Deloitte cautiously optimistic on Kenya’s 2026/27 Budget amid debt, inflation concerns

The analysts say the budget reflects the government’s commitment to sustaining economic growth while avoiding major tax shocks that could burden businesses and households. However, they caution that rising public debt, inflationary pressures and external economic risks could undermine the gains if reforms are not implemented consistently.

According to Deloitte, Kenya’s economy remains on a positive trajectory, with Gross Domestic Product (GDP) projected to grow from 4.6 per cent this year to 5 per cent in 2026. The growth is expected to be driven by continued expansion in the services, manufacturing and agriculture sectors.

Speaking during a post-budget analysis, Anne Muraya, Chief Executive Officer of Deloitte East Africa, said Kenya continues to benefit from strong economic fundamentals, including a dynamic private sector, a rapidly digitising economy, strong regional connectivity and a skilled youthful workforce.

The firm also highlighted increased government spending in key sectors aimed at supporting long-term growth. Education received the largest allocation at KSh 784.5 billion, while energy, infrastructure and ICT were allocated more than KSh 531 billion.

Fred Omondi, a Tax and Legal Partner at Deloitte East Africa, noted that the government had largely avoided introducing controversial new taxes in the budget. He said this could provide some relief to businesses and taxpayers, although authorities are expected to intensify tax enforcement efforts to boost revenue collection.

“The government has avoided introducing many painful tax measures, but we expect more aggressive efforts in tax administration and compliance to enhance revenue collection,” Omondi observed.

Despite the positive outlook, Deloitte warned that global geopolitical tensions, particularly in the Middle East, could fuel inflation through higher fuel and fertilizer prices. The firm projects inflation to rise to 5.7 per cent next year.

Gladys Makumi, Deloitte East Africa’s Strategy, Risk and Transactions Partner, said rising transport costs are likely to have a ripple effect across the economy, pushing up the prices of goods and services.

“Transport affects almost every aspect of the economy. Once transport costs rise, consumers inevitably feel the impact through higher prices,” she said.

The analysts also raised concerns about Kenya’s debt burden. Public debt is projected to rise to 68.8 per cent of GDP, while the fiscal deficit is expected to stand at KSh 1.146 trillion.

Omondi warned that failure to meet revenue targets could force the government to increase borrowing, including borrowing to finance recurrent expenditure, a move that could worsen debt sustainability challenges.

To sustain economic growth and attract investment, Deloitte is calling for stronger fiscal discipline, policy predictability and consistent implementation of reforms.

Walter Mutwiri, a Tax and Legal Partner at Deloitte East Africa, emphasized the need for the government to demonstrate value for money to taxpayers. He argued that both individuals and businesses are more willing to comply with tax obligations when they can clearly see improvements in service delivery and economic opportunities.

Overall, Deloitte believes the budget provides a framework for economic resilience and growth. However, the firm maintains that successful implementation, prudent debt management and a stable policy environment will be critical in determining whether the budget delivers its intended outcomes.