910,799 5,751,842,791 118,315,753,590 124,529,058 - 124,529,058 118,440,282,648
Nakuru 966,040,527 55,227,446 1,021,267,973 81,210,672 - 81,210,672 1,102,478,645
Nandi* 96,463,404 81,506,757 177,970,161 - - - 177,970,161
Narok - 764,639,834 764,639,834 - - - 764,639,834
Nyamira 43,333,294 62,718,867 106,052,161 - 36,179,261 36,179,261 142,231,422
Nyandarua 79,081,025 158,447,942 237,528,967 57,634,740 - 57,634,740 295,163,707
Nyeri 1,986,059 5,406,954 7,393,013 - - - 7,393,013
Samburu 84,901,048 126,077,450 210,978,498 - - - 210,978,498
Siaya 202,659,007 101,250,773 303,909,780 - - - 303,909,780
Taita-Taveta 921,955,832 708,347,293 1,630,303,125 126,221,996 - 126,221,996 1,756,525,121
Tana River 1,170,296,619 951,046,432 2,121,343,051 - 3,774,893 3,774,893 2,125,117,944
Tharaka-Nithi 408,829,599 218,502,579 627,332,178 113,631,682 - 113,631,682 740,963,860
Trans Nzoia 483,133,403 799,226,738 1,282,360,141 - - - 1,282,360,141
Turkana 7,555,965 742,302,496 749,858,462 - - - 749,858,462
Uasin Gishu 250,098,396 449,140,094 699,238,490 52,583,699 - 52,583,699 751,822,188
Vihiga 577,909,066 888,370,981 1,466,280,047 - - - 1,466,280,047
Wajir 1,322,376,590 1,007,941,081 2,330,317,671 - 2,330,317,671
West Pokot 335,407,919 168,037,969 503,445,888 261,592 14,373,500 14,635,092 518,080,980
Total 142,343,644,876 37,524,721,665 179,868,366,542 1,396,368,166 714,767,119 2,111,135,285 181,979,501,827
Source: Controller of Budget
*Nandi County data provided is as of 31st March 2024.

298. To further mitigate fiscal indiscipline in counties, the Senate recommended that all County
Governments settle all verified pending bills totaling approximately Ksh 1 billion by the end of
the fiscal year 2024/25. Additionally, the Senate resolved that:
i) County Governments prepare and submit to the Controller of Budget a payment plan
prioritizing payment of pending bills as a first charge on the County Revenue Fund;
ii) The Controller of Budget takes into consideration the efforts made by a County Government
to clear inherited pending bills when approving exchequer releases;

75 Draft 2025 Budget Policy Statement

iii) County Governments shall only pay pending bills contained in their respective procurement
plans; and
iv) Supplementary budgets for County Governments are prepared in the third quarter to curb
instances of arbitrary re-allocations out of the approved budget estimates.
299. The Controller of Budget will continue to provide regular updates on the progress made in
the settlement of eligible pending bills. Additionally, County Governments are required to
submit monthly payment plans for outstanding pending bills, with the aim of settling these bills
as a first charge while making payments and prioritized for budgeting in the subsequent budget.
4.1.4.2 Status of Outstanding County Pension Deductions Pending Bills

300. County Governments have been accumulating pension bills due to among other reasons
non-remittance of deductions from staff salaries. Over the years, these pension bills, including
related penalties, have escalated to levels that pose financial risks to County Governments in
meeting their financial obligations. As at 31st October, 2024, the total outstanding pension
pending bills owed to three pension schemes reported by the Retirement Benefits Authority
amounts to Ksh 91,173,871,756 reflecting an increase from Ksh 73,402,969,260.73 recorded as
at 31st August, 2023. Table 4.3 presents a breakdown of the outstanding pension deductions
pending bills.

Table 4.3: Outstanding Pension pending bills owed by County Governments as at 31 st

October 2024
No. Name of the Scheme Principal Debt Accrued Actuarial Total Debt
(Ksh ) Interest (Ksh) Deficit (Ksh) Accrued +
Interest (Ksh)
1. Local Authorities 2,934,303,917 42,740,330,909 - 45,674,634,826
Provident Fund
(LAPFUND) -DC
2. Local Authorities 8,011,997,968 29,505,938,940 2,006,688,841 39,524,625,748
Pension Trust
(LAPTRUST) -DB
3. County Pension Fund 3,207,927,995 2,766,683,183 - 5,974,611,183
(CPF) -DC
Total 14,154,229,880 75,012,953,032 2,006,688,841 91,173,871,757
Source: Retirement Benefits Authority
301. Some County Governments have not included these pension liabilities in their inventory of
pending bills. Therefore, County Governments should assess these pension liabilities and ensure
accurate recording in their inventory of pending bills for prioritization of payment. a Multi-
Agency Taskforce has been created to; establish the actual county pension liabilities, develop
strategies for implementation of the recommendations of the Senate Select Committee on County
Public Investments and Special Funds on Non-Remittance of Pension Deductions; and develop
appropriate formula and framework for payment of pension liabilities that will enable the
clearance of the outstanding pension liabilities by County Governments.

4.2 Performance of County Governments Own Source Revenue

4.2.1 Performance of Own Source Revenue against Target

302. For the FY 2023/24, the County Governments collected a total of Ksh 58.9 billion of Own
Source Revenue (OSR) against a target of Ksh 80.9 billion. This translates to 72.8 percent of the
annual target. The details of the individual County Governments OSR performance is
summarized in Table 4.4.
76 Draft 2025 Budget Policy Statement
Table 4.4: Total County Government OSR Collection for FY 2023/24 (Including A-i-A)
Total
Ordinary FIF/AIA OSR Actual FIF/AIA Actual
Revenue Performance
County OSR Target Target realized Actual Revenue
Target
(Ksh) (Ksh) (Ksh) (Ksh) (Ksh ) (Ksh ) (%)

A B C=A+B D E F=D+E G=F/C*100

Turkana 220,000,000 - 220,000,000 435,271,212 95,373,844 530,645,056 241.2

Vihiga 248,083,481 - 248,083,481 166,311,404 171,745,774 338,057,178 136.3

Kirinyaga 349,000,000 201,000,000 550,000,000 417,543,467 233,562,098 651,105,565 118.4

Lamu 120,000,000 60,000,000 180,000,000 123,262,548 85,840,210 209,102,758 116.2

Nandi 360,098,158 198,231,711 558,329,869 392,103,573 238,623,583 630,727,156 113

Wajir 150,000,000 - 150,000,000 164,953,671 - 164,953,671 110

Garissa 139,000,000 91,000,000 230,000,000 97,056,232 151,912,817 248,969,049 108.2

Nyeri 800,000,000 526,000,000 1,326,000,000 667,120,607 740,425,500 1,407,546,107 106.1

Samburu 239,027,400 17,000,000 256,027,400 255,453,581 11,130,343 266,583,924 104.1

Murang'a 876,181,883 238,818,117 1,115,000,000 734,257,887 382,537,843 1,116,795,730 100.2

Embu 382,801,875 367,198,125 750,000,000 416,744,407 329,749,667 746,494,074 99.5

Tana
92,673,773 3,956,827 96,630,600 88,783,403 3,785,117 92,568,520 95.8
River
Narok 4,858,121,756 120,951,908 4,979,073,664 4,694,190,690 59,479,796 4,753,670,486 95.5

Elgeyo-
73,806,633 197,500,000 271,306,633 80,841,506 177,663,632 258,505,138 95.3
Marakwet
Tharaka-
300,870,000 149,800,000 450,670,000 256,362,512 160,983,523 417,346,035 92.6
Nithi
Meru 550,000,000 500,000,000 1,050,000,000 381,805,168 580,129,111 961,934,279 91.6
Uasin
1,578,147,614 - 1,578,147,614 1,361,941,353 59,386,598 1,421,327,951 90.1
Gishu
Kitui 585,000,000 - 585,000,000 517,049,816 - 517,049,816 88.4

Homa Bay 341,139,710 1,051,066,642 1,392,206,352 359,263,180 841,232,651 1,200,495,831 86.2

Makueni 870,000,000 370,000,000 1,240,000,000 490,586,795 554,088,153 1,044,674,948 84.2

Baringo 300,719,215 149,378,181 450,097,396 196,579,016 181,622,619 378,201,635 84

Migori 480,000,000 145,474,299 625,474,299 337,154,048 175,412,262 512,566,310 81.9

Nakuru 2,400,000,000 1,700,000,000 4,100,000,000 1,852,802,262 1,468,498,216 3,321,300,479 81

West
97,200,000 132,800,000 230,000,000 65,447,701 119,847,000 185,294,701 80.6
Pokot
Siaya 434,494,994 325,505,006 760,000,000 222,110,969 388,626,776 610,737,745 80.4

Isiolo 267,634,395 88,573,785 356,208,180 190,715,416 94,481,928 285,197,344 80.1

Kericho 530,071,600 536,355,000 1,066,426,600 359,664,618 482,263,360 841,927,978 78.9

Marsabit 120,000,000 70,000,000 190,000,000 54,869,460 90,223,090 145,092,550 76.4

Mombasa 5,856,356,997 1,521,576,230 7,377,933,227 4,457,758,296 1,127,265,714 5,585,024,010 75.7

Trans
342,000,000 301,700,000 643,700,000 266,785,779 209,852,393 476,638,172 74
Nzoia
Laikipia 842,500,000 602,500,000 1,445,000,000 499,999,607 561,020,491 1,061,020,098 73.4
Taita-
426,985,000 201,682,445 628,667,445 251,061,302 210,125,350 461,186,652 73.4
Taveta

77 Draft 2025 Budget Policy Statement

 Bomet 187,592,587 144,449,243 332,041,830 158,317,549 80,612,871 238,930,420 72

Kwale 334,245,200 265,754,800 600,000,000 257,844,508 169,533,420 427,377,928 71.2

Kilifi 1,588,634,222 200,000,000 1,788,634,222 736,398,329 472,221,668 1,208,619,997 67.6

Kiambu 5,459,066,235 1,536,300,000 6,995,366,235 3,378,069,561 1,197,762,046 4,575,831,607 65.4

Kisii 650,000,000 1,193,892,198 1,843,892,198 496,943,902 683,218,135 1,180,162,037 64

Nairobi 19,419,630,278 270,000,000 19,689,630,278 11,469,860,349 1,072,234,069 12,542,094,418 63.7

Kisumu 1,682,844,694 600,000,000 2,282,844,694 840,231,049 603,376,939 1,443,607,988 63.2

Kakamega 1,359,000,000 841,000,000 2,200,000,000 801,322,586 546,510,693 1,347,833,279 61.3

Busia 396,793,350 252,222,283 649,015,633 233,065,731 136,138,244 369,203,975 56.9

Kajiado 1,621,247,688 247,219,297 1,868,466,985 678,403,673 369,952,762 1,048,356,435 56.1

Bungoma 868,201,470 1,142,218,266 2,010,419,736 439,484,834 681,424,515 1,120,909,349 55.8

Nyamira 457,000,000 230,000,000 687,000,000 148,981,607 220,814,736 369,796,343 53.8

Mandera 278,748,838 51,785,008 330,533,846 142,498,606 25,548,681 168,047,287 50.8

Machakos 2,324,286,060 1,008,v000,000 3,332,286,060 1,344,939,101 204,409,376 1,549,348,477 46.5

Nyandarua 793,435,975 431,564,025 1,225,000,000 309,994,465 205,746,307 515,740,772 42.1

Total 62,652,641,082 18,282,473,396 80,935,114,477 42,292,207,336 16,656,393,920 58,948,601,257 72.8

Source of Data: Controller of Budget

303. Total Own-Source Revenue (OSR) included the Facility Improvement Fund, which consists
of funds collected and retained by health facilities under the Facilities Improvement Financing
Act of 2023. As at 30th June, 2024, public health facilities had collected and retained a total of
Ksh 16.7 billion, meeting 91.3% of the target amount of Ksh 18.3 billion. Excluding the AIA
(FIF), counties generated a total of Ksh 42.3 billion, achieving 67.5% of the targeted Ksh 62.7
billion. A total of ten counties surpassed their annual OSR targets, collecting over 100% of the
goal. These counties are Turkana, Vihiga, Kirinyaga, Lamu, Nandi, Wajir, Garissa, Nyeri,
Samburu, and Murang’a. Conversely, seven counties collected less than 60% of their OSR
targets, including Busia, Kajiado, Bungoma, Nyamira, Mandera, Machakos, and Nyandarua.
304. A comparison of the actual OSR against the target depicts a random trend implying that
OSR target setting is not scientific and the growth in the OSR projection may not be hinged to
the fiscal efforts applied by the county governments. Therefore, there is a need to develop and
enhance County Governments’ capacity for revenue forecasting so as to improve the accuracy
of OSR projections. In this regard, the National Treasury in collaboration with e other
institutions namely; State Department for Devolution; Commission on Revenue Allocation
(CRA), Kenya National Bureau of Statistics (KNBS), Council of Governors (COG), Kenya
Revenue Authority (KRA), Kenya Institute of Public Policy Research and Analysis (KIPPRA)
and representatives from County Governments are in the process of developing a revenue
forecasting tool that uses a more scientific approach to assist counties in making more accurate
revenue projections..
305. The summary of individual county performance in terms of revenue collection is presented
in Figure 4.4.

78 Draft 2025 Budget Policy Statement

Figure 4.4: Actual Revenue Collected by the County Governments as a percentage of
Annual Revenue Target for FY 2023/24

Source of Data: Controller of Budget

4.2.2 OSR Growth in FY 2023/24

306. A review of the OSR performance for FY 2022/23 -2023/2024 shows that 17 Counties
recorded more than 50 percent growth in revenue collection. This could be attributed to
implementation of the National Policy to Support Enhancement of County Governments OSR
policy 2018, continuous capacity building on public finance management, revenue automation
and revenue administration reforms such as implementation of the FIF. However, it is essential
to investigate the causes of negative OSR growth in certain county governments, specifically
Bomet, Bungoma, Trans-Nzoia, and Samburu, which reported declines in OSR collection in the
2023/24 fiscal year. Table 10 summarizes the details of performance for the 47 County
Governments.
307. A review of the OSR performance for FY 2022/23 -2023/2024 shows that 17 Counties
recorded more than 50 percent growth in revenue collection. This could be attributed to
implementation of the National Policy to Support Enhancement of County Governments OSR
2018, continuous capacity building on public finance management, revenue automation and
revenue administration reforms such as implementation of the FIF. However, it is essential to
investigate the causes of negative OSR growth in certain County Governments, specifically
Bomet, Bungoma, Trans-Nzoia, and Samburu, which reported declines in OSR collection in the
2023/24 fiscal year. Table 4.5 summarizes the details of performance for the 47 County
Governments.

79 Draft 2025 Budget Policy Statement

Table 4.4: County Governments OSR Growth between FY 2022/23 and FY 2023/24

Source of Data: Controller of Budget

4.2.3 National Government Support on enhancement of County Government OSR

308. The National Treasury is in the process of implementing the National Policy to Support
Enhancement of County Governments Own Source Revenue. The Policy identifies a number of
challenges facing collection of Own-Source Revenue (OSR) by County Governments which
include; inadequate revenue policies and legislation; multiplicity of fees and charges; human
resource capacity deficits; weaknesses in enforcing compliance by tax payers; low automation
and integration of revenue administration; and, ineffective internal controls and audit
mechanisms, which has resulted in under performance in revenue collection.
309. One of the key recommendations in the policy is the development a national legislation on
property taxation to replace the outdated Rating Act and Valuation for Rating Act. To this end,

80 Draft 2025 Budget Policy Statement

the National Treasury in collaboration of Ministry of Lands and Physical planning and other
stakeholders developed the National Rating Bill, 2022. This Bill was enacted into law on 4th
December, 2024. Arrangements are underway to develop the implementing Regulations and a
model rating bill for adoption by the county governments. It is expected that this will unlock the
potential in property rates for the county governments once it is rolled out and implemented.
Additional the OSR policy also recommended development of a National Framework Legislation
to regulate the introduction of taxes, fees and charges by the county governments. Consequently,
the National Treasury and other stakeholders developed the County Governments Revenue
Raising Process Bill 2022, which l is awaiting consideration by the Senate. This Bill is aimed at
ensuring compliance with Article 209 (5) of the Constitution as well as ensuring consistency and
predictability in county revenue practices.
310. The National Treasury is mandated to coordinate the implementation of the OSR policy
and prepare quarterly monitoring and evaluation reports on implementation. The Policy had an
implementation period of 10 years, with a midterm review scheduled for 2023. It is for this reason
that the National Treasury in collaboration with other stakeholders is currently spearheading a
midterm evaluation to measure outcomes and impacts of the Policy. The outcome of this review
will inform the implementation of the Policy in the second half of the 10 years implementation
period starting FY 2024/25.
311. The National Treasury continues to lead the development of the Integrated County Revenue
Management System (ICRMS) in line with Section 12 (1, e) of the PFMA 2012 in partnership
with relevant stakeholders. This system will ensure financial transparency and standardization
of financial reporting in Government.

4.3 Division of Revenue for FY 2025/26

4.3.1 Performance of Shareable Revenue
312. Ordinary revenue collected over the years has been below target except for FY 2019/20
when the target was surpassed as indicated in Figure 4.5.
Figure 4.5: Estimates of Ordinary Revenue vs. Actual Revenue (Ksh trillion)

Source of Data: National Treasury

81 Draft 2025 Budget Policy Statement

4.3.2 Division of Revenue for FY 2025/26

4.3.2.1 Application of Article 203 (1) of the Constitution in Division of Revenue

313. Article 218(2) of the Constitution requires division of revenue between the two levels of
Government and across County Governments to take into account the criteria set out in Article
203(1) of the Constitution. The criteria include factors such as: national interest, public debt and
other national obligations and needs of the disadvantaged groups and areas, among others.
314. As indicated in Table 4.5, it should be noted that after taking into account all the mandatory
expenditures under Article 203(1) of the Constitution, the balance left for sharing between the
two levels of Government is Ksh 561.7 billion. After allocating Ksh 417.96 billion to County
Governments for FY 2025/26, of which Ksh 405.07 billion is the proposed equitable share, Ksh
2.9 billion and Ksh 9.9 billion as unconditional and conditional allocation from National
Government share of revenue, respectively; the National Government is left with only Ksh 143.7
billion to finance functions such as education, health, defence, roads and energy, among others.
This may occasion additional borrowing which may distort the fiscal framework already set out
in the 2025 Budget Policy Statement. Table 4.5 provides an assessment of the extent to which
the requirements of Article 203 (1) of the Constitution have been incorporated in estimating the
division of revenue between the National and County levels of Government in the FY 2025/26.

Table 4.5: Summary of considerations under Article 203 (1) of the Constitution
FY 2025/26 (Ksh
ITEM DESCRIPTION
Millions)
Ordinary Revenue (Excluding AIA) 3,018,796
National Interest [Article 203 (1)(a)] (FY 2024/25 Supp 1 Estimates) 103,867
Public debt (Art. 203 [1][b]) 1,581,428
Pensions, Constitutional Services and Other 249,908
Other National obligations (Article. 203 [1][b]) 506,296
Emergencies [Art. 203 (1)(k)] 5,000
Equalization Fund [Art. 203 (1) (g) and (h)] 10,590
Of which: a) Allocation in FY 2024/25 7,853
b) Arrears 2,737
Balance to be Shared by the 2 Levels of Government 561,707
County Government allocation from revenue raised nationally- 417,964
Of which: a) Equitable Share of Revenue 405,069
b) Unconditional Allocations from National Government’s Share 2,946
c) Conditional Allocations from National Government’s Share 9,948
Balance left for the National Government 143,744
Source of Data: National Treasury, Medium Term Fiscal Framework and FY 2024/25 Supp 1 Estimates

315. Based on ordinary revenue projection of Ksh 3,018.80 billion in FY 2025/26, it is proposed
that Ksh 2,603.14 billion be allocated to National Government, Ksh 405.07 billion to County
Governments as equitable revenue share and Ksh 7.87 billion to the Equalization Fund. The
National Treasury proposes to further allocate Ksh 2.74 billion to the Equalization Fund in FY
2025/26 as partial payment to arrears for Equalization Fund. Table 4.6 shows the computation
of the equitable share to County Governments for the FY 2019/20 to FY 2024/25.

82 Draft 2025 Budget Policy Statement

316. The Division of Revenue Bill, 2025 also proposes to allocate County Governments Ksh
405.07 billion for the financial year 2025/26 as equitable share of revenue raised nationally -
which is an increase from a base of Ksh 387.4 billion allocated in the financial year 2024/25.
Table 4.6: County Governments’ Equitable Revenue Share (Ksh Million)

Source of Data: National Treasury, Medium Term Fiscal Framework

317. The allocation to County Governments’ equitable revenue share of Ksh 405.07 billion in
FY 2025/26 is informed by the following prevailing circumstances:
i) Trends in the performance of revenue (this was taken into consideration in determining the
Ksh 17.64 billion increases in equitable share of revenue in FY2025/26);
ii) Increased expenditures for National Government for purposes of debt servicing coupled with
a weakened shilling against the dollar;
iii) The Government commitment to implement a fiscal consolidation plan targeting to reduce
the fiscal deficit to 3.9 percent of GDP in FY 2025/26. This is designed to slow down
accumulation of public debt, improve primary surplus thereby achieve fiscal sustainability;
iv) Financing constraints due to limited access to finance in the domestic and international
financial markets; and
v) The National Government continues to solely bear shortfalls in revenue in any given financial
year whereas the County Governments continue to receive their full allocation despite the
budget cuts affecting the national government The above proposed equitable share for FY
2025/26 of Ksh 405.07 billion is equivalent to 25.79 percent of the last audited and approved
actual revenues raised nationally of Ksh 1,570,563 million for FY 2020/21 pursuant to
Article 203(3) of the Constitution.
4.3.2.2 Application of Article 203 (2) of the Constitution in Division of Revenue.

318. Article 203 (2) the Constitution requires that the equitable share allocation to counties
should not be less than fifteen (15) per cent of the last audited revenue raised nationally, as
approved by the National Assembly. The above proposed equitable share for FY 2025/26 of Ksh
405.07 billion is equivalent to 25.79% percent of the audited and approved actual revenues raised
nationally of Ksh 1,570.56 billion for FY 2020/21.
4.3.2.3 Other Policy Considerations in Division of Revenue for FY 2025/26

319. The Government under the Extended Fund Facility (EFF)/Extended Credit Facility (ECF)
program supported by the development partners’ targets is implementing fiscal consolidation
targeting to reduce the fiscal deficit to 3.9 percent of GDP in FY 2025/26. This is designed to
slow down public debt accumulation.
320. To achieve this aggressive fiscal consolidation, amid increase in debt servicing costs as a
result of exchange rate fluctuations and increased interest rates, the National Treasury has

83 Draft 2025 Budget Policy Statement

proposed huge expenditure rationalization in the FY 2025/26 and over the medium term. In order
to be within this commitment, the National Treasury, has so far managed to reduce the fiscal
deficit to 5.6 percent of GDP in FY 2023/24 and targets to reduce it further to 4.3 percent of
GDP in FY 2024/25 through expenditure rationalization and mobilization of additional non-tax
revenues from Ministries, Departments and Agencies.
4.3.2.4 Additional Allocations to County Governments in FY 2025/26

321. Article 202 (2) of the Constitution provides that County Governments may be given
additional allocations from the National Governments Share of revenue either conditionally or
unconditionally; while Article 190 of the Constitution also provides that Parliament shall by
legislation ensure that County Governments have adequate support to enable them to perform
their functions.
322. Further, Section 4 of the County Governments Additional Allocations Act (CGAAA), 2024
requires that additional allocations shall be funds agreed upon by the National Assembly and the
Senate during the consideration of the Budget Policy Statement and shall comprise of County
Governments’ additional allocations financed from either the National Government’s Share of
Revenue or proceeds of loans or grants from Development Partners. Pursuant to Section 5 of the
CGAAA 2024, funds for additional allocations to County Governments shall be included in the
budget estimates of the National Government and shall be submitted to Parliament for approval.
323. In the 2025 Budget Policy Statement, the National Treasury proposes to allocate Ksh 67.97
billion as additional allocations (conditional and unconditional) to County Governments. Out of
this, Ksh 12.89 billion will be financed from the National Government’s share of revenue, and
Ksh 55.07 billion from proceeds of loans and grants from Development Partners as indicated in
Table 4.7.

84 Draft 2025 Budget Policy Statement

Table 4.7: Additional Allocations to County Governments in FY 2025/26

Source of Data: The National Treasury

4.3.2.6 Disaggregation of Total Proposed Transfers to the Counties

324. Taking in to consideration the above proposed additional allocations to County
Governments in FY 2025/26, the expected total transfers to County Governments is Ksh 473.03
billion. Table 4.8 shows disaggregation of total proposed transfers to the Counties in FY 2025/26
and allocations in previous financial year. From the table, there is clear demonstration that there
has been consistent growth of total transfers to County Governments over the financial years.

85 Draft 2025 Budget Policy Statement

Table 4.8 Disaggregation of County Governments’ Allocation (Ksh Million)

Source of Data: National Treasury

4.3.2.7 Allocation of Sharable revenue between the two levels of Government and the
additional allocations to counties from the National Government share of Revenue

325. It should be noted that, and pursuant to Article 202 (2) of the Constitution, the National
Government has over the years out of its own share of revenue provided for additional allocations
to County Governments. These allocations, which have been mostly conditional are meant to
accelerate achievement of policy priorities of both levels of Government, some of which have
international obligations. In so doing, this tends to reduce the National Governments entitled
share of revenue from revenues raised nationally. Table 4.9 shows additional allocations to
County Governments from the National Governments share of revenue raised nationally.
Table 4.9: Division of Revenue Raised Nationally FY 2020/21 – FY 2025/26 (Ksh Million)

Source of Data: The National Treasury

4.4 Intergovernmental Fiscal Transfers

326. National Government Ministries Departments and Agencies (MDAs) are responsible for
development of frameworks for the management of conditional additional allocations made to
beneficiary County Governments. These frameworks outline the total allocation to each

86 Draft 2025 Budget Policy Statement

conditional additional allocation and the specific amount apportioned to each participating
County Government; the conditions to be met by participating County Government; and the
responsibilities of both MDAs, and beneficiary County Governments. The Accounting Officers
in the respective MDAs are responsible for submission of these frameworks to the National
Treasury for inclusion in the County Governments Additional Allocations Bill (CGAAB), 2025.

4.4.1 Intergovernmental Agreements in respect of the Additional Conditional

Allocations
327. Section 9(b) of the County Governments Additional Allocations Act, 2022 (No. 17 of 2022)
introduced amendments to the Public Finance Management Act (PFMA), 2012 by inserting a
new Section 191A-191E. The Section requires the National Treasury to enter into
intergovernmental agreements with County Governments for the transfer of conditional
allocations.
328. However, during the 21st Ordinary Session of IBEC on 6th October, 2023, the Council
directed that the National Treasury, Council of Governors, and the Attorney General engage the
Senate and National Assembly to consider suspending the implementation of Sections 191A-
191E of the PFMA for FY 2023/24. Following this resolution and pursuant to Article 116 of the
Constitution, Parliament granted a suspension of the law's effective date for two financial years,
FY 2023/24 and FY 2024/25, and requested IBEC to propose amendments via a draft Bill for
introduction to the National Assembly.
329. A Multi-Agency Taskforce reviewed the challenges of implementing the amendments, and
on 6th August 2024, the Budget and Finance Committee of IBEC recommended a repeal of the
Sections. This recommendation was presented and adopted by IBEC in its 24th Ordinary Session.
Consequently, and informed by recommendations of a Multi-Agency Taskforce constituted to
review and identify challenges in the implementation of the PFMA, 2012 the Budget and Finance
Committee of IBEC in its sitting on Tuesday 6th August, 2024 recommended repeal of Section
191 A-E of PFMA.
330. The recommendations to repeal of Section 191 A-E of PFMA were presented by the
National Treasury in the 24th Ordinary Session of the IBEC on 26th August, 2024 and adopted
for further action.
331. Subsequently, the National Treasury prepared a draft Public Finance Management
(Amendment) Bill which has been forwarded to Cabinet for approval, after it was cleared by the
Hon. Attorney General. Once approved by Cabinet, the Bill will be submitted to Parliament for
enactment into law.

4.5 Equalization Fund

332. The Equalization Fund (EF), under Article 204(1) of the Constitution of Kenya 2010,
receives an annual allocation of 0.5% of the National Government's revenue based on the most
recent audited accounts approved by the National Assembly. According to Article 204 (2) of the
Constitution, the National Government must use this Fund to improve basic services including
water, roads, health facilities, and electricity, in marginalized areas, to bring these services up to
the level generally enjoyed by the rest of the nation, so far as possible.
333. For FY 2025/26, the National Treasury has recommended allocating Ksh 7.8 billion to the
Equalization Fund, representing 0.5% of national revenue from FY 2020/21, as well as an extra
Ksh 2.7 billion to settle outstanding arrears owed to the Fund.
334. In fiscal year 2023/24, a total of Ksh 1 billion was paid into the Equalization Fund for
disbursement to the beneficiary counties as conditional grants to commence implementation of
87 Draft 2025 Budget Policy Statement
1,277 projects spread in 1,424 marginalized areas, 366 wards, 111 constituencies and 34
counties. These projects span five sectors of Water, Roads, Health, Education and Energy. In the
same period, 2023/24, the Equalization Fund disbursed Ksh 156,137,031.70 to Ministries,
Departments and Agencies (MDAs) for completion of projects funded under the Equalization
Fund Appropriation Act 2018. Of the projects funded by the EF Appropriation Act 2018, 60
percent are complete and in use by marginalized communities while a further 22 percent are
nearing completion.

4.6 Emerging Issues and Policy Interventions

4.6.1 County Revenue Forecasting Model
335. In a bid to enhance revenue forecasting by County Governments, the National Treasury is
leading a multi-agency technical team in development of forecasting models to be utilized in
estimation of Own Source Revenue targets. The development of the forecasting tool is supported
through KDSP II in realization of Key Result Area (KRA) 1 on Sustainable Financing and
Expenditure Management. Once finalized the models will enhance target setting and accuracy
of fiscal forecasting as well as reduce piling up of pending bills occasioned by overcasting.

4.6.2 County Governments Capacity building on Public Finance Management

336. The Public Finance Management Act (PFMA), 2012 mandates the National Treasury to
develop and oversee the implementation of a comprehensive county financing system that
ensures financial controls for the efficient and effective utilization of public resources.
Additionally, the National Treasury is required to strengthen the institutional capacities of county
public finance management to implement, manage, and support governance, development, and
service delivery.
337. The National Treasury conducted capacity building workshops on Public Finance
Management Act, 2012 targeting all the 47 County Governments on 10th May 2024. A total of
400 County Government officials drawn from all County Governments were trained in the
capacity building workshop. Due to budget constraints, capacity building of County Assemblies
on PFMA, 2012 has not been conducted. The National Treasury is initiating reforms geared
towards centralising PFMA capacity building coordination to ensure effectiveness and minimal
disruption of County Government service delivery.

4.6.3 Integrated County Revenue Management Systems

338. In line with various IBEC resolutions in regard to the Integrated County Revenue
Management System (ICRMS), the National Treasury, in line with Section 12 (1) (e) of the
Public Finance Management Act, 2012, is developing an Integrated County Revenue
Management System (ICRMS) to replace the fragmented County revenue management systems
currently being operated by counties. The ICRMS is a unified, centralized management system
aimed at enhancing effectiveness in the collection and administration of County Government
Own Source Revenue (OSR). So far, a Multi-Agency Technical Team drawn from across
Government Departments in charge of devolution and representatives from County Executives
have accomplished the following:
i) Conceptualization and Planning- Developed a comprehensive Concept paper, project Work Plan,
and required Budget.
ii) Revenue Stream Identification and Classification- Identified, classified, and mapped revenue
streams in alignment with the Standard Chart of Accounts (SCOA).
88 Draft 2025 Budget Policy Statement
 iii) Business Process and Requirements Definition- Defined detailed business processes and
requirements for the ICRMS.
iv) System Architecture and Design- Developed the foundational architecture and design of the
ICRMS.
v) Technical Specifications- Documented the technical specifications for the ICRMS.
vi) Legal Framework- Developed Draft ICRMS regulations for its operationalization.
339. Currently, the draft regulations are awaiting approval by the Steering Committee before
being subjected to wider stakeholder engagement and public participation.

89 Draft 2025 Budget Policy Statement

V. STATEMENT OF SPECIFIC FISCAL RISKS
5.1 Introduction
340. The economy is expected to slow down to a growth 4.6 percent in 2024 from a growth of
5.6 percent in 2023 mainly due to a general deceleration of economic activities coupled by a
decline in credit to the private sector. Economic activities are expected to pick up in 2025 with
a projected growth of 5.3 percent. This outlook will be supported by a robust services sector and
recovery of manufacturing sector; robust agricultural productivity and improvement in exports.
The outlook will be reinforced by implementation of policies and reforms under the priority
sectors of the Bottom-Up Economic Transformation Agenda (BETA) and improvement in
aggregate demand. There are, however, downside risks to the macroeconomic outlook envisaged
in this 2025 BPS emanating from domestic as well as external shocks.
341. For prudent management of risks, the PFM Act, 2012 requires the preparation of a
“Statement of Fiscal Risks. Thus, this section provides an assessment of fiscal risks that the
Kenyan economy is exposed to that may affect the achievement of the macroeconomic targets
and objectives detailed in this BPS. The fiscal risks arise from assumptions that underline fiscal
projections, the dynamics of public debt, and operations of state corporations, contingent
liabilities, financial sector vulnerabilities and natural risks. Emergence of these risks could make
it difficult for the Government to actualize and sustain macroeconomic policies detailed in this
BPS. Thus, this section also details the measures that the Government is implementing to
mitigate such risks.

5.2 Risk in Changes in Macroeconomic Assumptions

342. Macroeconomic variables play a key role in the formulation of the budget as they form a
baseline in revenue projections and determine the Government’s spending priorities. The
macroeconomic assumptions underlying the FY 2025/26 budget entail an estimated growth of
4.6 percent in 2024 and 5.3 percent in 2025. Inflation is projected at 4.8 percent in FY 2024/25
to remain within the midpoint target of 5.0 percent over the medium term. The External sector
is expected to remain relatively stable despite geopolitical fragmentation and uncertainties and
tight global financial conditions. The unexpected changes in the macroeconomic projections in
this BPS may pose risks to the projected revenue and expenditure.
343. Table 5.1 summarizes the likely impact of changes in the 2025 BPS outcomes on the fiscal
projections.

90 Draft 2025 Budget Policy Statement

Table 5.1: Fiscal Sensitivity to Key Macroeconomic Variables (Ksh billion)

Source of Data: National Treasury

344. The reduction of the projected real GDP in 2025 by one percent (from 5.3 percent to 4.3
percent) has the adverse impact of reducing revenue collection by Ksh 12.5 billion in FY
2025/26. Due to the reduced revenues, expenditures would decline by Ksh 6.5 billion resulting
to an increase in fiscal deficit by Ksh 6.0 billion in the same period. This shock would persist
over the medium term with the decline in revenues more than the decline in expenditures leading
to a higher than projected fiscal deficit.
345. A shock of a one percent increase in the projected inflation rate for FY 2025/26, from 5.0
percent to 6.0 percent, would result in an increase in revenues and expenditures by Ksh 13.0
billion and Ksh 7.0 billion, respectively in FY 2025/26. The higher revenues compared to
expenditures would result to an improvement of the fiscal deficit by Ksh 6.0 billion in FY
2025/26. The impact of the shock would persist over the medium term thereby improving the
fiscal deficit by Ksh 8.2 billion by FY 2028/29. However, this projection does not take into
account the changes in consumer behaviour as a result on increase in prices.
346. A 10 percent depreciation of the Kenya shilling to the dollar would have a higher impact
on the revenues as compared to the expenditures. The revenues and expenditures would increase
by Ksh 19.9 billion and Ksh 4.1 billion respectively in FY 2025/26 thereby reducing the
projected fiscal deficit by Ksh 15.8 billion. The effect of this shock would persist over the
medium term with the increase in revenues offsetting the increase in expenditures leading to a
lower than projected fiscal deficit. Fiscal deficit would reduce by an estimated Ksh 22.1 billion
by FY 2028/29. The projection does not take into account that the depreciated exchange rate
might lead to lower volumes of imports thereby having an adverse effect on the revenues.
347. A shock of 10 percent increase in the value of imported goods in the FY 2025/26 would
increase revenue collection by Ksh 11.6 billion in the same period. However, the shock would
have a negative effect on revenue collection over the medium term due to change in consumer
behaviour. The shock would not significantly affect expenditures.
348. Overall, if all the four shocks were to hit the economy concurrently in the FY 2025/26,
revenues would increase by Ksh 33.0 billion as the movements in inflation and exchange rate
would offset the risk posed by a slowdown in real GDP growth. The adverse impact of the shocks
to expenditures would be significantly lower compared to the increase in revenues thereby
eliminating the fiscal risk on the budget from macroeconomic shocks.

91 Draft 2025 Budget Policy Statement

Assessment of Past Forecast Accuracy of Underlying Assumptions and Budgetary
Aggregates
349. Overall, the actual real GDP growth and inflation projections have been within their
respective set targets with minimal deviations as shown in Figure 5.2. However, for the past two
years, revenues and expenditures have been performing below their respective targets. The fiscal
deficit has been consolidation gradually over the past three tears.
Figure 5.2: Deviations in Macroeconomic and Fiscal Aggregates

Source: National Treasury

350. Over the period 2020/21-2023/24, there was minimum deviation between the assumed and
provisional actual real GDP growth rates with a standard deviation of 0.3 percentage point. With
respect to inflation assumptions, the standard deviation was at 0.7 percentage point over the four
years, with the largest deviation being recorded in FY 2021/22 at 1.3 percent mainly due to the
unanticipated inflationary pressures resulting from prolonged drought and external pressures
(Table 5.2).
351. The actual performance of fiscal aggregates against their targets was mainly below target.
Total revenue between FY 2020/21 and FY 2023/24 fell short of its target by an average of Ksh
128 billion. This shortfall was from both ordinary revenues by Ksh 98 billion and Ministerial A-
I-A of Ksh 31 billion. The average deviation of total expenditure and net lending between FY
2020/21 and FY 2023/24 was an underspending of Ksh 205 billion. This shortfall was mainly
due to lower absorption in development expenditures by Ksh 114 billion and recurrent

92 Draft 2025 Budget Policy Statement

expenditures by Ksh 65 billion. The lower recurrent spending is in line with the fiscal
consolidation programme by the Government that targets to curtail unproductive expenditures.
352. The lower-than-projected spending on development expenditure poses a risk to the
projected economic growth and fiscal program. In order to prevent this risk from materializing
and improve efficiency of public investments, the National Treasury froze initiation of new
capital projects until the completion of the ongoing ones. The Public Investment Management
Unit will ensure that all capital projects are planned, appraised, and evaluated before funds are
finally committed in the budget.
Table 5.2: Deviations in Macroeconomic and Fiscal Aggregates

Source: National Treasury

353. The economy is projected to remain strong in the FY 2025/26, growing by 5.3 percent with
a 95 percent confidence level ranging between 5.8 percent and 4.8 percent at 0.3 percent standard
deviation. This is an improvement from a growth of 5.0 percent in FY 2024/25 at a growth range
of around 5.5 percent and 4.5 percent using the same standard deviation at 95 percent confidence
interval (Figure 5.2).
354. There is a 95 percent chance that the forecasted total revenue of Ksh 3,516.6 billion in FY
2025/26 will be within the actual revenue range of Ksh 3,136.4 billion and Ksh 3,896.9 billion
and a 50 percent possibility between Ksh 3,648.6 billion and Ksh 3,384.7 billion with a standard
deviation of Ksh 25 billion. The Projected revenue of 3,060.0 billion for FY 2024/25 will fall at
an actual range of Ksh 3,440.2 billion and Ksh 2,679.7 billion at 95 percent confidence interval.
355. The forecasted expenditure of Ksh 3,880.8 billion in FY 2024/25 has a 95 percent chance
to range between Ksh 4,308.4 billion and Ksh 3,453.3 billion with a 201.0 billion standard
deviations. The expenditure is projected to increase further in FY 2025/26 to Ksh 4,329.3 billion
and to range between Ksh 4,756.8 billion and Ksh 3,901.8 billion at 95 percent confidence
interval. The fiscal deficit will therefore fall between Ksh 1,059.0 billion and Ksh 478.1 billion
in FY 2024/25 and between Ksh 1,049.9 billion and Ksh 468.9 billion in FY 2025/26 at a 95
percent confidence interval.

93 Draft 2025 Budget Policy Statement

Figure 5.2: Confidence Intervals

Source of Data: National Treasury

5.3 Specific Fiscal Risks

356. This section covers specific fiscal risk that Kenya faces and elevates the importance of
effective risk management. The specific fiscal risks include:
a) Fiscal Risks Associated with Public Debt;
b) Fiscal Risks Arising from Accumulation of National Government’s Pending Bills;
c) Crystallization of Contingent Liabilities;
d) Fiscal Risks Related to Devolution;
e) Climate Change Related Fiscal Risks to the Economy; and
f) Other fiscal risks.
357. The analysis of the above specific risks is as follows:

5.3.1 Fiscal Risk Associated with Public Debt

358. Performance of the economy has a direct correlation with the debt sustainability. Poor
performance of the economy deteriorates the debt indicators thus unsustainability. However, the
Government strategy to revive the economy and its commitment to fiscal consolidation will lead
to improvement of the debt ratios.
359. Market pressures due to war in Ukraine and the monetary tightening in the USA and Europe
have limited access to the international capital market. The inflation rates have led to high interest
rates and this has hindered the Government in performing liability management operation on its
debt portfolio. However, the Government will continue to monitor the financial conditions before
performing any liability management operations whose aim is to lengthen the maturity structure
and reduce the refinancing risks in the debt portfolio.

94 Draft 2025 Budget Policy Statement

360. The ongoing implementation of reforms in the domestic debt market are aimed at improving
efficiency and deepening the market to cushion the Government against the downsides of the
risks stemming from external factors. The risk of continuous increase in the cost of debt service
as a result of Kenya shilling depreciating against major currencies as 50 per cent of the debt
portfolio is from external sources.
361. The rising interest rates both in the domestic and external market has an implication on the
Governments` overall debt service. A large proportion of revenue will be used to service debt.
Uncertainty in the movement of interest rates have led to increase of new debt on short-term
maturities thus increasing the refinancing risk. Increasing cost of borrowing due to credit rating
downgrade which impacts investor confidence and financial terms of various credit especially
the commercial loans.
362. Government’s exposure to fiscal risks and contingent liabilities arising from state- owned
enterprises and recorded off balance sheet. Materialization of these liabilities may pose fiscal
difficulties in the budget year. The government will continue monitoring the liabilities and will
be able to mitigate the risk before they materialize.

5.3.2 Crystallization of Contingent Liabilities

363. Contingent liabilities are potential liabilities that may occur depending on the outcome of
uncertain future event. A contingent liability is only recorded in the financial statements if the
contingency is probable and the amount of the liability can reasonably be estimated. However,
they must be given adequate disclosure if otherwise. Explicit contingent liabilities are specific
Government obligations established by law or a contract authorized by law which Government
must settle when it becomes due. On the other hand, implicit liabilities represent moral
obligations or burdens that, although not legally binding, are likely to be borne by the
Government because of public expectations or political pressures.
364. Contingent liabilities are frequently not recorded directly in the budget and thus not
subjected to budgetary oversight. Because their fiscal cost is invisible until they come due, they
represent a hidden subsidy and a drain on future government finances. These could lead to poor
quantification of Contingent Liabilities and the possibility of unplanned budgetary requirements
if the guarantee crystallizes. There is need therefore, to monitor these contingent liabilities to
avoid fiscal risks in the budget year in the event they happen.
5.3.2.1 State Corporations / Government Owned Enterprises (GOEs)

365. State corporations have legal capacity to contract debts and other liabilities to finance their
requirements with approval of the Parent/line Ministry and concurrence from the National
Treasury as per the requirement of the State Corporations Act. Government loans to GOEs are
either direct or on-lent. Direct Loans is where Government has granted a loan to a Corporation
from the National Exchequer resources while On-Lent Loans is where Government procures
credit facilities from development partners on concessional terms. The proceeds are thereafter
extended to Corporations as loans.
366. State Corporations are major sources of contingent liabilities to the Government. These
mainly stem from inability of the Corporations to pay for contracted obligations such as
Government loans, guarantees, pending bills, commercial debts and legal claims.
367. State Corporations face a number of challenges including: i) Inadequate capital for
investments and working capital due to dwindling Government Resources to invest in those

95 Draft 2025 Budget Policy Statement

entities; and ii) Government crowding out the private sector in production of good and services
hence lack of competitiveness leading to inefficiencies; among others.
368. Debt stricken State Corporations, constitute a potential source of fiscal Risk. The
Government is cautious in issuance of guarantees and other support measures to state
corporations upon such requests. However, as the principal owner of all the GOEs, the
Government is naturally the underwriter of the risks that they face.
369. State Corporations can be a major source of fiscal risk to public finances if they
underperformed financially. In FY 2023/2024, fiscal risk analysis was done on a sample of fifty
State Corporations in addition to eighteen initially done in FY 2021/2022 whose report identified
and disclosed the fiscal risk exposure to the Government.
370. In the sixty-eight (68) Corporations, preliminary financial evaluations and risk assessment
highlighted a number of fiscal risks that could materialize. These stem primarily from liquidity
challenges resulting from unfavourable revenue and economic performance. They also reflected
a high liquidity risk demonstrated by their quick ratios which are below the set standards. Current
ratios being less than one, implying their inability to service short term obligations as and when
they fall due. Subsequently, some were found to have accumulated sizeable arrears/pending bills.
371. Government Linked Corporations (GLCs) also pause a fiscal risk to the Exchequer. These
are entities where the Government has less than 50% stake. Government oversight in GLCs is
limited. However, it may be called upon to meet some contractual obligations in case of default.
Due to strategic nature of some of the entities and in view of the national interest & the overall
impact of their failure to the economy, the Government may be morally obliged to bail out these
entities in case they are in financial distress. This may pose serious fiscal risk and challenge to
budget implementation.
372. The National Treasury has guaranteed a number of State Corporations and GLCs. As at 30th
June, 2024, the Government of Kenya had guaranteed the following State-owned Enterprises
(SOEs): Kenya Electricity Generating Company PLC (KENGEN), Kenya Ports Authority
(KPA) and Kenya Airways (KQ). In addition, 21 SOEs had non-guaranteed debt. Non-
guaranteed loans are funds borrowed by Corporations based on the strength of their balance
sheets.
373. The stock of Government guaranteed debt as at end June 2024 was at Ksh 94,218 million,
which was a decrease from Ksh 170,229 million as at end June 2023 due to novation of Kenya
Airways debt and repayment of other guaranteed debt.
374. Twenty-one (21) Corporations reported non-guaranteed debt amounting to Ksh 78,207
million (0.5 percent of GDP). The cumulative stock of on-lent loans amounted to Ksh 1,040,023
million. This included loans to Kenya Railways Corporation amounting to Ksh 569,329 million
which accounted for 55 percent of the total on-lent loans.
375. Pending Bills among the state corporations remain high, with records showing Ksh 379.816
billion as at 30th June, 2024. The major pending bills include; Unpaid contractors’ fees for capital
projects, undischarged tax obligations and unremitted employer pension.
376. In order to mitigate the fiscal risks among the State Corporations, the Government:
i) Has initiated the process of reform and restructure of Institutions. The National Treasury
has conducted a preliminary financial evaluation and viability assessment of State
Corporations to identify those to be merged and those that need restructuring. This is
aimed at increasing the Country’s fiscal space by reducing Corporations’ overreliance on

96 Draft 2025 Budget Policy Statement

 the National Exchequer therefore, creating room for the Government to undertake priority
projects and programmes;
ii) Has committed to State Corporations reforms that includes governance reforms and
restructuring, separation of roles and responsibilities among Government institutions
providing oversight on State Corporations;
iii) Will continue to utilize the Government Information Management Information System
(GIMIS) to oversight State Corporations. This will ensure availability of comprehensive
and consolidated data on State Corporations to ensure timely identification, monitoring,
mitigation, and reporting of fiscal risks from SOEs. More modules are being inbuilt to
have a better chance of arresting fiscal risks in the Corporations before they materialize;
iv) Has initiated a Government Ownership Bill aimed at addressing governance issues and
gaps in law thereof in relation to Government Owned Enterprises. This will ensure
transparency and accountability in their operations. Public participation on the bill has
been conducted and the other processes towards enactment of the bill as an act are on
course;
v) Is in the process of developing Government Investments regulations which will govern
public resource flows to corporate bodies in terms of justification, oversight &
governance arrangements and reporting; and
vi) Is in the process of developing key performance indicators for commercial State
Corporations to help in assessing their strategic, financial, and operational achievements
in relation to Government’s expectations. This will ensure proper monitoring and timely
identification of problems which could result to materialization of contingent liabilities.

5.3.2.2 Public Private Partnerships (PPP) Projects

377. Public Private Partnerships (PPPs) are meant to address the major infrastructure
development funding gap in a time of constrained fiscal space, competing development
pressures, particularly in the social sectors, and rising public expenditure demand under both
national and devolved structures. Currently, it is estimated that the country requires
approximately USD 2 billion per year to bridge the infrastructure funding deficit.
378. The Government identified PPPs as one of the key avenues to partly fill the investment
financing gap occasioned by the ongoing fiscal consolidation efforts, reducing government
borrowing and lowering yields on government securities. PPP Projects also build local financial
service sector deepening through mobilized private sector capital, getting innovative ideas, risk
transfers, non-debt fiscal sustainability and addressing climate related exposures.
379. Over Ksh 140.7 billion in private capital has so far been mobilized through PPPs over the
years up to 30th June 2024. During Financial Year 2024/2025, the National Treasury projects to
mobilise a total of Ksh 50 billion from the following projects: 35MW Orpower Geothermal
Project (Ksh 11 billion); Galana Kulalu Food Security Project Project (Ksh 12.5 billion) and
Africa 50 transmission lines (Ksh 41 billion).
380. Currently, there is a PPP projects portfolio pipeline of 37 at various stages. During the last
financial year, the PPP program achieved financial close of two main projects namely, Kenya
Defence Forces housing Project and 35MW Quantum Geothermal Project. The National

97 Draft 2025 Budget Policy Statement

Treasury has a number of key policy milestones which include; development of PPP Regulations
under the PPP Act 2021, and development of a climate resilience framework for PPPs.
381. Government envisages mobilizing Ksh 70 billion within the next FY 2025/26 through
Private investments in PPPs by working with the private sector to develop projects in priority
areas. The summary of the targeted sector projects is here below:
i) The Water Sector -Sabaki Water Carrier Project (Ksh 28 billion) among others
ii) Energy Sector - Generation and Transmission projects (Nairobi Street lighting Project –
Ksh 10 billion among others);
iii) Housing Sector – e.g. Stony Athi Affordable Housing Project – Ksh 9.2 billion among
others;
iv) Roads and Transport sector - the Mombasa - Nairobi Express way currently project
development phase among others.
382. There are potential fiscal risks associated with the Public Private Partnerships projects
including possible breaching of contract obligations, unfunded additional obligations and those
stemming from movements in inflation and exchange rate. To mitigate these risks, the
Government will strengthen PPP institutions, improve governance, promote the framework for
balancing risks with affordability and value for money while guaranteeing rapid service delivery
through cutting down execution timelines and promoting local content for greater national value
capture in PPPs.
383. As part of de-risking public investments in respect to capital mobilization for infrastructure
development, the Government will continue to provide Government Support Measures (GSMs)
to private investors in PPP projects in the form of Letters of Support (LOSs), Partial Risk
Guarantees and Indemnity Agreements. Accordingly, the FCCL framework shall be reviewed to
ensure an appropriate balance between project benefits and the risks to be assumed by
Government. This will encourage and unlock the private sector capital on projects which require
de- risking. To date, a total of fifteen projects have been issued with GSMs which are at
Feasibility Study phase, with the project implementation targeted to commence in FY 2024/25.
The contingent liabilities are going to be closely monitored and shall be disclosed accordingly
depending on the implementation progress of various project agreements.
384. The Government will also put in place a framework that will enable private investment in
national programs through balancing risks and rewards between the public and private sector and
free the fiscal space. In this regard, the Government will institutionalize a joint PIM-PPP
planning framework to ensure that only projects with the highest social - economic returns are
undertaken. To achieve this, all projects will be screened for commercial viability as PPPs, before
being considered for implementation within the National Budget.
385. To ensure a structured approach to infrastructure development, the National Treasury in
conjunction with the State Department of Economic Planning and other Government agencies is
working to develop a 10-year National Infrastructure Plan (NIP). The Plan will document
strategic infrastructure investments across various sectors and provide a basis for planning,
prioritization, resource mobilization, and delivery of infrastructure projects. The National
Infrastructure Plan will inform the implementation of both PPP and public investment projects
under the Public Investment Management framework.
386. Additionally, during the FY 2025/26, the National Treasury will develop procurement tools
to standardize the procurement process in the following sectors - health, water, and road sectors.

98 Draft 2025 Budget Policy Statement

To improve disclosure and transparency framework, thorough public engagements will be
undertaken during all critical stages of the PPP project implementation processes. Contracting
Authorities shall also be required to publish all intended and ongoing projects in line with Section
43 and 69 of the PPP Act of 2021.

5.3.3 Fiscal Risks Related to Devolution

387. County Treasuries are required under Section 107 of the PFM, Act 2012 to manage their
public finances in accordance with the principles of fiscal responsibility. Among the fiscal
responsibility principles set out in Section 107 (2) is the requirement for the County Treasury to
manage its fiscal risks prudently. A number of fiscal risks that require prudence in its
management by the County Governments are as follows:
i) County Governments borrowing through overdrafts from commercial banks and other
loan facilities (using different names for the financial securities) without guarantee from
the National Treasury;
ii) Pending Bills for Statutory deductions more especially pensions posing a huge challenge
to the social security of the pensioners who may retire without a pension;
iii) Delays in enactment of crucial laws for the County Governments (both at the county level
and the National Government level);
iv) Overreliance of the County Governments in equitable share which exposes the counties
to fiscal shocks occasioned by delays or failure by the National Treasury to raise the
projected revenues;
v) Below potential OSR which results to unfunded budgets resulting to accumulation of
pending bills; and
vi) Accumulation of pending bills over time.

5.3.4 Climate Change Related Fiscal Risks to the Economy

388. Climate change in Kenya exhibits a distinct warming trend and variable rainfall pattern.
Average temperatures in Kenya have increased by just over 1 degree Celsius since the 1950s
(Figure 5.3). Precipitation has been highly erratic with variable rainfall pattern and amounts.
These changes have resulted in more frequent and extreme weather events ranging from
droughts, floods, and landslides, causing major socio-economic and developmental challenges
to the economy. The consequences are compounded by the widespread lack of supportive
infrastructure and technology.

99 Draft 2025 Budget Policy Statement

Figure 5.3: Observed Annual Average Mean Surface Air Temperature of Kenya, 1950-
2022

Source: World Bank Climate Change Knowledge Portal

389. Kenya is highly exposed to a range of climate-related natural hazards, including droughts
and floods, which have significant social, economic, and environmental impacts. Major droughts
tend to occur approximately every decade, while less severe but more frequent droughts and
floods take place every 3-4 years. These events lead to loss of life, increased food insecurity,
water shortages, reduced economic productivity, loss of biodiversity, resource-based conflicts
(especially among pastoral communities), and extensive infrastructure damage.
390. Between 1964 and 2022, floods resulted in 2,090 deaths, and droughts have affected over
59 million people (Table 5.3). Trends show a rising frequency of floods, landslides, and storms,
and climate change is expected to exacerbate these events, increasing both their frequency and
severity. For example, the 2022-2023 drought followed severe flooding in 2019-2020. As these
climate risks continue to intensify, the need for robust adaptation and mitigation strategies
becomes even more urgent to reduce their impact on Kenya's population and economy.
Table 5.3: Natural Disasters in Kenya, 1964-2022
No. of
Total No. deaths Total No. affected Total damage (000’ USD)
Events
Floods 58 2090 4,718,765 518,388
Landslide 5 153 146 −
Drought 17 196 59,300,000 251,500
Storm 1 50 − −
Source: EM-DAT, the International Disaster Database (2023)

391. According to the State of the Climate Kenya (2023), the 2023 floods affected 38 counties
across Kenya, resulting in loss of lives, injuries, displacements, and destruction of key
infrastructure. An increase in contaminated water also led to secondary effects, including vector
and waterborne disease outbreaks. 757,173 people (138,560 households) were affected since the
onset of the short rains season between October and December 2023. Some of the hardest hit
areas were the semi-arid lands where pastoralism is the economic driver for livelihoods. These
areas were still recovering from the worst drought in 40 years, which led to high rates of
malnutrition.

100 Draft 2025 Budget Policy Statement

392. Climate events account for a significant proportion of natural disasters in Kenya, and the
damage caused by these events underscores the urgency of investing in resilient infrastructure
across sectors such as energy, water resources, agriculture, and tourism.

5.3.4.1 Specific Fiscal Risks related to Climate Change

Nature of Specific Fiscal Risks

393. These risks are events that may or may not occur, but if they do, they could significantly
affect assets, liabilities, government spending, and revenues. Unlike slow-onset risks (e.g.,
gradual economic impacts), specific fiscal risks could have immediate and substantial short-term
impacts.
Key Types of Fiscal Risks
394. Direct Physical Risks: These risks arise from natural hazards, such as landslides or other
extreme weather events, causing damage to public infrastructure. In addition, the risks can be
Acute resulting from extreme weather events (e.g., hurricanes, floods) and Chronic: Due to
gradual environmental changes (e.g., sea-level rise or desertification), leading to more frequent
or severe natural disasters.
395. Transition Risks: These risks stem from the transition to a carbon-neutral economy, which
could affect the value of government assets and these include the need for additional support to
adjust operations to align with climate-neutral production, especially beyond existing transition
plans.
396. The vulnerability to fiscal risks rises when a country's ability to absorb such risks is low.
Financially weak sectors, like agriculture and mining, lack the resources or access to finance to
manage the financial impact of natural hazards and climate change. As a result, the financial
burden is often shifted to the Government. A complete understanding of specific fiscal risks and
assessment of their relevance to fiscal policy and the budget requires a comprehensive
assessment of climate change risks across the general government sector and for all public
corporations. Kenya’s key economic sectors are highly sensitive to climate change, with varying
impacts across different areas:
i) Agriculture: As the backbone of the economy, agriculture is heavily reliant on consistent
weather patterns. Climate change, with its unpredictable rainfall and extreme weather events,
threatens crop yields, food security, and rural livelihoods.
ii) Energy: Kenya's energy sector, especially hydroelectric power, is vulnerable to changing
rainfall patterns, which can lead to power shortages and increased use of expensive fossil
fuels. Rising temperatures also reduce the efficiency of geothermal plants and transmission
systems.
iii) Labour Productivity: Increased heat from climate change can reduce labour productivity,
particularly for outdoor workers in sectors like agriculture, forestry, and fisheries, especially
in arid regions.
iv) Road Transport: With 93% of freight and passenger traffic depending on roads, climate-
induced disruptions like flooding and road degradation during extreme weather events can
isolate regions and hinder trade and mobility.

101 Draft 2025 Budget Policy Statement

v) Tourism and Wildlife: Tourism, closely linked to wildlife and natural landscapes, is
affected by climate shifts that alter wildlife habitats and migration patterns, potentially
reducing tourism appeal.
vi) Water Resources: Climate change contributes to water scarcity and the degradation of water
quality, impacting both human consumption and agricultural use, with wide-ranging effects
on health, food production, and energy generation.
vii) Health & Education: The average number of hot days and nights per year have increased
remarkably with associated effects on health reported across various hospitals (KMD, 2022).
Extreme weather events, such as floods and higher temperatures, can damage infrastructure,
disrupt access to health and education services, and increase the spread of diseases like
cholera and typhoid. Droughts can reduce food availability and student attendance.

5.3.4.2 Long Term Climate Change Fiscal Risks

397. Climate change has already started to impact Kenya’s economy, and its potential
macroeconomic and fiscal implications are significant. Increasing temperatures due to climate
change are expected to have significant long-term effects on both economic growth and the
sustainability of public finances, leading to increased fiscal risks. The analysis considers how
temperature changes influence economic activities and examines how this could impact fiscal
projections, thereby creating growing fiscal pressures. The assessment spans through to the end
of the century to capture the gradual, compounding nature of climate change's economic and
financial impacts over time.
398. The analysis demonstrates the impact of four different scenarios of increasingly severe
climate change impacts, against a baseline which reflects the continuation of the current
economic and fiscal path in the absence of climate change. Table 5.4 describes the scenarios and
expected increases in temperature globally and for Kenya.
Table 5.4: Climate Change Scenarios in Kenya
Temperature Change Degrees
Scenario Description Celsius
2021-2050 2021-2100
It assumes that countries will maintain their current
Paris: climate mitigation policies and will take additional 1.0 1.0
actions to meet their Paris Agreement commitments.
Emissions follow current trends, peaking and
stabilizing by the end of the century. It assumes that
Moderate: countries will maintain their current climate 1.2 1.6
mitigation policies but will not take additional
actions to meet their Paris Agreement commitments.
Countries reduce their current climate mitigation
High: efforts, resulting in limited energy efficiency 1.4 2.2
enhancements and continued reliance on fossil fuels.
This scenario follows the emissions path of the high
scenario. However, it adopts the 90th percentile of
Hot: 1.9 2.9
temperature increase among all climate models
rather than the average temperature projection.

102 Draft 2025 Budget Policy Statement

399. Climate change is expected to reduce GDP growth, primarily through lower productivity.
The severity of the impact depends on the intensity of climate effects. Key transmission channels
include:
i) Higher depreciation of public and private capital: Increased temperatures and changing
precipitation patterns will damage infrastructure such as roads, power lines, machinery,
and equipment. Natural disasters like floods and landslides will further degrade assets.
ii) More frequent and severe natural disasters: Climate-induced events such as floods,
droughts, and landslides are expected to increase in frequency and severity, leading to
more negative economic outcomes.
iii) Reduced working hours and productivity: Hotter days can reduce the number of hours’
employees can work effectively. There could also be negative health impacts, such as the
spread of diseases like malaria, cholera, and typhoid, which further reduce productivity.
iv) Longer-term effects on economic structure: Certain sectors, such as agriculture (especially
high-value crops) and tourism, may suffer due to climate-related changes, such as reduced
crop yields or unfavourable conditions for tourism.

5.3.4.3 Macroeconomic Impacts of Climate Change

400. There is a marginal improvement in the level of GDP (increasing by 0.5 percentage points
by 2100) and labour productivity growth under the Paris scenario. This is because implementing
the Paris Agreement commitments is expected to mitigate against the impact of Climate change.
Under each of the other climate change scenario, there is a compounding decrease in the level of
GDP and labour productivity but with varying magnitudes. Although reductions in growth rates
are small in any given year, this compounds significantly in the long run. Under the hot scenario,
GDP would be 4.2 percentage points lower than the baseline by the end of the century (Figure
5.4). This is in line with estimates impacts for other similar countries in the region.
Figure 5.4: Macroeconomic Effects of Climate Change in Kenya (2015-2099)
Percent Level GDP Loss Percentage point Variation on Labor Productivity
Growth

Source: Q-CRAFT (2024)

5.3.4.4 Effects of Climate Change on Fiscal Projections

401. Taking the assumption that Government expenditure remains unchanged and revenue
declines due to lower GDP growth, Kenya’s primary deficit is projected to increase in all

103 Draft 2025 Budget Policy Statement

scenarios except the Paris scenario (aligned with climate-related goals). This would result in
higher net borrowing and an increased debt-to-GDP ratio (Figure 5.5). The resulting fiscal
deterioration would necessitate fiscal consolidation either through expenditure cuts or revenue
increases to maintain fiscal sustainability. However, balancing this fiscal consolidation with the
need for increased investment in infrastructure and human capital to promote long-term
economic growth poses a significant challenge for the government. The trade-off between
maintaining fiscal discipline and investing in growth-promoting sectors will require careful
management. In contrast, the baseline and Paris scenarios suggest a decline in the debt-to-GDP
ratio, which aligns with the target of maintaining national debt at 55 percent of GDP in net
present value terms.
Figure 5.5: Effects of Climate Change on Fiscal Projections (2013-2093)
Primary Net Lending / Borrowing Debt-to-GDP Ratio (percent)
(percent of GDP)

402. The primary balance gap (PB Gap) is the difference between debt stabilizing primary
balance and the actual primary balance. The higher the gap the more fiscal restructuring required
to stabilize debt. According to the analysis, the baseline scenario requires a modest fiscal
consolidation of around 0.1 percentage points of GDP over the projection period to ensure a
stabilization of the debt to GDP ratio. Climate change would raise this burden to 0.7 percent of
GDP (Figure 5.6).
Figure 5.6: Primary Balance Gap (% of GDP)

104 Draft 2025 Budget Policy Statement

5.3.4.5 Climate Change Mitigation and Adaptation Measures

403. Kenya is highly vulnerable to climate change and natural hazards, with events like droughts,
floods, landslides, and storms causing significant loss of life and undermining development
efforts. Around 70 percent of these disasters are linked to climate events. The increasing
frequency and intensity of these events highlight the urgent need for strong climate adaptation
strategies to mitigate their negative economic and fiscal impacts. Recognizing this vulnerability,
Kenya is focused on creating a climate change policy framework that aims to improve fiscal
sustainability and strengthen climate resilience. Addressing climate risks is seen as essential for
reducing fiscal pressures and ensuring long-term development.
404. The Government is actively working to reduce emissions, build resilience to climate
change, and meet its Nationally Determined Contributions (NDCs) under the Paris Agreement.
To achieve this, it has developed a 5-year National Climate Change Action Plan (NCCAP),
which is aligned with the Medium-Term Plan (MTP) cycle. Additionally, the government is
implementing a Financing Locally Led Climate Action (FLLoCA) Program to build local
resilience to climate change and other natural hazards. The development objective of the
Program is to strengthen the capacity of National and County Governments to manage climate
risk.
405. Other examples of measures being undertaken by the Government include:
i) Low-emission Power Generation: Prioritizing the development of renewable energy
sources, especially geothermal and hydroelectric power, to reduce emissions and
dependence on fossil fuels;
ii) Tree Planting Initiative: Committing to plant 15 billion trees by 2032, which will help
reduce net emissions, enhance carbon sequestration, and protect infrastructure from
climate-related disasters;
iii) Climate-Related Budgeting: Ongoing efforts to tag climate-related expenditure in the
national budget to ensure that financial resources are allocated to climate mitigation and
adaptation projects;
iv) Green Government Buildings: Setting a target for 25% of new government buildings to
be environmentally sustainable (green), helping to reduce energy consumption and
emissions; and
v) Improved Road Drainage: Enhancing road infrastructure by improving drainage design to
reduce vulnerability to flooding, ensuring better resilience to extreme weather events.

5.3.4.6 Enhancing Analysis of the Climate Change Impact to the Economy: Greening the
Macroeconomic Model

406. Macroeconomic variables are fundamental in the formulation of government’s budget,

serving as the essential foundation for revenue projections and guiding the allocation of public
spending. Critical variables such as GDP, inflation, unemployment rates, and interest rates play
a central role in determining the economic conditions that influence tax revenues and in setting
priorities for Government expenditure. However, the economy faces significant challenges
arising from climate change and environmental degradation. Among the most impactful climate-
related natural disasters are droughts and floods, which continue to adversely affect the
population, economy, and infrastructure.
407. Notably, major droughts have become more frequent, now occurring approximately every
3 to 5 years, compared to the 7-year cycle that was observed in the past. This increasing

105 Draft 2025 Budget Policy Statement

frequency of extreme weather events underscores the urgent need for comprehensive policy
adjustments that address the escalating risks posed by climate change (Figure 5.7). As a result,
it has become increasingly necessary to reassess traditional macroeconomic models to better
incorporate the impacts of climate and environmental change and ensure sustainable economic
planning moving forward.
Figure 5.7: Real GDP Growth Rate

Source: National Treasury

408. The Kenya Country Climate and Development Report (CCDR), released by the World
Bank in November 2023, represents a significant milestone in understanding the intersection of
climate change, development, and economic growth in Kenya. The report was developed with
essential support from the National Treasury, which assisted the World Bank in providing
relevant data and information during the preparation process. While the analysis was constrained
by certain data challenges, the preparation of the CCDR highlighted key opportunities for
improving the integration of climate considerations into macroeconomic models. One of the
primary challenges identified in acquiring accurate and comprehensive data was the lack of
natural capital data, such as forests, land, water, and ecosystem services. These resources are
essential for understanding the broader impact of climate change but are often undervalued or
missing in traditional economic models. In addition, data inconsistencies and outdated
information compounded the difficulties, limiting the accuracy and relevance of the analysis.
409. In response to these evolving concerns and in recognition of ongoing climate trends, the
KNBS under the National Plan for Advancing Environmental-Economic Accounting (NP-
AEEA) and supported by the World Bank, has prioritized compilation of Natural Accounts data
under the following sub accounts: water, land, forest, ecosystem, energy, and mineral. KNBS is
working with among others the following stakeholders in support of the Natural Accounts data:
Kenya Water Research Authority (WRA), Kenya Water Towers Agency (KWTA), National
Lands Commission (NLC), Kenya Forestry Research Institute (KEFRI), Kenya Forestry
Services (KFS), State Department of Forestry (SDF), Directorate of Resource Surveys and
Remote Sensing (DRSRS), Ministry of Water, Sanitation and Irrigation (MoWSI), Kenya
Institute for Public Policy Research and Analysis (KIPPRA), National Environmental
Management Authority (NEMA), National Water Harvesting and Storage Authority (NWHSA),
State Department of Water (SDW), National Irrigation Authority (NIA), and Kenya Wildlife
Services (KWS).
410. At the same time, to strengthen Economic policy formulation, the National Treasury in
collaboration with the World Bank has initiated efforts of Greening the macroeconomic model

106 Draft 2025 Budget Policy Statement

that integrates considerations of climate change using data from the Natural accounts. This
Macroeconomic and Fiscal Model (MFMod) is a flexible and comprehensive analytical tool
designed to assess the interactions between fiscal policies and macroeconomic outcomes (Figure
5.8). MFMod under the World Bank has been widely applied across various countries to analyze
the effects of different policies on key variables such as economic growth, inflation, public debt
and government budgets.
Figure 5.8: Structure of the Macroeconomic and Fiscal Model (MFMod)

Source: World Bank

411. The National Treasury in collaboration with the World Bank, under the Technical
Assistance (P177097), financed by the Global Program on Sustainability (GPS), is Greening a
tailored version of the MFMod, for Kenya named KENMod. Building upon the MFMOD
framework, KENMod is customized to address the unique characteristics of the Kenyan
economy. The KENMod will generate a more accurate evaluation of the macroeconomic
dynamics, taking into account climate considerations. This framework will support economic
planning and decision-making that reflect the true value of our natural resources and ecosystems,
which are vital for sustaining long-term economic stability and prosperity. This forward-looking
model will enable more effective integration of environmental considerations into the core of
economic decision-making, ensuring that future generations benefit from a prosperous and
sustainable economy.
412. In the initial simulation using KENMod, the model demonstrated that climate change could
lead to significant economic losses in Kenya, primarily due to the country’s heavy reliance on
agriculture, a sector highly sensitive to climate variability. Agriculture, being a major contributor
to GDP, is at risk from changing precipitation patterns and temperature variations. Extreme
weather events, such as droughts and floods, could severely reduce agricultural output, thereby
negatively impacting GDP growth. The vulnerability of the agricultural sector to climate impacts
was identified as a key driver of the GDP reductions. A decline in crop yields, reduced livestock
productivity, and lower fisheries output would significantly lower the overall GDP, especially in
agriculture-dependent regions where these sectors are a main source of livelihood.
413. The inclusion of natural capital data in macroeconomic modeling not only improves
forecasting and risk management but also fosters long-term sustainability. By recognizing the
value of ecosystem services and incorporating them into economic decision-making,
policymakers can design strategies that balance economic growth with environmental
preservation. This approach empowers Kenya to pursue green growth, mitigate the risks posed
by climate change, and develop more resilient, inclusive, and sustainable development pathways.

107 Draft 2025 Budget Policy Statement

5.3.5 Other Fiscal Risks
5.3.5.1 Natural Disasters and Man-made Hazards

414. Disasters, both natural and man-made continue to pose a great challenge to the Government.
In a bid to reduce the negative impacts of disasters, the Government will continue to implement
the National Disaster Risk Management Policy. The Government will also review and update
the Disaster Risk Financing Strategy (DRFS, 2023-2027). The Strategy will be key in
strengthening the ability of the National and County Governments to respond effectively to
disasters, thereby protecting development goals, fiscal stability, and wellbeing of Kenyan
citizens.
415. In order to ensure efficient and effective means of financing disasters, if and when they
occur, the Government will prioritize the establishment of the Public Finance Management
(Disaster Risk Management Fund) Regulations, 2025. The objective of the Fund is to ensure
effective and efficient resource mobilization for disasters at both National and County levels.
The process of establishing a dedicated Fund for Disasters is currently at an advanced stage of
stakeholder engagements.
416. In order to ensure fiscal transparency and accountability in Disaster related expenditures,
the Government will strengthen Disaster risk reduction and Climate change adaptation into
national planning and budgeting. Kenya does not have a Legal Framework for Disaster Risk
Management. In order to put this in place, the Government will fast-track the enactment of the
Disaster Risk Management Bill (No. 24 of 2023). This will provide an over-arching legal
framework guiding disaster risk management in the country.

5.3.5.2 Money Laundering, Terrorist Financing & Proliferation Financing

417. Kenya underwent its second round of Mutual Evaluation by the Eastern and Southern
Africa Anti-Money Laundering Group (ESAAMLG) in 2021. The Mutual Evaluation Report
was adopted by ESAAMLG in September 2022. At that time Kenya was Compliant with two
recommendations; Largely Compliant with one recommendation; Partially Compliant with 26
recommendations; and Non-Compliant with 11 recommendations of the 40 FATF
recommendations. Kenya was thereafter given a one-year observation period as per the
procedures. At the expiry of the observation period, Kenya prepared a Post Observation Period
Report (POPR) that was submitted to FATF in November 2023. Having not been satisfied by the
measures Kenya had so far put in place to address the strategic deficiencies, FATF placed Kenya
on the Grey List.
418. Following the February “grey-listing”, the Government agreed with FATF to an action plan
to address key shortcomings identified and strengthen the effectiveness of Kenya’s AML/CFT
framework. Priority actions include the completion of a terrorism financing risk assessment and
related updating of the national AML/CFT strategies, adopting a supervisory framework for
Virtual Asset Service Providers, and strengthening AML/CFT risk-based supervision of
financial institutions and designated nonfinancial businesses and professions (DNFBPs). To
strengthen effectiveness of supervision, the CBK is conducting stand-alone AML/CFT
inspections and has begun to apply enforcement measures alongside provision of sectoral
guidance on compliance obligations. The Financial Reporting Center is working jointly with
sectoral supervisors to build capacities for supervision of high-risk DNFBPs, including real
estate, lawyers, and trust and company service providers, supported by customized supervision

108 Draft 2025 Budget Policy Statement

tools under development. The authorities are also focusing on outreach and training to supervised
entities to strengthen their understanding of AML/CFT preventive measures and obligations.

109 Draft 2025 Budget Policy Statement

Annex Table 1: Macroeconomic Indicators

Source: National Treasury

110 Draft 2025 Budget Policy Statement

Annex Table 2: Government Fiscal Operations, Ksh Billion

Source: The National Treasury

111 Draft 2025 Budget Policy Statement

Annex Table 3: Government Fiscal Operations, Percent of GDP

Source: The National Treasury

112 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million)

113 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

114 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

115 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

116 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

117 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

118 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

119 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

120 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

121 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

122 Draft 2025 Budget Policy Statement

Annex Table 4: Summary of Expenditure by Programmes (Ksh Million) … Cont’d

Source: The National Treasury

123 Draft 2025 Budget Policy Statement

Annex Table 5: Memorandum on how Resolutions by Parliament on Previous Budget Policy Statements Have Been Incorporated

1. Section 25(8) of the Public Finance Management (PFM) Act, 2012 prescribes that the Cabinet Secretary for The National Treasury shall take
into account resolutions passed by Parliament in finalizing the budget for a given financial year. The National Assembly approved the 2023 Budget
Policy Statement and the 2024 Budget Policy Statement on 15th March, 2023 and 7th March 2024, respectively.

2. Section 38(1) (iii) of the PFM Act, 2012 requires the Cabinet Secretary to prepare a memorandum explaining how the resolutions adopted on
the BPS have been taken into account. In this regard, the following Section provides a brief to Parliament on the extent to which the resolutions of
the House on the 2022 BPS and 2023 BPS have been taken into account and the reasons thereof.

No. Resolution Action taken

A. Policy Resolutions on the 2023 BPS
1. The National Assembly to amendment to the Public Finance The National Treasury will comply with the effected amendments.
Management Act, 2012 and attendant regulations to extend the
timelines for consideration of the BPS by Parliament from 14 days to
28 days.
2. The National Treasury should ensure that Ministries, Departments The budgets of MDAs have been prioritized and matched with the BETA
and Agencies (MDAs) have aligned their budgets, projects and key Value Chain priorities. The FY 2023/24 Budget Estimates include specifics
performance indicators to the proposed value chain approach under about the BETA priorities and performance indicators.
the Bottom-Up Economic Transformation Agenda (BETA) within
the approved ceilings.
3. The deficit financing strategy and public debt mix be undertaken in The National Treasury will continue monitoring implementation of MTDS,
accordance with the resolutions of the National Assembly based on alternative borrowing strategies and the fiscal deficit approved by
the Report of the Public Debt and Privatization Committee on the parliament.
2023 Medium Term Debt Management Strategy.
4. The National Treasury should provide a list of all projects to be The National Treasury has ensured that MDAs prioritized projects for
completed in FY 2023/24 for all MDAs reconcilable with the completion by consolidating thinly spread allocations to high impact
development budget; with a view to consolidating thinly spread priority projects. The details of the projects to be completed in the FY
allocations to high impact priority projects to ensure completion. 2023/24 and will be submitted alongside the FY 2023/24 Budget Estimates

124 Draft 2025 Budget Policy Statement

No. Resolution Action taken
5. Before submission of the 2023/24 annual estimates, the National The National Treasury will assess donor-funded programs and projects,
Treasury reviews donor funded projects including the existing including existing financing frameworks, and create a portfolio review and
financing framework and develops a strategy to fast-track their assessment report to expedite externally funded project implementation.
implementation and review the terms of the facilities.
6. The National Treasury spearheads a review of the State Corporations The National Treasury has formed a High-Level Fiscal Risk Committee to
and Semi-Autonomous Government Agencies (SAGAs) with a view assess and report fiscal risks from State Corporations and SAGAs, with a
of rationalization to remove overlaps, duplication and redundancies. year-long study planned.
7. Prior to the submission of the 2023/24 Annual Estimates, the The Government has allocated resources for infrastructure development for
National Treasury in collaboration NG CDF should develop a schools. In addition, the Ministry will be engaging NG-CDF to support
framework for implementing National Government initiatives at the some of the infrastructure needs.
constituency level before the submission of the 2023/24 Annual
Estimates.
8. Prior to April 2023, the National Government reviews taxation levied The National Treasury received proposals from the aviation industry on
in the aviation industry and addresses the heavy taxation on purchase taxation on purchase of spare parts were considered in the Finance Bill,
of spare parts in the aviation sector. This should be submitted to the 2023.
National Assembly during consideration of the Finance Bill, 2023.
9. From the onset of FY 2023/24, the National Treasury through the The National Treasury has done the following in readiness for accrual
Public Sector Accounting Standards Board should start preparations accounting: i) revised the Standard Chart of Accounts; ii) prepared and
for migration from the cash basis accounting system to an accrual published policy guidelines on identification, measurement and
system in line with Sections 81 and 164 of the Public Finance presentation of assets and liabilities; iii) updated the register of bank
Management Act, 2012. accounts; and iv) prepared a Cabinet Memorandum on transition to accrual
accounting for Cabinet approval.
10. The National Assembly proposes amendment to the Public-Private Section 88 (3) of the PPP Act already provides for regular reporting to
Partnership Act to require regular submission of project lists by the Parliament by the Cabinet Secretary, National Treasury and Economic
National Treasury which are under consideration for funding through Planning. The National Treasury will continue to adhere to the provisions
the Public Private Partnership (PPP) framework before the end of the of the Act.
FY 2023/24.
11. The National Treasury, in collaboration with stakeholders, to The National Treasury formed an Inter-Agency Taskforce in 2021 to
establish a collaboration framework between the County and the operationalize Constitutional Articles 187 and 189, resulting in a draft

125 Draft 2025 Budget Policy Statement

No. Resolution Action taken
National Government for the implementation of shared policy legislative proposal. Public participation took place between March 20th
proposals by September 30, 2023. and 23rd, 2023.

12. The National Treasury and the State Department for ASALs and The National Treasury will collaborate with the State Department for
Regional Development undertakes review Regional Development ASALs and Regional Development to review the mandates, legal
Authorities’ mandates, contribution to national development agenda, implications, and contributions of Regional Development Authorities. This
and revitalization options by 30th December, 2023. will inform recommendations for the revitalization of the Regional
Development Authorities.
13. By June 2023, the National Treasury develops a framework for In order to manage the distribution of conditional grants to County
governing conditional grants to the County Governments to ensure Governments, MDAs have presented frameworks to the National Treasury
that they meet their intended objectives. This should include the role, that specify terms, responsibilities, criteria for allocation, and requirements
criteria and counterpart contribution by the counties to ensure the for counterpart contributions.
initiatives take off.
B. Policy Resolutions on the 2024 BPS
14. Given the need to link the Bottom-up Economic Transformation The National Treasury and Economic Planning submitted the Fourth
Agenda to the Vision 2030, the Cabinet Secretary for National Medium Term Plan of Vision 2030 to the National Assembly and was
Treasury and Economic Planning to submit the Fourth Medium Term officially launched by H.E. the President on 21st March 2024.
Plan of the Vision 2030 to the National Assembly before submission
of the Budget Estimates for FY 2024/25.

15. The National Treasury to prepare guidelines for proper costing of The National Treasury prepared a Budget Manual that covers among others
government policies, programmes and projects to minimize a chapter on budget costing. Further, a budget costing tool has been
discrepancies between the planned and actual resource requirements prepared in the IFMIS system and PFM officials have been trained on the
before the preparation of the 2025 BPS. same. The 2025 BPS will be prepared after budget costing is conducted
within the budget costing tool.
16. In view of delayed compensation for land acquired from individuals The Government will continue prioritize payment of pending land
by the Government for various projects, the National Treasury should compensation within the approved allocations in the FY 2024/25 Budget.
prioritize payments for land compensation in the FY 2024/25 To ensure compliance with this requirement, the Public Investment
estimates, before they are submitted to the National Assembly. Going Management (PIM) Regulations, 2022 was enacted and requires Ministries,

126 Draft 2025 Budget Policy Statement

No. Resolution Action taken
forward, no Government project should commence before the owners Departments and Agencies to avail land for any project as a prerequisite
of such land are compensated. before such projects are approved and funded by the National Treasury.

17. Given the funding challenges facing the Department of Immigration In the FY 2023/24, the National Treasury provided Ksh 1.3 billion as
and Citizen Services on issuance of documents such as Passports, Appropriation in Aid (A.i.A) to the State Department for Immigration and
Identity Cards, Birth and Death certificates, before finalization of the Citizen Services to help address cash flow challenges. In the FY2024/25
Annual Estimates for FY 2024/25, the Cabinet Secretary for National budget, the State Department has been allowed to utilize A.i.A amounting
Treasury and Economic Planning enhances the Appropriation-in-Aid to Ksh 3.9 billion in compliance with the resolution of the National
for the Department by increasing the current allocation to 20 percent Assembly to address challenges on issuance of documents such as
of all the revenues it generates to the Exchequer through issuance of Passports, Identity Cards, and Birth and Death certificates. It is important
documents (an equivalent of Ksh 3.980 billion in the FY 2024/25 to note that the A.i.A allocation to MDAs is not pegged on percentage
Revenue estimates). collection but on assessed needs of the MDA.
18. To improve the gender responsiveness of government policies, before The Government is committed to embracing Gender Responsive Budgeting
finalization of the 2025 Budget Policy Statement, the National (GRB) to ensure achievement of equity between genders. We also
Treasury to incorporate a section on the gender responsiveness of the recognize that Gender responsiveness is critical in boosting economic
various policy proposals in line with international best practices. growth and for sustainability. In this regard, the National Treasury is
committed to adhere to this resolution of the National Assembly.
19. The East Africa Customs Management Act, 2004 allows the Council ▪ The National Treasury remains committed to ensuring effective public
of Ministers to review the regional customs tariffs, and these changes and stakeholder engagement in all policy formulation and
have not been subjected to public participation. The National implementation process. The National Treasury wishes to underscore
Treasury to ensure that any such reviews are subjected to public that the proposals to amend the East Africa Customs Management Act
participation and submitted to the National Assembly before they are usually come from EAC Partner States. Thereafter, the East Africa
formally ratified. Legislative Assembly conduct public participation on the consolidated
proposals in all EAC Partner States.

▪ On the other hand, the proposals for review of regional customs tariffs
normally come from the public and various stakeholders. The National
Treasury together with the Kenya Revenue Authority and Ministry of
Trade, Investments and Industry then engages the stakeholders who
submitted the proposals for better understanding. The National

127 Draft 2025 Budget Policy Statement

No. Resolution Action taken
Treasury will begin to submit reviews of regional customs tariffs to the
National Assembly starting from 30th April 2024.

20. Given the delays in approval of the County Government Additional The National Treasury will comply with this resolution.
Allocations Bill and subsequent interruption in implementation of
those programmes, the Cabinet Secretary for National Treasury and
Economic Planning ensures that there are no requests for mid-year
revisions in compliance with the provisions of section 191(1) of the
Public Finance Management Act, 2012.
21. By 30th April 2024, the National Treasury to submit a detailed report The National Treasury submitted a detailed report on Public-Private
on Public-Private Partnership (PPP) projects to the National Partnership (PPP) projects to the National Assembly. The details were
Assembly. This report should address the shortcomings identified in annexed to the 2024 Budget Summary (Annex 1), providing the required
the 2024 BPS by providing comprehensive information on the nature, information on PPP projects.
scope, and status of individual PPP initiatives.
22. Before finalization of the FY 2024/25 budget estimates, the National During the preparation of the FY 2024/25 Budget, allocations for the
Treasury to transfer the resources previously being utilized by the functions that were being performed by the Government Delivery Services
Government Delivery Services from the Office of the Prime Cabinet were prioritized under the State Department for Performance and Delivery
Secretary, Vote 1013, to the State Department for Performance and Management. In addition to this, the State Departments Budget is
Delivery Management where the service is currently domiciled. prioritized towards delivery of its mandate as provided for in the Executive
Order No. 1 of 2023.
23. Before submission of the 2025 BPS, the National Treasury to The National Treasury will endeavour to engage the National Land
authorize the National Land Commission to be a collector of revenue Commission on the enhancement of the Appropriation in Aid, National
for the National Government as per Section 76(1) of the Public Government as per Section 76(1) of the Public Finance Management Act,
Finance Management Act, 2012 to enhance AIA collections in the 2012.
sector.
24. The Independent Electoral and Boundaries Commission, in close The National Treasury is committed to ensuring payment of all pending
collaboration with the National Treasury, undertakes a thorough bills within a sustainable fiscal framework. The Cabinet Secretary, the
scrutiny and audit of all the pending bills, particularly the bills owed National Treasury and Economic Planning under Gazette Notice No. 13355
to suppliers with a view to settling the eligible pending bills. of 30th September 2023, appointed a Pending Bills Verification Committee
(PBVC) to carry out a thorough analysis of the stock of pending bills that

128 Draft 2025 Budget Policy Statement

No. Resolution Action taken
have accumulated from June 2005 to June 2022. Among other tasks the
PBVC is to develop reforms or measures that will ensure future
accumulation of pending bills is avoided. The PBVC is already working on
the pending bills verification exercise after receiving submissions from
MDAs including those by the Independent Electoral and Boundaries
Commission from 29th January to 2nd February 2024. The PBVC will be
making recommendations on the eligible pending bills that will be paid in
the FY 2024/25 and the Medium Term.
25. Before finalization of estimates for FY 2024/25 and in line with the The National Treasury transferred an allocation of Ksh 400 million to
Presidential Working Party Report on Education Reforms, the National Council for Nomadic Education in Kenya (NACONEK).
National Treasury to transfer the Low-Cost Boarding Schools
(LCBS), function and the attendant budgetary provisions to the
National Council for Nomadic Education in Kenya (NACONEK),
which is best suited to implement the programme. This will ensure
that the LCBSs are given adequate attention to address education
disparities and oversee interventions that will enhance access,
retention, transition and completion rates in ASAL areas.

129 Draft 2025 Budget Policy Statement

Annex Table 6: Highlights of the Issues Raised During Public Participation
Sector Issues Proposed Way Forward/Action Taken/Response
Agriculture, Rural Policy Issues ▪ The GMO Act is currently under litigation, and once the case is concluded, the
and Urban ▪ Misinformation on Genetically Modified Organism (GMO) sector will address all issues related to GMOs.
Development ▪ Importation of wheat and rice and facilitation of wheat and ▪ Programmes are under way to increase local production of wheat and rice by
(ARUD) rice farmers providing certified seeds and irrigation water to increase area under production.
▪ Shortage of Maize seeds affected distribution to farmers ▪ This was due to a shortage of certified seeds, although seed companies are
▪ Extension services in Lamu currently expanding production to increase supply. Additionally, a raid on the
▪ Harnessing the traditional knowledge of the older sale of fake seeds had seized a large consignment, further contributing to the
generation to cultivate trees for medicinal benefits market shortage.
▪ Livestock vaccination ▪ Extension services are a devolved function, and there is a nationwide youth
▪ A Mexican tree species that livestock feed and can stay volunteer program initiative that has already enrolled 300 youths to assist
without water for 6 days in Baringo. farmers and county governments with extension services.
▪ The sector acknowledges that the knowledge of herbal medicine should be
harnessed from the older generation.
▪ The sector is working on a framework and schedule, developed by the National
and County Governments, which is nearing completion, and vaccination
programs will begin soon.
▪ The Government will initiate further research on these trees and issue its
recommendations.
Project Implementation Issues
▪ Inadequate funding has left some resources in the companies idle; however,
▪ Sugar Companies producing raw materials for Kenya
efforts are underway to secure increased funding.
▪ Progress of the Agriculture Sector Transformation and
▪ There have been successes as a result of the ongoing initiatives under the
Growth Strategy
program, and the State Department of Agriculture will make efforts to ensure
these are communicated effectively and in a timely manner.
Resource allocation Issues ▪ The insufficient funding has resulted in some resources remaining underutilized;
▪ Address the underutilization of KARLO however, efforts are currently underway to secure additional funding to address
▪ Decline in resource allocation in the sector this.
▪ the sector is working with various stakeholders to ensure what cannot be
provided for can be funded from other sectors including donors and the private
sector

130 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
Governance Issues ▪ The Government received a total of 7,000 claims, with 3,600 currently under
▪ End land injustices in the coastal region consideration. The evaluation process is expected to be completed by September
▪ Poaching of sugar in Busia 2025, and the window for submitting additional claims remains open.
▪ Process of distributing subsidized fertilizer ▪ Security agencies are aware of the situation and have been collaborating closely
▪ The issue of Ipomoea weed in Kajiado County with local administration officers, citizens, and border police to address and
▪ Address the issue of denied access to irrigation water from curtail this vice.
the Mwatate Dam, Jibe, and Chala. ▪ The sector uses the e-voucher system to distribute subsidized fertilizer by using
▪ Address the issue of food insecurity in Baringo and the registered agro-dealers. However, some farmers were unable to utilize their e-
underutilization of Baringo Lake for irrigation in the area. vouchers due to literacy issues; however, this will be addressed by the volunteer
extension officers being recruited to ensure 100 percent uptake.
▪ The Sector acknowledged the concern and assured that a multi-agency approach
would be adopted to tackle the problem effectively.
▪ A fisheries management program is currently underway in the water bodies, and
matters related to irrigation will be carefully considered as part of the initiative.
▪ Irrigation programs are currently underway to support crop development and
fodder production along the banks of Lake Baringo and the rivers that feed into
it.
Energy, Governance Issues ▪ The Government is working on public awareness through the State Department
Infrastructure, and ▪ Low uptake of renewable sources of energy for Energy
ICT (EI&ICT) ▪ Increase in Road carnage ▪ The Government is coming up with the National Intelligent Traffic System and
is expected to reduce accidents on the roads
Project ▪ Resources are scarce and the Government is facing many expenditure pressures.
▪ Poor budgetary allocation to Petroleum Industry However, the issue would be considered once revenue performance improves.
Implementation Issues ▪ The Government through the State Department for ICT is implementing Last
▪ Poor internet connectivity in rural areas Mile County Connectivity Network; therefore, all rural areas especially public
▪ 85 primary schools not connected to electricity in Lowiyata institutions will be connected with internet.
▪ Poor access roads to Thwake Dam ▪ The State Department for Energy to ensure that the schools are connected to
▪ Frequent power outages electricity through the Last Mile Connectivity
▪ Plans are underway for Kerra to work on the access roads as soon as possible
▪ The State Department for Energy is putting severally measures to reduce the
power outages in Kenya., including reducing vandalism of transformers and
other electricity infrastructure

131 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
General Economic Policy issues ▪ Growth of export products that is the growth rate is 16.3% reflect to growth of
and Commercial ▪ Achievement from last financial year KSh.8.2billion from last financial year to 1trillion.
Affairs (GECA) ▪ Hustler fund it discriminates some religious community due ▪ The Government is in a process of reviewing its SMEs Act to come up with a
to interest rate changes sheria complaint products for Muslims.
▪ Proposed budget to support youth and women ▪ The Government through State Department of MSMEs, Investment promotion
▪ Plan to access affordable loans have programme that support youth in accessing training and loans to establish
or enhance their small business i.e. Hustler fund KJET and NYOTA.
▪ Government through State Department of MSMEs, it providing loan with lower
interest rate and the Government also is working with developing partners who
are willing to help in growing MSMEs to fill the resource gap and come up with
relevant policies which are conducive to business environment
Project Implementation ▪ The Government through State Department for ASAL is implementing a project
▪ Drought resilience measure like bore holes Dams and tree on provide suitable seeds and trees planting programme which started on last
planting Financial Year.
▪ By 2032 Government is planning to produce 5billion fruits trees for nutrition
and a form of economic transformation across ASALs areas in the Country
Governance ▪ The Government through State Department for ASALs is working on
▪ Conflicts between farmers in Kitui and Pastoralist in the implementing a progremme on feed animals in semi-arid areas through grass
bordering Counties like Garissa and Tana River feeding programme for animals.
Health Policy issues ▪ The Ministry of Health has held meetings with donors and agreed on a transition
▪ Sustainability of HIV, TB and Malaria and other Strategic master plan by 2030. The Ministry has requested all the citizen to register and
Programs in view of declining donor support contribute to the Social Health Insurance Fund (SHIF) to ensure access to
▪ Increased Mental Health Issues healthcare services without challenges.
▪ Scrapping of Linda Mama and Edu-Afya Programmes ▪ The Ministry of Health is collaborating with the African Development Bank
▪ Poor remuneration and working conditions for HRH Interns (AfDB) to support the construction of a modern Neuropsychiatric National
▪ Plans for the Government to rollout a Medical Fund for Teaching and Referral Hospital in Ngong, Kajiado County. Additionally, the
Public Officers while still covered by SHA MoH is encouraging mental health practitioners to register with SHA to improve
▪ Coverage of underage mothers under SHA access to mental health services. The MoH has also operationalized the Mental
▪ Need to leverage on use of Tele-Medicine to enhance Health Board, which is expected to lead efforts in raising awareness on mental
efficiency in delivery of healthcare services health and well-being.
▪ Lack of Service Charters in most of Health facilities ▪ The Linda Mama and Edu-Afya programs have been incorporated and enhanced
within the Essential Health Benefit Package under Primary Health Care and

132 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
SHIF. The SHA has requested all beneficiaries to register their dependents in
the system.
▪ The MoH is in the process of developing the Internship Policy.
▪ The Fund will be administered by SHA and is expected to complement the health
care services offered by SHA. Any employer can give an additional cover to
complement services provided by SHA
▪ The registration of the SHA to be improved to allow the underage mothers to
register using the Birth Certificates rather than IDs
▪ The Roll-out of Comprehensive Integrated Health Information System will help
to leverage on use of Tele-Medicine. The Ministry is working on regulations and
will be subjected to Public Participation across the Country.
▪ The Ministry of Health acknowledges that many health facilities have no Service
Charters, making it difficult for individuals to understand the services offered
and their associated costs. To address this, the Ministry will issue guidelines to
health facilities to develop Service Charters. Additionally, the rollout of the
Comprehensive Integrated Health Information System will enable registered
members to easily access information on the services available at different
facilities.
Resource Allocation Issue ▪ The Ministry of Health is engaging with counties to request payment of
▪ Stock-outs of essential drugs, supplies and commodities outstanding pending bills to KEMSA. This will enable KEMSA to restock and
▪ Inadequate Medical Equipment, Human Resources of improve the order refill rate. The rollout of the Comprehensive Integrated Health
Health, Drugs and other Essential Commodities in Rural Information System will provide real-time data on drug stock-outs at facilities.
Health Facilities (Primary Health Care Facilities) A request for support to KEMSA has also been made to the National Treasury.
▪ Lack of adequate health facilities including ambulances in ▪ The Government has allocated KSh. 4.1 billion to the Primary Health Care Fund
Marsabit County for the FY 2024/25, with a similar amount allocated for 2025/26. This funding
▪ Non-Payment of Community Health Promoters (CHP) will assist facilities in procuring modern equipment through PPP or other means.
Stipend by the County Governments Additionally, the Ministry has established a Presidential Task Force on Human
▪ Inadequate Health Facilities at the Border Points Resources for Health (HRH) to, among other tasks, recommend the legal, policy,
administrative, institutional, and operational frameworks for the employment of
20,000 HRH personnel.
▪ The Ministry will engage the Marsabit County Government to prioritize on
construction and equipping of adequate health facilities and provision of
ambulances.

133 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
▪ The Ministry will engage the Counties to pay the Stipends in line with the signed
Intergovernmental Participation Agreements.
▪ The MoH in conjunction with the respective County Governments is in the
process of establishing Health Facilities at the Border Points including isolation
facilities
Implementation Issue ▪ The Ministry of Health has requested that artists come forward for an
▪ Involvement of artists to promote and sensitize the Public engagement to collaborate on how the sensitization efforts can be effectively
on the need to register with the Social Health Authority carried out.
▪ Poor absorption of allocated funds during the review period ▪ The low absorption was due to lack or late release of funds and lengthy
▪ Low Tariffs for Health Care Services under the SHA procurement process.
▪ The review of the tariffs will be conducted through public participation, where
members of the public are encouraged to provide their inputs.
▪ The Ministry will engage with County Governments to prioritize primary health
care services.
Education Sector Policy Issues ▪ The Teachers Service Commission (TSC) has conducted a mapping of Special
▪ Special Needs in Education (SNE) Needs Education (SNE) across integrated schools, units, and SNE schools,
▪ School Feeding Programme coverage identifying the specific needs of each institution to ensure the appropriate
▪ Insecurity in Schools number of teachers are deployed. An ongoing retooling program for SNE
▪ Title Deeds for Schools Curriculum Support Officers is in place, who then train and retool SNE teachers.
▪ Harmonization of Bursaries Under the Competency-Based Curriculum (CBC), each of the 35 Teacher
Training Colleges has a unit on inclusive education, ensuring that all trained
teachers are equipped to work with learners with special needs.
The Ministry of Education (MOE) is strengthening the Kenya Institute of
Special Education (KISE) to enhance its capacity to support learners with special
needs. KISE is also setting up a production unit for assistive devices.
Furthermore, the Ministry has established Education Assessment Resource
Centres across the country to evaluate children before placing them in schools,
either in special schools or integrated schools. These centres are linked to KISE.
Additionally, the Ministry provides a top-up capitation for SNE learners at all
levels, on top of the regular capitation. SNE standalone schools have also been
included in the School Feeding Programme.

134 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
▪ The Ministry of Education has allocated KSh 3 billion for the School Feeding
Programme in the FY 2024/25, with a similar allocation of KSh. 3 billion in the
FY 2025/26 to support the retention of learners in schools. The programme
primarily targets ASAL (Arid and Semi-Arid Lands) regions and areas
experiencing high levels of poverty, with plans for gradual expansion. However,
due to budgetary constraints, the Ministry faces challenges in funding the
programme and will need to prioritize the areas covered.
▪ The security of students is a priority to the Ministry and is taking a multi-agency
approach to ensure security for learners.
▪ The issue of title deed is a whole government approach and the Ministry has
constituted a committee with all the relevant stakeholders to ensure school land
is well protected even in terms of infrastructure and other resources.
▪ This is part of the recommendations by the Presidential Working Party on
Education Reforms and hence it’s an ongoing reform being carried out by the
Ministry to have one institution managing the Public Bursaries.
Resource Allocation Issues ▪ In the FY 2025/26, there is an allocation of KSh.3.2 billion for the Collective
▪ Allocation for University CBA and Car Loan Mortgage Bargaining Agreement (CBA). It is noted that CBA negotiations are still
▪ New Funding Model and student placement in the various ongoing and therefore the current allocation will be reviewed based on the
bands outcome of the negotiations.
▪ In the FY 2025/26, some of the key funding priorities include: HELB loan for
GoK students and Bursaries in Universities and TVET KSh.46.9 billion;
Scholarship under Student Centred Funding Model at KSh. 16.6 billion;
Continuing student at Differentiated Unit Cost at KSh. 23 billion. The students
will be funded based on the specific bands that they have been placed
Governance Issues ▪ The Sector report has included all Stakeholders in the Education Sector
▪ Inclusion of Parents as major Stakeholders in the Ministry including the Parents. The report has been posted in the National Treasury
of Education website for access by the Public and every stakeholder
▪ Monitoring & Evaluation (M&E) of funds allocated to ▪ The Ministry of Education has been carrying out monitoring of its programmes
Junior Schools though not to the expected levels due to resource constraints. The Ministry
appreciates the need to strengthen monitoring. In the FY2025/26, The State
Department for Basic Education has been allocated KSh.600 million under
Quality Assurance and audit services at the County level to ensure follow up on
utilization of funds and also ensure quality delivery of education

135 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
Governance, Justice, Policy Issues ▪ This is an ongoing effort, with planned recruitment aimed at addressing the
Law and Order ▪ Child protection policies - Increased funding in Child issue. With the support of the National Treasury and Parliament, the initiative
(GJLOS) friendly investigation techniques. Sheltering of all children will be pursued and followed through.
services, under one roof. ▪ All stakeholders in the Criminal Justice System are working towards addressing
▪ Training of more community service providers with an aim petty offences in a way that does not require incarceration. Instead, offenders
to reduce the number of cases and amount on money spent may serve their sentences under non-custodial measures, allowing them to
declassify and decriminalise the number of petty offences, contribute to society. Additionally, outdated laws are being reviewed with the
thus reduce the burden on correctional services. aim of aligning them with the Constitution of Kenya, 2010.
Governance Issues ▪ There is a lot of reorganization and reforms happening the security sector, with
▪ Standard period for a police office to request for transfer a recommendation that no officer will serve for more than 3 years in a given
▪ Illegal Mining in Moyale station.
▪ There is an active curfew in place in that area, the State Department for Mining
is aware on the issue and are taking steps to address this issue.
Public Policy Issues ▪ Strengthen KNBS to ensure credible data for proper allocation of resources to
Administration and ▪ Unreliable/Inadequate data from Kenya Bureau of Statistics address broader issues including for example children in rural areas are not
International (KNBS) to inform decision making and allocation of delivered in hospitals or health facilities. Community Health Volunteers
Relations (PAIR) resources amongst Government, Departments and Sectors facilitated to register children and share the data with KNBS.
▪ Government’s huge wage bill. ▪ Recently, the government made over 10 resolutions regarding the wage bill, with
▪ High leasing costs; Government Agencies have hired offices clear timelines for their implementation. A document detailing these resolutions
in high end areas/buildings in Upper Hill etc is available.
▪ Consider one stop shop for all Govt agencies. The Public Relations and
International Relations sector has prioritized construction of offices as opposed
to hiring including foreign missions. This is indicated in the report presented to
the public.
Project Implementation Issues ▪ The Government is revamping the monitoring and evaluation (M&E) of projects
▪ Poor monitoring and evaluation of projects. to ensure proper budget allocation for M&E activities. This includes conducting
audits and providing reports on the status of all government-funded projects.
Resource Allocation Issues ▪ The criteria for prioritization include servicing debt, paying salaries and
▪ Prioritizing between allocation and requirements pensions, and transferring funds to counties, while also embracing Public-
▪ Sector strategies to address budget shortfall Private Partnerships (PPPs) to address priorities that cannot be met by the
exchequer.

136 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
▪ Strategies to bridge the gap between resource requirements and allocations
include borrowing from concessional sources, embracing Public-Private
Partnerships (PPPs), and prioritizing projects.
Governance Issues ▪ A public participation bill is currently in Parliament, which aims to address some
▪ Address public participation at National and Grassroot level of the gaps experienced. In 2023, a nationwide public participation was
▪ mechanisms to ensure transparency and accountability of conducted across all 47 counties, excluding Mandera. The Government has
public funds allocated to services and projects made significant investments in ICT and is leveraging this through virtual
▪ Relationship between Kenyans and Government attendance to enhance participation.
▪ Duplication of roles between County Government act and ▪ Periodic audits are mandated by the Constitution, requiring the Auditor-General
Provincial Administration to audit and report on the usage of public funds to ensure they are used prudently.
Budget reports are uploaded on the Treasury website. Additionally, the
Controller of Budget issues quarterly reports on the usage of the budget by both
the National and County Governments.
▪ The government to conduct civic education to help citizens understand that the
Government operates similarly to a cooperative, where individuals receive
benefits based on their contributions.
▪ The County Government Act should be reviewed in relation to the Provincial
Administration to eliminate duplications in roles and responsibilities.
Additionally, ICT should be leveraged to address and streamline these
duplications.
Social Protection, Governance Issues ▪ The Government provides assistance through the toll-free number 020-800-
Culture and ▪ The issue of how to assist Kenyans in the diaspora who find 222223, which is managed by the National Employment Authority.
Recreation themselves in difficult situations ▪ The State Department is revising its policy on the Sports Fund to enhance its
▪ Talent Development in informal settlement role in identifying and supporting emerging talent.
Project Implementation Issues ▪ Child protection one-stop shops are being established at the community level to
▪ Emerging issues on child abuse and neglect provide abused children with access to essential services such as justice,
▪ Emerging issues on children with disabilities and vulnerable healthcare, child protection, and counselling.
groups facing heightened risks of violence and exploitation ▪ Fund inclusive child protection programs for children with disabilities and
with limited access to services marginalized groups, ensuring access to services such as sign language and
▪ Children from vulnerable backgrounds face challenges in Braille. Furthermore, increase funding to enhance infrastructure, facilities, and
accessing education, healthcare, and essential basic rights. provide assistive devices for children with disabilities (CWDs).
▪ National heroes’ council under funded ▪ The Government will fund the creation and strengthening of child advisory
councils and youth participation platforms. It will also support children-led

137 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
initiatives and consultative forums focused on the prevention of violence against
children (VAC) and policy development. Additionally, the Government will
allocate resources for training and awareness campaigns on children’s rights for
parents, teachers, religious leaders, and government officials.
▪ The Government will allocate adequate resources to address child labor issues,
including manpower for monitoring and intervention efforts. It will also fund
the provision of medical care, including psychosocial services, for children
affected by violence. Additionally, the Government will fund strategies to
ensure transparency and fairness in the allocation of bursaries for children from
disadvantaged backgrounds.
▪ The Government will provide resources for the National Heroes Council to
support its activities and initiatives.
Environmental Policy Issues ▪ A policy review of the Wildlife Act removed victims of snake bites from the
Protection, Water ▪ Compensation of victims of snake bites in Kilifi County compensation list. In response to numerous public complaints, the State
and Natural ▪ Address Why the Human Wildlife Committee hasn’t sat for Department for Wildlife is in the process of conducting a comprehensive review
Resources Sector over two years of the Act to address this issue.
▪ Delay in Compensation of Human Wildlife Conflict Victims ▪ The committee has been unable to meet for some time due to budgetary issues,
▪ Inaction on the rampant Pollution of Athi River leading to which has slowed down the process. However, measures have now been put in
death of fish place to clear the backlog using the FY 2025/26 budget and the Medium-Term
▪ Lack of a policy to include public toilets in social Period. The Ministry has also deployed technology for lodging claims, with a
halls/Markets pilot being conducted using a digital system for verification and payment of the
▪ Security Issues for Riparian Lands claims.
▪ Overreliance on donor funding in the sector which may lead ▪ The verification process of the claims has taken considerable time, partly due to
to projects stalling the inadequate allocation of resources since 2014. However, the State
▪ Compensation for Livestock and Human Lives lost through Department for Wildlife has compensated over Ksh 2.1 billion out of the Ksh
drought in Arid areas 4.1 billion in verified claims to date. Additionally, seed money has been
budgeted to operationalize the committees and enable them to effectively carry
out their mandate.
▪ The Presidential directive on cleaning Nairobi River is already underway, with
all the ministry tasked with coordinating the program. So far, over 20,000 youths
have been engaged in cleaning the debris along the river corridor after the recent
floods. The entire corridor, starting from Naivasha Road, is being concreted
along Nairobi River to reduce water pollution.

138 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
▪ The State Department for Water and Sanitation has launched pilot projects in
urban centers, with the support of the African Development Bank (AfDB), to
support the sanitation policy tied to various social public projects.
▪ A PPP for the seedling distribution program is already underway through
KEFRI, aimed at producing and distributing quality seedlings to the public. This
initiative supports tree planting in riparian lands, including slum areas.
▪ The own-source revenue generated by the National Government is insufficient
to support all development projects, necessitating support from development
partners. However, the Government is implementing strategies aimed at
improving revenue collection in the long term.
▪ The Ministry of Environment, through NETFUND, is implementing a
compensation program for losses, damages, and calamities caused by the effects
of climate change. Farmers, particularly from pastoral communities, are being
compensated to mitigate the adverse effects through resource mobilization and
adaptation programs.
Implementation Issues ▪ The project, located on the border of Kitui and Makueni Counties, is designed
▪ Poor Implementation of Thwake Dam Project-currently to benefit both counties. However, an issue has been noted regarding the access
only benefitting one county (Makueni) road for Kitui County. The State Department for Water will collaborate with the
▪ Low absorption rates for development projects in the Sector Ministry of Roads to resolve this issue.
especially Water projects ▪ Low absorption rates for development projects in the sector, particularly water
▪ The slow implementation of the Itare Dam project, currently projects, remain a challenge. Issues related to land acquisition and the
at only 20 percent completion, and the near-completion of resettlement of project-affected persons (PAPs) continue to hinder timely
the Chemasusu Project, at 92 percent project implementation.
▪ Lack of Capacity building to Counties after project ▪ Historical issues that had stalled the implementation of the Itare Dam have now
handovers leading to distribution challenges been addressed. An out-of-court settlement between the contractor and the
▪ Lack of accountability of funds issued by the World Bank to Government of Kenya (GoK) has enabled the contractor to return to the site and
counties for Climate Action continue with the project. The focus is now on completing projects that are
▪ low absorption rates in funding of projects nearing completion over the Medium-Term period.
▪ Despite being completed over two years ago, Siabai Dam ▪ The National Government has completed a significant number of projects.
has not yet been supplying water to the locals, raising However, the failure of Last Mile distribution by counties is being addressed
concerns about the reasons behind the delay in its operation. through the implementation of performance parameters issued to the counties.
In cases of non-compliance, the National Government is taking over the projects
to ensure water is connected to the citizens.

139 Draft 2025 Budget Policy Statement

Sector Issues Proposed Way Forward/Action Taken/Response
▪ Forty-seven (47) Climate Change Units have been established in all counties to
track the implementation of earmarked activities and monitor achievements. As
this is a conditional grant, justification for the progress made must be
satisfactory before the next disbursement is approved.
▪ Low absorption rates in funding remain a challenge. There is a need to review
the procurement process to make it more efficient and improve the absorption
rates for funds earmarked for development projects in the sector.
▪ The Siabai Dam, which was completed by the Ministry of ASALs, has not yet
started supplying water to the local communities. To address this, the Ministry
of Water will work together with the State Department for ASALs and the
County Government of Migori to ensure the project is launched and delivers
benefits to the public.
Governance Issues ▪ Dispute resolution measures have been put in place to address issues leading to
▪ Vandalism of water Infrastructure projects the vandalism of water projects, which are intended to benefit the public.
▪ The restriction of local communities to access conservancies ▪ A robust framework will be developed to ensure that conservancies adhere to
in Lamu County the Standard Operating Procedures set by the government. Further discussions
▪ Conflicts between Kuria and Kipsigis causing deforestation are required to establish a legal framework that outlines the modalities for
with over 30 acres of trees destroyed interaction between the community and conservancies, ensuring mutual benefits
▪ Uncontrolled deforestation in Water catchment areas for both.
▪ The Ministry of Interior has deployed GSU officers to the affected area to
mitigate the situation through a peace mediation process, aimed at promoting
coexistence between communities and facilitating the implementation of
development projects.
▪ The State Department for Forestry is conducting sensitization and tracking
activities in coordination with NGAO officers, utilizing intensive monitoring
techniques, to assess the progress of tree growing initiatives, with support from
KEFRI.

140 Draft 2025 Budget Policy Statement

THE NATIONAL TREASURY AND ECONOMIC PLANNING
JANUARY 2025

141 Draft 2025 Budget Policy Statement