2023 Budget Review and Outlook Paper - F

REPUBLIC OF KENYA
THE NATIONAL TREASURY AND ECONOMIC PLANNING
2023 BUDGET REVIEW

AND OUTLOOK PAPER
SEPTEMBER 2023
©2023 Budget Review and Outlook Paper (BROP)
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The document is also available on the website at: www.treasury.go.ke
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Foreword
The 2023 Budget Review and Outlook Paper (BROP) is the first to be prepared by the Kenya
Kwanza Administration. The 2023 BROP has been prepared at a time when the Government is
implementing priority programmes, policies and reforms under the Bottom-Up Economic
Transformation Agenda (BETA) that were outlined in the 2023 Budget Policy Statement aimed
at economic turnaround and inclusive growth. The priority programmes and policies under
BETA are detailed in the Fourth Medium-Term Plan for the period 2023-2027 that anchors the
Kenya Vision 2030.
The Kenya Kwanza Administration took office at a time when the economy was facing three
major constraints, among them, the supply constraints of major products due to conflict between
Russia and Ukraine that disrupted global trade leading to increased fuel, fertiliser and food
prices; the lingering effects of the COVID-19 pandemic; and a severe drought witnessed in the
region and most parts of the country. The drought not only aggravated the inflationary pressures
but also subjected millions of homesteads to severe food insecurity, loss of lives and livelihoods.
As a result, activities in the agriculture sector contracted by 1.6 percent in 2022. The impact of
climate change therefore, created urgency to refocus investments on mitigation, adaptation and
firm resilience.
In order to ease the burden to Kenyans, the Government embarked on immediate interventions
that included: rolling out fertiliser and seeds subsidies to farmers across the country to enhance
food production; and granting of duty waiver for importation of key food products such as white
maize, rice, yellow maize, soya beans, assorted protein concentrates, and feed additives in order
to bridge the food stocks deficit as well as lower and stabilize food prices. The Government
also rolled out the Financial Inclusion Fund, or the Hustlers Fund in November 2022 that
supports individuals and Micro, Small and Medium Enterprises (MSMEs) excluded at the
bottom of the pyramid and encourage savings.
Following the various Government interventions and improvement in weather conditions

during the March-May planting season, the economy registered a growth of 5.3 percent in
quarter 1 (Q1) of 2023. This was mainly due to a strong recovery in the agricultural activities
5.8 percent from a contraction of 1.7 percent in a similar quarter in 2022. The economy is
projected to further expand by 5.5 percent in 2023 from the 4.8 percent registered in 2022, and
maintain a strong momentum over the medium-term. This growth outlook will be supported by,
a broad-based private sector growth, including continued strong performance of the services
sector and recoveries in agriculture while the public sector consolidates. The growth outlook
will be reinforced by implementation of reforms under the priority sectors of the Bottom - Up
Economic Transformation Agenda.
BETA is an important strategy at present because most Kenyans overtime sunk into abject
poverty mostly because markets in their segments were interfered with or not properly
governed. This disrupted market development, protection and regulation but more importantly
curtailed further investments in those sectors. The outcome of this is an institutional failure
problem that pushed policies to fail. The interventions at the Bottom of the pyramid under this
Administration, are therefore targeted to ensure markets work for the poor and also markets
should work for everybody. In order to achieve economic transformation, two driving factors
are important, that is, Human Capital Development and enhancement of savings. The
Government will ignite a sustained economic transformation, by raising capital accumulation.
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This is in addition to ongoing investments in education, health, nutrition and labour markets to
boost human capital development.
The implementation of the FY2022/23 budget marked the transition from the previous Regime
to the current Administration. The first half of the FY 2022/23 was marked by slow
implementation of programmes and projects due to inadequate revenues. In part, revenue
performance was affected by the general slowdown of economic activities occasioned by the
adverse impact of shocks that hit the country. Given the realities, the Government embarked on
reprioritization and cost-cutting measures to ensure smooth implementation of priority
programmes for the remainder of the financial year. Consequently, the FY 2022/23 closed on a
positive note with the deficit of Ksh 800.4 billion (5.6 percent of GDP) against a target of Ksh
846.2 billion (5.8 percent of GDP) despite challenges in revenue collections and constraints in
raising resources from the domestic market due to tight liquidity conditions and short-term
instruments becoming saturated. Total revenue collection by the year to June 2023 grew by 7.3
percent to amount to Ksh 2,360.5 billion (16.5 percent of GDP). This was a performance of
95.4 percent against the target. The positive growth in revenue was recorded in most of the tax
revenue categories, an indication of continued recovery in revenue collection. Additionally, the
Government purposefully reduced the fiscal deficit to 5.6 percent of GDP by June 2023, from
the 6.2 percent registered in FY 2021/22 under the previous Regime. This demonstrated the
Government’s strong commitment to manage the expenditures, create fiscal space and signal
fiscal consolidation and public debt sustainability.
The created fiscal space enabled the Government meet most of her obligations including debt
repayments and releasing funds due to Government Ministries, Departments and Agencies
(MDAs) and other Semi-Autonomous Government. Additionally, for the first time in seven
years, the Government disbursed 100 percent of equitable share to the 47 County Governments
amounting to Ksh 399.6 billion by 30th June, 2023. This included Ksh 370.0 billion equitable
share and the arrears of Ksh 29.6 billion inherited from previous Regime. Further, the
Government fully disbursed the entire allocation for National Government Constituency
Development Fund (NGCDF) amounting to Ksh 47.2 billion by 30th June, 2023. This has
supported development activities at the Constituency level especially in support of education,
health and in some cases for infrastructure.
The implementation of FY 2023/24 budget has started in earnest. During the budget
implementation, movements in interest rates and exchange rate have impacted on fiscal space.
In order to maintain the primary balance consistent with the fiscal consolidation path,
expenditures have to be maintained at the levels approved in printed estimates. In this respect,
additional spending pressures will be accommodated within the approved ceilings, that is
reallocation possibilities, except those of the security and education sectors. Ministries,
Departments and Agencies are expected to settle the carryovers from the FY 2022/23 budget as
a first charge against the budgetary allocations for the FY 2023/24 budget. The fiscal deficit
including grants for the FY 2023/24 is therefore projected at 5.4 percent of GDP and will decline
to 4.4 percent of GDP in the FY 2024/25 and further projected at 3.6 percent of GDP in the FY
2026/27.
As we prepare for the FY 2024/25 budget, all the spending units are therefore, expected to lay
emphasis on the priority programmes under the BETA by increasing investments in Agricultural
Transformation and Inclusive Growth; Micro, Small and Medium Enterprise (MSME); Housing
and Settlement; Healthcare; and Digital Superhighway and Creative Industry. The momentum
and large impact they will create will raise economic vibrancy and tax revenues. The budgeting
for the FY 2024/25, as stated in the 2023 Budget Policy Statement will strictly be developed
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through a value chain approach under five clusters, namely, Finance and Production Economy;
Infrastructure; Land and Natural Resource; Social Sectors; and Governance and Public
Administration. This will ensure adequate resources are directed towards the nine value chains,
namely, (i) Leather; (ii) Cotton; (iii) Dairy; (iv) Edible Oils; (v) Tea; (vi) Rice; (vii) Blue
Economy; (viii) Natural Resources Including Minerals & Forestry); and (ix) Building Materials
that are under implementation in the FY 2023/24 budget.
Given the limited resources, the Sector Working Groups (SWGs) and Government Ministries,
Departments and Agencies (MDAs) are therefore directed to critically review, evaluate and
prioritize all budget allocations to strictly achieve the BETA priorities. The hard sector ceilings
provided for the FY 2024/25 budget and the Medium Term will form the basis of allocations.
This will ensure and economic performance that will form the basis of a turnaround and create
a momentum for the future.
NJUGUNA S. NDUNG’U, CBS

CABINET SECRETARY
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Acknowledgement
The 2023 Budget Review and Outlook Paper (BROP) has been prepared in accordance with the
Public Finance Management (PFM) Act, 2012 and its Regulations. It provides the fiscal outturn
for the FY 2022/23, the macro-economic projections and set sector ceilings for the FY 2023/24
and the Medium Term Budget. It also provides an overview of how the actual performance of
the FY 2022/23 affected compliance in the fiscal responsibility principles and the financial
objectives outlined in the PFM Act, 2012. The 2023 BROP will form the basis for the
development of the 2024 Budget Policy Statement (BPS) that will detail the various
programmes and initiatives that will be undertaken during the Fourth Medium Term Plan of
Vision 2030.
The FY 2022/23 closed on a positive note with the deficit of Ksh 800.4 billion (5.6 percent of
GDP) against a target of Ksh 846.2 billion (5.8 percent of GDP) despite challenges in revenue
collections and difficulties in raising resources from the domestic market. Total revenue
collection by the year to June 2023 grew by 7.3 percent to amount to Ksh 2,360.5 billion (16.5
percent of GDP). The strong outcome in revenue collection in the FY 2022/23 provides a strong
base for supporting the revenue and expenditure performance in the FY 2023/24 and the
medium term budget. The Government will continue to pursue its growth friendly fiscal
consolidation plan that will signal debt sustainability and manageable fiscal gap.
As we embark on the preparation of the FY2024/25 and the Medium-Term budget, I wish to
underscore that the 2023 BROP was prepared in a collaborative effort among various
Government Agencies. We thank all the MDAs as well as other spending units for the timely
provision of useful data and information on their FY 2022/23 budget execution. We are also
grateful to the Macro Working Group, that reviewed this document to ensure it satisfies the
PFM Act, 2012 and set out the sector ceilings contained therein to guide the rest of the sectors
in the preparation of their FY 2024/25 and Medium Term Budgets. This document incorporated
key inputs from various Directorates and Departments within the National Treasury and
Economic Planning. I wish to thank the core team from the Macro and Fiscal Affairs
Department that coordinated the finalization of this document.
Finally, allow me to thank all institutions that we consulted as well as the public for the useful
comments and inputs. I wish to reiterate the importance of public participation in the FY
2024/25 and the Medium Term Budget preparation process by calling on all Sector Working
Groups to ensure engagement and open public and stakeholders’ participation and incorporation
in the development of sector priorities.I also urge all MDAs to avoid dismal prioritization,
leading to less than optimal budgetary allocation which is often followed with requests for
additional funding, and distortion of the agreed Sector Budget Proposals.
DR. CHRIS KIPTOO, CBS

PRINCIPAL SECRETARY/ THE NATIONAL TREASURY
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Table of Contents
Foreword .................................................................................................................................... 3
Acknowledgement ..................................................................................................................... 6
Abbreviations and Acronyms ................................................................................................... 8
Executive Summary ................................................................................................................ 10
I. INTRODUCTION ..................................................................................... 12
Objective of the 2023 Budget Review and Outlook Paper ................................................... 12
II. REVIEW OF FISCAL PERFORMANCE FOR THE FY 2022/23 ...... 13

A. FY 2022/23 Fiscal Performance ......................................................................................... 13
B. Fiscal Performance for the FY 2022/23 in relation to Financial Objectives .................. 18
C. Fiscal Responsibility Principles ......................................................................................... 18
D. County Governments’ Fiscal Performance ...................................................................... 22
E. County Governments’ Compliance with Fiscal Responsibility Principles..................... 27
III. MACROECONOMIC DEVELOPMENTS AND OUTLOOK ............ 31

A. World Economic Outlook ................................................................................................... 31
B. Kenya’s Economic Performance and Outlook ................................................................. 31
C. Kenya’s Macroeconomic Outlook ..................................................................................... 40
IV. RESOURCE ALLOCATION FRAMEWORK...................................... 44

A. Implementation of the FY 2023/24 Budget ....................................................................... 44
B. Fiscal Policy for FY 2024/25 and Medium Term Budget ................................................ 44
C. FY 2024/25 and Medium-Term Budget Framework ....................................................... 45
D. Public Participation and Involvement of Stakeholders ................................................... 47
V. CONCLUSION AND NEXT STEPS ....................................................... 48
Annex Table 1: Macroeconomic Indicators for the FY 2021/22-27/28 Period.......................49

Annex Table 2: Government Operations for the FY 2021/22-27/28 Period, Ksh Bn..............50
Annex Table 3: Government Operations for the FY 2021/22-27/28 Period (% of
GDP)..........................................................................................................................................51
Annex Table 4: Development Sector Ceilings for the FY 2024/25-2026/27 MTEF Period (Ksh
Million)………………………………………………………………………………………..52
Annex Table 5: Recurrent Sector Ceilings for the FY 2024/25-2026/27 MTEF Period (Ksh
Million)………………………………………………………………………………………..54
Annex Table 6: Budget Calendar for the FY 2024/25 Medium-Term Budget……………….56
Annex Table 7: County Government’s Fiscal Performance for FY 2022/23………………...57
Annex Table 8: Members of the Macro Working Group who attended the Retreat to finalize
the 2023 BROP………………………………………………………………………………..58
Annex Table 9: Comments Received from Stakeholders and Public on the 2023 BROP……60
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Abbreviations and Acronyms
A-i-A Appropriation in Aid

BPS Budget Policy Statement
BROP Budget Review and Outlook Paper
CARB County Allocation of Revenue Bill
CBK Central Bank of Kenya
CBR Central Bank Rate
CF Contingency Fund
CFS Consolidated Fund Services
CG County Government
CIT Corporate Income Tax
DORB Division of Revenue Bill
FISM Financial Intermediation Services Indirectly Measured
FY Financial Year
GDP Gross Domestic Product
GFS Government Finance Statistics
GOK Government of Kenya
ICT Information, Communication and Technology
IMF International Monetary Fund
KNBS Kenya National Bureau of Statistics
MDAs Ministries, Departments and Agencies
MTP Medium Term Plan
NG National Government
NSE Nairobi Securities Exchange
MTEF Medium Term Expenditure Framework
NCDF National Constituency Development Fund
NDA Net Domestic Assets
NFA Net Foreign Assets
OSR Own Source Revenue
PAYE Pay As You Earn
PFM Public Finance Management
PV Present Value
SGR Standard Gauge Railway
SWGs Sector Working Groups
WEO World Economic Outlook
VAT Value Added Tax
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Legal Basis for the Publication of the Budget Review and Outlook Paper
The Budget Review and Outlook Paper is prepared in accordance with Section 26 of the Public Finance
Management Act, 2012. The law states that:
1) The National Treasury shall prepare and submit to -Cabinet for approval, by the 30th September in each
financial year, a Budget Review and Outlook Paper, which shall include:
a. Actual fiscal performance in the previous financial year compared to the budget appropriation
for that year;
b. Updated macro-economic and financial forecasts with sufficient information to show changes
from the forecasts in the most recent Budget Policy Statement
c. Information on how actual financial performance for the previous financial year may have
affected compliance with the fiscal responsibility principles or the financial objectives in the
latest Budget Policy Statement; and
d. The reasons for any deviation from the financial objectives together with proposals to address
the deviation and the time estimated to do so.
2) Cabinet shall consider the Budget Review and Outlook Paper with a view to approving it, with or
without amendments, not later than fourteen days after its submission.
3) Not later than seven days after the BROP has been approved by Cabinet, the National Treasury shall:
a. Submit the paper to the Budget Committee of the National Assembly to be laid before each
house of Parliament; and
b. Publish and publicize the paper not later than fifteen days after laying the Paper before
Parliament.
Fiscal Responsibility Principles in the Public Finance Management Act
In line with the Constitution, the Public Finance Management (PFM) Act, 2012, sets out the fiscal
responsibility principles to ensure prudent and transparent management of public resources. Section 15 of
the Act states that:
1) Over the medium term, a minimum of 30% of the national budget shall be allocated to development
expenditure
2) The national government’s expenditure on wages and benefits for public officers shall not exceed a
percentage of the national government revenue as prescribed by the regulations.
3) 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
4) Public debt and obligations shall be maintained at a sustainable level as approved by Parliament (NG)
and county assembly (CG)
5) Fiscal risks shall be managed prudently
6) 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
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Executive Summary
The 2023 Budget Review and Outlook Paper (BROP) has been prepared pursuant to PFM Act,
2012 and its Regulations. It provides an overview of the Government's financial performance
for the FY 2022/23 including compliance with the fiscal responsibility principles and the
financial objectives spelt out in the PFM Act. It also presents macroeconomic projections and
the sector ceilings for the FY 2024/25 and the medium-term budget as well as information on
variations from the projections outlined in the 2023 Budget Policy Statement.
The 2023 BROP has been prepared against a backdrop of continued global uncertainties,
reflecting high but easing inflationary pressures, weak global growth outlook, heightened
geopolitical tensions particularly the conflict in Ukraine, concerns about financial sector
stability in advanced economies, and increased food insecurity due to climate-related shocks.
Global growth is projected to slow down to 3.0 percent in 2023 and 2024 from 3.5 percent in
2022, reflecting the impact of the tightening of monetary policy and escalation of geopolitical
tensions particularly the ongoing war in Ukraine.
On the domestic scene, Kenya’s economic performance is projected to remain strong and
resilient over the medium term. The economy recorded a strong growth of 5.3 percent in the
first quarter reflecting a strong recovery in agriculture sector and buoyant services sector
including financial and insurance, information and communication, wholesale and retail trade
and transport and storage. The economy is expected to remain strong and expand by 5.5 percent
in 2023 (5.6 percent in FY 2023/24) and 5.7 percent in 2024 (5.9 percent in FY 2024/25).
This growth will be supported by the strong recovery in agriculture and resilient services sector
that both will drive the industrial sector. The adequate rainfall during the long rain season in
most parts of the country and the anticipated short rains later in 2023 will continue to support
activities in the agriculture, electricity, and water supply sectors. The improved availability of
raw materials following the recovery in agriculture and a decline in global commodity prices
will support food processing in the manufacturing sector. Additionally, activities in the
construction sector will be boosted by the rollout of the affordable housing programme. Services
sector will be supported by resilient activities in the financial and insurance, information and
communication, wholesale and retail trade and transport and storage. The easing of global
commodity prices and supply chain constraints coupled with robust private sector investment
are expected to support domestic demand.
The FY 2022/23 closed on a positive note with the deficit of Ksh 800.4 billion (5.6 percent of
GDP) against a target of Ksh 846.2 billion (5.8 percent of GDP) despite challenges in revenue
collections and liquidity constraints in raising resources from the domestic market. Total
revenue collection by the year to June 2023 grew by 7.3 percent to amount to Ksh 2,360.5
billion (16.5 percent of GDP). This was a performance of 95.4 percent against the target. The
positive growth in revenue was recorded in most of the tax revenue categories, an indication of
continued recovery in revenue collection. Additionally, the Government purposefully reduced
the fiscal deficit to 5.6 percent of GDP by June 2023, from the 6.2 percent registered in FY
2021/22. This demonstrated the Government’s strong commitment to manage the expenditures,
create fiscal space and signal fiscal consolidation and public debt sustainability. The fiscal
performance was broadly in line with financial objectives and fiscal responsibility principles
outlined in the PFM Act, 2012 and the 2023 Budget Policy Statement.
The strong outcome in revenue collection in the FY 2022/23 provides a strong base for
supporting the revenue and expenditure performance in the FY 2023/24 and the medium term
budget. Indeed, the implementation of FY 2023/24 budget has started in earnest. During the
budget implementation, movements in interest rates and exchange rate have impacted on fiscal
10
space. In order to maintain the primary balance consistent with the fiscal consolidation path,
expenditures must be maintained at the levels approved in printed estimates. In this respect,
additional spending pressures will be accommodated within the approved ceilings, that is
reallocation possibilities, except those of the security and education sectors. Ministries,
Departments and Agencies are expected to settle the carryovers from the FY 2022/23 budget as
a first charge against the budgetary allocations for the FY 2023/24 budget. The fiscal deficit
including grants for the FY 2023/24 is therefore projected at 5.4 percent of GDP and will decline
to 4.4 percent of GDP in the FY 2024/25 and projected at 3.6 percent of GDP in the FY 2026/27.
This will be supported by enhanced revenue mobilization, reprioritization and rationalization
of expenditures but above all grow the tax base through an appropriate tax regime. This will
ultimately reduce public debt and create fiscal space over the medium term to finance priority
capital projects.
In the FY 2024/25 budget, all the spending units are expected to lay emphasis on the priority
programmes under the BETA by increasing investments in Agricultural Transformation and
Inclusive Growth; Micro, Small and Medium Enterprise (MSME); Housing and Settlement;
Healthcare; and Digital Superhighway and Creative Industry. The momentum and large impact
they will create will raise economic vibrancy and tax revenues. The budgeting for the FY
2023/24, as stated in the 2023 Budget Policy Statement will strictly be developed through a
value chain approach under five clusters, namely, Finance and Production Economy;
Infrastructure; Land and Natural Resource; Social Sectors; and Governance and Public
Administration. This will ensure adequate resources are directed towards the nine value chains,
namely, (i) Leather; (ii) Cotton; (iii) Dairy; (iv) Edible Oils; (v) Tea; (vi) Rice; (vii) Blue
Economy; (viii) Natural Resources Including Minerals & Forestry); and (ix) Building Materials
that are under implementation in the FY 2023/24 budget.
Given the limited resources, the Sector Working Groups (SWGs) and Government Ministries,
Departments and Agencies (MDAs) are therefore directed to critically review, evaluate and
prioritize all budget allocations to strictly achieve the BETA priorities. The hard sector ceilings
provided for the FY 2024/25 budget and the Medium Term will form the basis of allocations.
There are however risks, whose impact is being assessed. The most critical one is El nino rains
that may cause devastating consequences on various areas. As information becomes concrete
on possible costs, these risks will be accommodated first by budget reallocations and program
support from various donors.
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I. INTRODUCTION
Objective of the 2023 Budget Review and Outlook Paper

1. The 2023 BROP provides a review of the fiscal performance for the financial year 2022/23
including adherence to the objectives and principles outlined in the 2023 Budget Policy
Statement (BPS) and the PFM Act, 2012. It also provides a basis for the revision of the current
budget and the financial policies underpinning the medium-term plan. The 2023 BROP will
form the basis of the development of the 2024 BPS that will detail programmes and projects for
implementation over the medium term as outlined in the Fourth Medium Term Plan (MTP IV
2023-2027).
2. The FY 2022/23 closed on a positive note with the deficit of Ksh 800.4 billion (5.6 percent
of GDP) against a target of Ksh 846.2 billion (5.8 percent of GDP) despite challenges in revenue
collections and difficulties in raising resources from the domestic market. Total revenue
collection by the year to June 2023 grew by 7.3 percent to amount to Ksh 2,360.5 billion (16.5
percent of GDP). This performance was below target by Ksh 118.1 billion on account of
shortfalls registered in all taxes.
3. As required by the PFM Act, 2012, the annual budget process aims to improve the
efficiency and effectiveness of revenue mobilisation and government spending to ensure debt
sustainability and stimulate economic activity. In this regard, this BROP provides sector
ceilings which will guide the budget preparation process for the FY 2024/25 and the medium
term. The sector ceilings are based on the overall resource envelope that is informed by the
medium-term macro-fiscal projections as presented in Sections III and IV of this document.
Sector ceilings in this BROP are aligned to the priorities of the Government that enhance value
chain and linkage to Bottom-Up Economic Transformation Agenda and other priority
programmes outlined in MTP IV of the Vision 2030 and that support mitigation and adaptation
of climate change. There may also be risks that may arise and may not, at the moment, be fully
accounted for. This will become clear as information is consolidated.
4. The rest of the document is organized as follows: Section II provides a review of the fiscal
performance for the FY 2022/23 and its implications on the financial objectives set out in the
2023 BPS; Section III highlights the recent economic developments and outlook; Section IV
presents the proposed resource allocation framework; and Sections V presents conclusion.
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II. REVIEW OF FISCAL PERFORMANCE FOR THE FY 2022/23
A. FY 2022/23 Fiscal Performance
Revenue Performance
5. Total revenue including external grants was Ksh 2,383.6 billion against a revised target of
Ksh 2,520.3 billion recording a shortfall of Ksh 136.7 billion (Table 1). Revenue performance,
including Appropriation in Aid (A-i-A), was Ksh 2,360.5 billion in FY 2022/23 from Ksh
2199.8 billion in FY 2021/22, a growth of 7.3 percent. The growth in revenue collection was
recorded in all the broad tax categories. However, the performance fell short of the target largely
attributed to the uncertain operating environment related to the general elections and the
negative impact of the geo-politics that led to global economic slowdown and supply chain
disruptions. Ordinary revenue collection was Ksh 2,041.1 billion against a target of Ksh 2,145.4
billion.
6. Tax revenue from the broad tax categories were below their respective targets in the period
under review. Excise duty recorded the highest shortfall of Ksh 29.5 billion, followed by VAT
on domestic goods and services and other income tax of Ksh 24.5 billion and Ksh 24.4 billion
respectively. The shortfall in excise duty is explained by the decline in oil volumes, motor
vehicle imports and deliveries of domestic excisable goods such as cosmetics, beer and spirits.
Domestic VAT collection was mainly affected by subdued growth in the construction, transport
and manufacturing sectors owing to the high cost of inputs and increasing inflationary pressures.
The decline in VAT imports is explained by non-oil imports where the volumes of containerized
cargo dropped by 8.4 percent mainly influenced by changes in buying patterns given the import
price pressures. On the other hand, the performance of other income tax is largely explained by
the underperformance of Corporate Income Tax (CIT). Performance of Pay as you Earn was
explained by delayed disbursements to various Government entities which affected the
remittances from the public sector. The performance of ministerial A-i-A was Ksh 319.4 billion
against a target of Ksh 333.2 billion. The shortfall of Ksh 13.8 billion was on account of
shortfalls recorded in both recurrent and development A-i-A of Ksh 9.3 billion and Ksh 4.5
billion, respectively. Ministerial A-i-A recorded a growth of 13.3 percent in FY 2022/23.
Table 1: Government Revenue and External Grants, FY 2022/23 (Ksh Million)
1/ includes rent on land/buildings, fines and forfeitures, other taxes, loan interest receipts reimbursements and other fund
contributions, fees, and miscellaneous revenue.
*Provisional
Source of Data: The National Treasury
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7. External grants amounted to Ksh 23.1 billion against a revised target of Ksh 41.7 billion,
registering a shortfall of Ksh 18.3 billion. This is composed of programme grants of Ksh 7.0
billion, project grants revenue of Ksh 7.5 billion and Project grants (A-i-A) of Ksh 8.6 billion
(Table 4). During the FY 2022/23, the Government collected Ksh 41.7 billion of investment
income in the form of dividends, surplus funds, directors’ fees and loan interest receipts against
a revised target of Ksh 37.0 billion.
Expenditure Performance
8. Total expenditure and net lending in the FY 2022/23 amounted to Ksh 3,221.0 billion
against a revised target of Ksh 3,366.6 billion, representing an under spending of Ksh 145.6
billion (4.4 percent deviation from the revised budget). The shortfall was attributed to low
spending on both recurrent and development expenditure items (Table 2). There was delayed
disbursement of project funds and a shortfall in domestic borrowing resulting in unfunded
expenditures items. This led to a carryover of Ksh 77.5 billion during the period under review.
In FY 2022/23, there was a full transfer of equitable share to County Governments while
conditional allocation was below target by Ksh 20.6 billion.
9. The National Government’s recurrent expenditure was Ksh 2,311.5 billion (including Ksh
60.9 billion spending by the Judiciary and Parliament) against a target of Ksh 2,367.7 billion,
representing an under-spending of Ksh 58.9 billion. The recurrent spending was below target
mainly due to lower than targeted spending on operations and maintenance by Ksh 35.4 billion
and pension and other Consolidated Fund Services (CFS) by Ksh 24.3 billion. Interest payment
for the period was Ksh 687.3 billion while spending on wages was Ksh 547.2 billion.
10. Development expenditure amounted to Ksh 493.7 billion against a revised target of Ksh
560.5 billion, translating to a shortfall of Ksh 66.9 billion. This was on account of lower than
programmed absorption on externally funded programmes by Ksh 56.3 billion while spending
on domestically financed programmes was above target by Ksh 7.1 billion.
Table 2: Expenditure and Net Lending, FY 2022/23 (Ksh Million)
Wages and salaries; includes wages for teachers, civil servants and police
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Ministerial Expenditure
11. The total ministerial and other public agencies expenditure including A.I.A was Ksh
1,955.6 billion against a target of Ksh 2,091.4 billion, an absorption rate of 93.5 percent.
Recurrent expenditure was Ksh 1,474.2 billion against a target of Ksh 1,508.2 billion, while
development expenditure amounted to Ksh 481.3 billion against a target of Ksh 583.2 billion.
The percentage of recurrent and development expenditures to the target was 97.7 percent and
82.5 percent respectively.
12. During the FY 2022/23, recurrent expenditures by the State Department for Basic
Education, State Department for Higher Education and Research; Teachers Service
Commission; State Department for Vocational and Technical Training; State Department for
Public Health and Professional Standards; State Department for Post Training and Skills
Development; State Department for implementation of Curriculum Reforms; and the Ministry
of Health (Social Sector) accounted for 41.4 percent of total recurrent expenditure. In addition,
the security sector accounted for 11.1 percent of total recurrent expenditure.
13. Analysis of development expenditure indicates that the State Department for Roads
accounted for the largest share of the total development expenditure (18.9 percent), followed
by the National Treasury (15.2 percent) and the State Department for Economic Planning (9.4
percent). Table 3 shows the recurrent and development expenditures by Ministries, State
Departments and other Government entities for the period under review.
15
Table 3: Ministerial Expenditures, Period Ending 30th June, 2023 (Ksh Millions)
16
Overall Balance and Financing
14. In line with the performance in expenditure and revenues, the fiscal deficit (including
grants, on a cash basis), amounted to Ksh 800.4 billion (5.6 percent of GDP) against a target of
Ksh 846.2 billion (5.8 percent of GDP) (Table 4).
Table 4: Budget Outturn for the FY 2022/23 (Ksh Million)
*Provisional
Source of Data: National Treasury
15. The fiscal deficit was financed through net external financing amounting to Ksh 310.8
billion (2.1 percent of GDP) and net domestic financing of Ksh 459.5 billion (3.2 percent of
GDP). Total disbursements (inflows) including A-i-A amounted to Ksh 548.2 billion against a
target of Ksh 597.2 billion. The disbursements included Ksh 74.2 billion project loans A-i-A,
Ksh 61.8 billion project loans revenue, and Ksh 266.9 billion programme loans. External
repayments (outflows) of principal debt amounted to Ksh 237.4 billion including principal
repayments due to bilateral and multilateral organizations and commercial sources.
17
B. Fiscal Performance for the FY 2022/23 in relation to Financial Objectives
16. The fiscal performance in the FY 2022/23 is broadly in line with the financial objectives
outlined in the PFM Act, 2012 and the 2023 BPS.
i. The performance of the main tax heads in FY 2022/23 was below the revised budget
targets resulting in a shortfall of Ksh 104.3 billion in ordinary revenue. Given this
revenue shortfall, the projections for FY 2023/24 have an estimated revenue risk of Ksh
133.5 billion. The National Treasury and Kenya Revenue Authority (KRA) have put
administrative measures such as the full roll-out of eTIMS; integration with Telcos;
revamped cargo scanning; efficient management of tax refunds; and improved debt
management to mitigate the revenue risk. In addition, tax measures in the Finance Act
2023 are expected to strengthen revenue performance. The revenue projections for the
FY 2023/24 and over the medium term remain largely at the 2023 BPS level for ordinary
revenue. However, projections for the ministerial A-i-A have been revised upward to
reflect the outturn of FY 2022/23 and to include the Housing Levy that was introduced
through the Finance Act, 2023;
ii. The overall resource envelope remains largely within the 2023 BPS position. Therefore,
the overall baseline expenditure ceilings for spending agencies will largely be retained
at the same levels as per the 2023 BPS. Any adjustments would be to reflect changes in
priority across sectors or MDAs and /or identified one-off expenditures. The increase in
expenditure from the 2023 BPS position is mainly to cater for carry-over expenditures
from FY 2022/23 and interest payments. The increased interest payments are due to the
weakening of the Kenya Shilling and elevated interest rates in the domestic
environment; and
iii. The under-spending in recurrent and development budget for the FY 2022/23 can partly
be explained by below the target disbursements for externally funded projects and low
revenue collection. The Government will put in place appropriate measures to increase
revenue collection, improve absorption of resources from development partners and
explore alternative financing strategies early in the financial year to ensure the budget
is fully funded.
C. Fiscal Responsibility Principles
17. In line with the Constitution, the PFM Act, 2012, the PFM Regulations, and in keeping in
line with prudent and transparent management of public resources, the Government has largely
adhered to the fiscal responsibility principles as set out in the statute as follows:
i. The National Government’s allocation to development expenditures over the medium
term has been set above 30 percent of ministerial Government expenditures. In FY
2022/23, the allocation to development in the revised budget was 27.9 percent of the
total expenditures while the actual expenditures were 25.2 percent (Table 5). This
performance was below the set threshold on account of the rationalization of
Government expenditures to reduce the fiscal deficit in line with the Government’s
agenda as well as below target disbursements for externally funded projects. In FY
2023/24, the allocation for development expenditure is 34.3 percent of ministerial
Government expenditure and is projected to remain above the 30 percent threshold over
the medium term.
18
ii. The National Government’s share of wages and benefits to revenues was 27.7 percent1
in the FY 2022/23 which is within the statutory requirement of 35.0 percent of the
National Government’s equitable share of the revenue plus other revenues generated by
the National Government (Table 5).
Table 5: Fiscal Performance in Relation to Financial Objectives
/1Wages: For teachers and civil servants including the police. The figure includes the funds allocated for the pension
contributory scheme
iii. The fiscal responsibility principle spelled out in Section 15(2)(c) of the PFM Act, 2012
requires that over the medium term, the National Government’s borrowing shall be used
only for financing development expenditure. During the FY 2022/23, the National
Government borrowed a total of Ksh 985.7 billion comprising project loans of Ksh
137.6 billion, programme loans of Ksh 266.9 billion, commercial borrowing of Ksh
102.2 billion, use of IMF SDR allocation of Ksh 42.8 billion and domestic securities of
Ksh 437.5 billion. This borrowing was spent on loan funded projects of Ksh 136.2
billion, external redemptions of Ksh 237.4 billion and domestically funded development
expenditures of Ksh 384.4 billion (inclusive of 30 percent equitable share).
iv. The PFM Act, 2012 requires that public debt and obligations remain at sustainable levels
and the Government is committed to adhering to this at all times. The debt sustainability
analysis shows that Kenya’s public debt remains sustainable as a medium performer in
terms of debt carrying capacity. Analysis of debt sustainability is as follows:
(a) 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. However, the debt service to revenue ratio
1 The 27.7 percent is exclusive of Ministry of Defense and NIS
19
breaches the threshold of 18 percent in 2024, 2025 and 2026. The high debt service
to revenue ratio in 2024 is due to the maturity of the international sovereign bond
(Table 6).
Table 6: Kenya’s External Debt Sustainability
Indicators Thresholds 2022 2023 2024 2025 2026 2027
PV of debt–to-GDP ratio 40 27.8 29.5 30.5 29.4 28.0 27.1
PV of debt-to-exports ratio 180 228.3 220.4 210.8 195.6 181.7 170.3
PPG Debt service-to-exports ratio 15 21.2 22.0 31.1 21.7 22.0 19.7
PPG Debt service-to-revenue ratio 18 14.8 16.6 24.9 18.2 19.2 17.6
Source: IMF Country Report No. 23/266-July 2023

(b) The debt service to exports ratio remains above the 15 percent threshold due to
subdued growth in exports leading to debt vulnerabilities; the international
sovereign bond maturing in 2024; and the rollover of external commercial loans due
in 2025 (Table 6). The ongoing implementation of the Government’s Bottom-up
Economic Transformation Agenda (BETA) will provide policies aimed at
improving economic growth including growth in Kenya’s export sector thus
improved public debt sustainability ratios.
(c) The current upsurge in interest repayments on existing debt exacerbated by the
depreciation of the Kenya Shilling to the US Dollar has narrowed the fiscal space.
To reduce debt vulnerabilities, the Government has committed to a fiscal
consolidation plan 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.
(d) Overall, the Present Value (PV) of debt to GDP ratio is projected to remain above
the 55 percent threshold in the medium term but is to decline gradually towards the
threshold by 2027 (Table 7). The decline in debt levels is linked to the
Government’s commitment to pursue a fiscal consolidation path by broadening the
tax revenue base and minimizing non-priority expenditures. The PV of the debt to
GDP indicator is projected to improve with the implementation of the fiscal reforms
under the extended fund/extended credit facility program.
Table 7: Kenya’s Public Debt Sustainability Analysis
Indicators Benchmark Jun-22 Jun-23 Jun-24 Jun-25 Jun-26 Jun-27
Projections
PV of debt–to-GDP ratio 55 63.1 64.4 61.9 60.2 58.3 56.6
PV of public debt-to- 355.2 357.8 338.1 331.7 325.8 313.3
revenue and grants ratio
Debt service-to-revenue and 54.5 55.1 65.9 56.7 56.9 52.8
grants ratio
Source: IMF Country Report No. 23/266-July 2023
20
v. On the principle of maintaining a reasonable degree of predictability with respect to the
level of tax rates and tax bases, Kenya’s tax rates have remained stable and predictable.
To bolster the predictability of the tax system, the Government’s National Tax Policy
will enhance administrative efficiency of the tax system, provide consistency and
certainty in tax legislation and management of tax expenditure. The Government is also
in the process of finalizing the Medium Term Revenue Strategy, which will provide a
comprehensive framework for guiding tax reforms in the medium term. Further, there
is continuous effort to reform, modernize and simplify tax laws and processes to enhance
compliance and expand the tax base. The Kenya Revenue Authority will continue to
employ the use of technology to curb revenue leakages including the use of scanners,
enhancements of iTax such as integration with Telcos, use of eTIMS, and Integrated
Customs Management System (iCMS); improve efficiency in the management of tax
refunds; improve taxpayer audits and implement specific measures to boost voluntary
compliance.
18. The National Government fiscal projections for the 2023 BROP (Table 8) are largely
consistent with the 2023 BPS estimates and shall inform the projections for the FY 2024/25
budget estimates and the medium term. The Government will not deviate from the fiscal
responsibility principles but will make appropriate modifications to the financial objectives in
the 2024 BPS to reflect changing circumstances.
Table 8: Government Fiscal Projections, Ksh Billion
21
D. County Governments’ Fiscal Performance
Sources of County Governments’ Revenue
19. Article 202 (1) of the Constitution provides for the equitable sharing of revenue raised
nationally among the National and County Governments. In addition, Article 202 (2) provides
for additional allocations to the County Governments from the National Government’s share of
revenue either conditionally or unconditionally. Article 209 (3) and (4) of the Constitution gives
the County Governments the power to raise their own source revenue from property rates and
entertainment taxes, as well as impose charges for services they provide. County Governments
may also borrow in line with Article 212 (a) of the Constitution with guarantee from the
National Government. However, since the advent of devolution, no County Government has
leveraged on this window to borrow. Section 138 and 139 of the PFM, Act 2012 allows County
Governments to also receive grants from development partners to finance development of
projects or delivery of services. Table 9 summarizes total budgeted revenue from the various
sources and actual disbursements for the 47 County Governments for the FY 2022/23.
Table 9: County Government Sources of Revenue, FY 2022/23 in Billion (Ksh)
Revenue Source Budgeted County Actual Budgeted % of
Government Disbursement Total Revenue
Revenue
Equitable Share 370.0 399.6* 80.7%
Additional Allocation of which: 22.6 16.3 4.9%
Gok 5.4 0.1
Donor 17.2 16.2
OSR 66.1 47.1 14.4%
Total 458.7 463.0 100%
Source of Data: National Treasury and Controller of Budget
*The Ksh 399.6 billion includes Ksh 370 billion Equitable Share for FY 2022/23 and Ksh 29.6 billion balances
not disbursed in FY 2021/22.
20. The main source of revenue for the County Governments in the FY 2022/23 was the
Equitable Share representing 80.7 percent of total revenue Additional allocations to the County
Governments from the National Government’s share of revenue as well as from proceeds of
loans and grants accounted for 4.9 percent of the total county revenue while the budgeted own
source revenue was 14.4 percent of the total County Governments budgeted revenue (Table 9).
Transfers to County Governments
21. The total transfers to counties for FY 2022/23 consisted of equitable share, conditional
grants from the National Governments’ share of revenue and loans and grants from
development partners.
22. During the FY 2022/23 a total of Ksh 399.6 billion was disbursed to the county
governments comprising of Ksh 370 billion allocated to the County Governments as equitable
share in the County Allocation of Revenue Act (CARA), 2022 and Ksh 29.6 billion FY 2021/22
equitable share balances brought forward . By 23rd June 2023, all the County Governments had
received their allocation for equitable share for the FY 2022/23. This reaffirms continued
commitment by the National Government to support devolution and ensure efficient delivery
of services to the citizens.
23. Additional allocations to the County Governments consist of allocations from the national
governments share of revenue and proceeds of loans and grants from development partners. In
FY 2022/23, a total of Ksh 16.2 billion was disbursed to the County Governments as additional
conditional allocations from development partners and and Ksh 3.0 billion paid out for leasing
22
of medical equipment and construction of county headquarters from the National Government’s
share of revenue raised nationally.
County Governments Own Source Revenue
24. The County Governments Budget Implementation Review Report for the FY 2022/23
prepared by the Controller of budget provides the Own Source Revenue (OSR) for the County
Governments some inclusive of Appropriation in Aid (AiA) while others are exclusive. Table
10 and Annex 7 captures the County Governments OSR inclusive of AiA and other revenues.
Table 10: OSR Collection for the FY 2022/23
Source of Data: Controller of Budget

23
Performance in OSR Against Target
25. During the FY 2022/23, the County Governments were able to raise a total of Ksh 47.1
billion from Own Source Revenue (OSR) against an annual target of Ksh 66.1 billion as shown
in (Figure 1). This represents 71.3 percent of the annual OSR target in FY 2022/23.
Figure 1: Actual Revenue Collected by the County Governments as a Percentage of
Annual Revenue Target for FY 2022/23

26. Analysis of OSR performance in the FY 2022/23 indicates that forty two (42) County
Governments were able to collect more than fifty percent of their annual OSR target. The top
performing counties as far as OSR collected as a percentage of target is concerned were Kisii
(150.3 %), Garissa (142.5%), Nyeri (135.0%) and Lamu (119.8) while the least performing
counties were Murang’a (43.9%), Mandera (42.2%), and Nyamira (36.4%). However
comparing the OSR performance over the years in absolute terms with the performance over
the target indicates that some counties are quite conservative in setting their revenue targets.
27. The National Treasury notes that a number of County Governments reported revenue
collection way below their target. This could be attributed to a number of factors such as lack
of proper revenue administration structures, revenue leakages, lack of internal controls or
unrealistic revenue targets.
28. In the medium term , the National Treasury in collaboration with stakeholders is
undertaking a number of reforms to assist counties enhance revenue collection. Some of the
measures include; proposal for an establishment of a Multi-Agency Taskforce on Tax Analysis
and Revenue Forecasting with an aim of developing a tool for OSR Analysis and Forecasting
among County Governments; review of existing legislations on OSR and automation of revenue
collection and management. In addition, the National Treasury is planning to build the capacity
of County Governments to generate statistics that conform to the Government Finance Statistics
2014 Manual beginning in FY 2023/24. This will strengthen the County Government’s fiscal
policy making including realistic revenue forecasting.
29. The County Governments have not fully automated revenue collection. To further improve
on revenue management, the National Treasury with the other stakeholders established a
taskforce to develop guidelines for acquisition and implementation of an Integrated County
Revenue Management System (ICRMS) for use by all County Governments.
30. To address the inadequacy of the existing legal framework to guide the imposition of
property rates, the National Policy to Support Enhancement of the County Governments Own
24
Source Revenue proposed enactment of the National Rating Legislation. The National Rating
Bill, 2022 was developed and is currently through the second reading in the National Assembly.
The Bill provides for among others, standards in the way rating and valuation is conducted in
the country; how to deal with properties cross-cutting in more than one County Government;
procedure for claiming and payment of Contribution in Lieu of Rates (CILOR); and timely
updating of valuation rolls by the County Governments. More importantly, the Bill will repeal
the outdated Valuation for Rating Act, Cap 266 and Rating Act, Cap 267 and align the property
rating legal regime with the devolved system of governance.
31. However, the foregoing revenue raising measures must be aligned with Article 209 (5)
which requires that taxation and other revenue raising powers be exercised in a way that does
not prejudice national economic policies, economic activities across county boundaries or the
national mobility of goods, services, capital or labour. In this regard, the National Treasury with
other stakeholders developed County Governments (Revenue Raising Process) Bill, 2023 which
was approved by Cabinet together with the OSR Policy., This Bill provides for a process by
which the County Governments introduce revenue raising measures in conformity with Article
209 (5) of the Constitution.. The Bill was first submitted to Parliament for enactment in 2018
but lapsed before the 12th Parliament could enact it into law. However, it has now been
resubmitted to the 13th Parliament for enactment.
Mineral Royalty Revenues
32. Mining Act, 2016 assigns 70 percent of mineral royalties collected from Mining
companies to the National Government; 20 percent to County Governments; and, 10 percent to
communities. Since 2016, County Governments and communities have not received their share
of these royalties. To address this matter, Ksh 2.9 billion has been included in the County
Governments Additional Allocations Bill, 2023 for sharing among 32 County Governments. In
addition, disbursement of the 10 percent to the communities is awaiting the finalization of the
draft Mining (Mineral Royalty Sharing) Regulations, 2023.
County Governments Expenditure
Legal Framework
33. Section 130 (1) (b) (v) of the PFM Act, 2012 requires the County Executive Committee
Member for Finance to submit to the County Assembly budget estimates that include all
expenditure by vote and by program clearly identifying both recurrent and development
expenditure. Further, the PFM Act provides for fiscal rules which are provided as fiscal
responsibility principles to be observed by County Governments in management of public
finances. Specifically, PFM Act, 2012 and the PFM (County Government) Regulations, 2015
require county governments to enforce the following fiscal responsibility principles, among
others:
i. The County Governments’ recurrent expenditure shall not exceed the County
Government total revenue;
ii. In the Medium Term, a minimum of 30 percent of the County Governments budget shall
be allocated to the development expenditure; and
iii. The County Government expenditure on wages shall not exceed 35 percent of County
Governments total revenue as prescribed by the County Executive Committee Member
for Finance.
25
Overall Performance of Expenditures
34. The total budget for the county governments in the FY 2022/23 was Ksh 515.2 billion
comprising Ksh 160.5 billion for development (31 percent) and Ksh 354.6 billion for recurrent
expenditure (69 percent).
35. The total actual expenditure by the County Governments in the FY 2022/23 was Ksh 428.9
billion of which actual expenditure on development was Ksh 98.0 billion while on recurrent
was Ksh 330.9 billion On the other hand, the expenditure on wages was Ksh 195.1 billion. The
expenditures were against actual revenue amounting to Ksh 475.4.0 billion (Table 11).
Table 11: County Governments Total Actual Expenditure for FY 2022/23
Item Ksh ‘Billion’ % of Expenditure to Total Revenue
Total actual Revenue 475.4* 100.0
Total actual Expenditure 428.9 90.2
Recurrent expenditure 330.9 69.6
Wages 195.1 41.0
Operations & Maintenance 135.8 28.6
Development Expenditure 98.0 20.6
*The total revenue includes equitable share, additional allocations, cash balances carried forward and OSR
inclusive of AiA and other revenues.
Absorption rates of the Recurrent Expenditure

36. The absorption rate measures the performance of actual expenditure against the approved
budget. During the period, analysis of recurrent absorption rate shows that only eight Counties
had an absorption rate lower than 90%. Mombasa County Government absorbed more than its
budgeted recurrent amount (Figure 2).
Figure 2: Absorption Rate of the Recurrent Expenditure for FY 2022/23
Source: Controller of Budget
Absorption rates of the Development Expenditure

37. The County Governments spent Ksh 98.0 billion on development activities, representing
an absorption rate of 61.0 per cent of the annual development budget of Ksh 160.5 billion. The
absorption rates of development budget per county government are indicated in Figure 3.
26
Figure 3: Absorption Rate of the Development Expenditure for FY 2022/23
38. Analysis of development expenditure as a proportion of the development budget for FY

2022/23 shows that there was no county government that attained an absorption rate above 90
per cent. The County Governments of Nairobi City, Machakos, Busia, Nakuru, Kiambu and
Kisii reported below 50 per cent absorption rate on development budget while West Pokot,
Mandera and Samburu performed well as shown in Figure 3 above.
E. County Governments’ Compliance with Fiscal Responsibility Principles
Recurrent Expenditure as a Percentage of Total Revenue
39. The PFM Act, 2012 requires that a County Government’s recurrent expenditure shall not
exceed the County Government’s total revenue. In the FY 2022/23, the total recurrent
expenditure for the County Governments was Ksh 330.9 billion, while the total revenue
available for the County Governments was Ksh 475.4 billion, representing 69.6 percent of the
total revenue (Figure 4). In this regard, the total recurrent expenditure was within the PFM
threshold as at the end of the FY 2022/23.
Figure 4: Actual Recurrent Expenditure as a Percentage of the Total Revenue for the
FY 2022/23
27
Development Budget as a Percentage of the Total Budget
40. The Development Budget of County Governments’ approved by the County Assemblies
for FY 2022/23 amounted to Ksh 160.5 billion (31.2 percent) against total budget of Ksh 515.2
billion. However, the approved budget of 14 counties, namely Kajiado, Vihiga, Kisii, Kitui,
Kisumu, Mombasa, Bomet, Meru, Nandi, Wajir, Kiambu, Laikipia, Nairobi and Tharaka Nithi
did not conform with the PFM Act as shown in Figure 5.
Figure 5: Budgeted Development as a Percentage of the Total Budget for the FY 2022/23
Source of data: Controller of Budget
41. The total actual development expenditure in the FY 2022/23 amounted to Ksh 98.0 billion
against a total expenditure of Ksh 428.8 billion representing 22.8 percent of the total budget.
The Public Finance Management Act, 2012 Section 107(b) requires that over the medium term,
a minimum of 30 percent of each County Government’s budget shall be allocated to
development expenditure. Even though a number of County Governments meet this
requirement as far as the approved budget is concerned, in terms of actual expenditure, only
seven County Governments meet this requirement. These counties are Marsabit (35.4%),
Mandera (31.2%), West Pokot (31.0%), Uasin Gishu (30.8%), Samburu (30.4%), Baringo
(30.0%) and Kericho (30%). On other hand, Busia (16.8%), Machakos (16.8%), Nairobi City
(13.9%), Kiambu (10.2%) and Kisii (5.7) spent the lowest budgets on development in the
reporting period (Figure 6).
Figure 6: Actual Development Expenditures as a Percentage of Actual Total Expenditure
for FY 2022/23

28
Expenditure on Wage Bill
42. The total expenditure on wages reported by County Governments amounted to Ksh 195.1
billion in the FY 2022/2023. During the same period, the total revenue available to the County
Governments was Ksh 475.4 billion. The Public Finance Management (County Government)
Regulations, 2015 requires that expenditure on wages and benefits for public officers shall not
exceed 35 percent of the total revenues. This means that on average County Governments spent
41.7 percent of their total revenue on wages which is higher than the threshold of 35 percent
provided by the PFM Act, 2012. Within this period, only eight Counties (Migori, Nakuru,
Samburu, Kilifi, Mandera, Kwale, Turkana and Tana River) were able to maintain their
allocation to wages and salaries below the 35 percent threshold. It is worth noting that a lower
expenditure on the wage bill does not necessarily mean that the county government has
committed the expenditure to development. Only Kwale, Mandera and Kilifi of the five counties
had a development expenditure of over 30 percent (Figure 7).
Figure 7: Actual Expenditures on Wages and Salaries as a Percentage of Total Revenue
for the FY 2022/23

Pending Bills of County Governments
43. As at 30th June, 2023, County Governments reported pending bills of Ksh 164.76 billion
as stated by the Controller of Budget. The County Executive reported a total of Ksh 163.1 billion
while the County Assemblies reported a total of Ksh 1.7 billion as their pending bills as shown
in Table 12.
Table 12: Pending Bills of the County Governments’ as at 30th June, 2023
Development (Ksh) Recurrent (Ksh) Total (Ksh)
(A) (B) (C= A+B)
County Executive 31,904,907,894 131,201,401,193 163,106,309,087
County Assembly 639,429,699 1,018,933,772 1,658,363,471
Total 32,544,337,593 132,220,334,965 164,764,672,558
44. There is need for a comprehensive study to determine the causes of pending bills by the
County Governments given that at the end of the financial year all counties received 100% of
their equitable share and most of their conditional grants.
29
45. Based on the County Governments’ fiscal performance in the FY 2022/23 outlined in the
section above, County Governments are expected to put measures in place to address the several
challenges noted. This include measures to address optimization of Own Source Revenue
collection; adherence to fiscal responsibility principles; and clearance of pending bills and
follow due procurement processes to ensure issues on ineligible pending bills do not arise.
Equalisation Fund
46. During the year under review, the Equalisation Fund loaded Ksh 3,009,998,064.6 into the
IFMIS system to facilitate utilisation of unspent balances by implementing Ministry
Departmental Agencies (MDAs) to fast-track payment of pending bills and completion of First
Marginalization Policy projects in the 14 beneficiary counties as appropriated in the
Equalisation Fund Appropriation Act, 2018 which does not lapse. Ksh 10.4 billion being
allocation for FY 2021/22 and FY 2022/23 was appropriated through the Equalisation Fund
Appropriation Bill 2023 which was approved and enacted on 30th June, 2023. The Equalisation
Fund Appropriation Act, 2023 will be utilized for implementation of projects for Second
Marginalisation Policy which have commenced in the 34 beneficiary counties.
County Governments Public Finance Management Challenges
47. A Multi-Agency Taskforce established in 2022/23 identified challenges faced by County
Governments in the management of public finance. These challenges include weak linkage
between planning and budget formulation, inability of county governments to adhere to the
Public Procurement Act resulting in high outstanding pending bills, low development budget
absorption, under-performance in own-source revenue, failure to use the prescribed financial
systems (such as IFMIS, IPPD among others), non-adherence to fiscal responsibility principles,
pilferage of public resources due to manual systems, inadequate understanding of the Office of
the Controller of Budget’s role in approval of county requisitions, high wage bill, weaknesses
in human resource management, weak oversight by County Assembly and a weakened internal
audit function among others. Some of the solutions to address these challenges include; capacity
building of county governments on planning, budgeting and revenue forecasting; adherence to
the disbursement schedule on equitable share transfers by the National Government and
actualization of the Integrated County Revenue Management System (ICRMS).
30
III. MACROECONOMIC DEVELOPMENTS AND OUTLOOK
A. World Economic Outlook
48. World economic growth slowed to 3.5 percent in 2022 from a growth of 6.3 percent in
2021 as high global inflation, energy and value chain disruptions, and impact of monetary policy
tightening in most world economies weighed on economic activity (Table 13). The growth is
projected to slow down further to 3.0 percent in 2023 and 2024 due to the impact of ongoing
monetary policy tightening to address inflationary pressures. Global inflationary pressures have
responded to policy tightening but inflation exceeds central bank targets in most countries.
Recent actions by authorities to contain banking sector challenges in the United States and
Swiss Banking have reduced the immediate risk of financial sector instability. However,
intensification of the conflict in Ukraine, volatility in the global oil prices and extreme weather
related shocks could weigh on the global economic outlook.
Table 13: Global Economic Performance
Source: IMF World Economic Outlook, July 2023. *National Treasury Projection
49. Advanced economies are projected to record a slower growth of 1.5 percent in 2023 and
1.4 percent in 2024 from 2.7 percent in 2022. About 93 percent of the countries in the advanced
economies are projected to have a lower growth in 2023 and 2024. This slowdown is largely
driven by aggressive monetary policy tightening in advanced economies that have increased
concerns about escalating financial markets uncertainty, particularly persistent high interest
rates and vulnerability of the banking sector.
50. Growth in the emerging market and developing economies, is projected to be broadly
stable at 4.0 percent in 2023 and 4.1 percent in 2024, although with notable shifts across regions.
The sluggish global growth, high inflation rates and the challenging global and domestic
financial conditions continue to weigh on the growth for sub-Saharan Africa region. The region
economic growth is projected to slow down to 3.5 percent in 2023 from 3.9 percent in 2022,
before picking up to 4.1 percent in 2024.
B. Kenya’s Economic Performance and Outlook
51. In the 10 years pre-COVID-19 pandemic, the economic growth averaged 5.0 percent
whereas in the two years post COVID-19 pandemic the growth momentum picked up to average
31
6.2 percent. The Kenyan economy in 2022 demonstrated resilience in the face of severe multiple
shocks that included the adverse impact of climate change, lingering effects of COVID-19,
global supply chain disruption and the impact of Russia-Ukraine conflict. As such, the
economic growth slowed down to 4.8 percent in 2022 from 7.6 percent in 2021.
52. In 2020, the economy received adequate rainfall that resulted in increased production in
the agriculture sector growing by 4.6 percent. However, the country subsequently, experienced
a severe climate related shock in the form of a severe drought that was also experienced in the
Horn of Africa and the East African regions. The drought not only aggravated the inflationary
pressures but also subjected millions of people to severe food insecurity, loss of lives,
livelihoods and led to loss of livestock. This resulted in the contraction of the agriculture sector
by 0.4 percent 2021 and 1.6 percent in 2022.
53. The performance of the industry sector slowed down to 3.5 percent in 2022 compared to
a growth of 6.8 percent in 2021 on account of a slowdown in activities in the manufacturing,
electricity and water supply and construction sub-sectors. In the year, services sector remained
strong growing at 6.7 percent, with improved performance in information and communication,
financial and insurance and professional, administrative and support services sub-sectors. There
were also substantial growths in accommodation and food services, and transport and storage
sub-sectors.
54. In the first quarter of 2023, real GDP growth was at 5.3 percent mainly due to a 5.8 percent
recovery in the agricultural activities that reflected improved rainfall conditions and the impact
of fertilizer and seed subsidies provided to the farmers by the Government (Table 14). The
recovery in agriculture was reflected in enhanced production, especially of food crops that led
to significant increase in export of vegetables and fruits.
Table 14: Sectoral GDP Performance
Source of Data: Kenya National Bureau of Statistics

55. Manufacturing sub-sector expanded by 2.0 percent in the first quarter of 2023 mainly
supported by the manufacture of food products that included bakery products and processing
and preservation of fish. In the non-food manufacturing the growth performance was supported
by substantial growth in the manufacture of basic metals and fabricated metal products.
Electricity and Water Supply sub-sector expanded by 2.3 percent supported by increased
32
generation of electricity from renewable sources such as geothermal and wind that more than
offset the decline in generation from hydroelectric sources. However, construction activities
slowed down due to the decline in the volume of cement consumption and imports of various
construction materials such as bitumen and iron and steel.
56. The activities in the services sector remained strong in the first quarter of 2023 growing
by 6.0 percent largely characterized by significant growths in accommodation and food Service;
information and communication technology; transportation and storage; financial and
insurance; and wholesale and retail trade sub-sectors.
57. Available economic indicators in the first three quarters of 2023 remain strong with the
continued recovery in the agricultural sector and sustained performance of the services sector.
In this respect, economic growth is projected at 5.5 percent in 2023 and 5.7 percent in 2024
supported by broad-based private sector growth and sustained government investment in the
nine priority value chains ( Leather, Cotton, Dairy, Edible Oils, Tea, Rice, Blue economy,
Natural Resources (including Minerals and Forestry), and Building Materials). Additionally,
public sector investments in infrastructure and implementation of prudent fiscal and monetary
policies will continue to support economic activity (Figure 8).
Figure 8: Annual Real GDP Growth Rates, percent
Inflation Outcomes
58. Inflation remained above the Government target range of 5±2.5 percent from June 2022
to June 2023. In order to anchor inflation expectations and reduce inflation to be within the
target range, the Monetary Policy Committee (MPC) gradually raised the policy rate (Central
Bank Rate (CBR)) from 7.50 percent in May 2022 to 10.50 percent in June 2023. The MPC
retained the 10.50 percent in August 2023. Consequently, inflation declined significantly to 6.8
percent in September 2023, from a peak of 9.6 percent in October 2022. The decline largely
reflects the easing of food prices and impact of monetary policy tightening (Figure 9).
59. Food inflation remained the dominant driver of overall inflation in August 2023. However,
it declined to 7.5 percent in August 2023 from a peak of 15.0 percent in August 2022. Several
factors explain this outcome: the easing of food prices arising from increased supply due to
ongoing harvests; seasonal factors; international developments and Government measures on
zero rated imports. Nonetheless, sugar prices remained elevated driven by domestic and global
factors.
33
60. Fuel inflation remained elevated reflecting the impact of the rise in international oil prices.
It increased to 13.1 percent in September 2023 from 11.7 percent in September 2022. The
increase reflects gradual withdraw of the fuel subsidize from September 2022 and the upward
adjustment of electricity tariff from April 2023. In addition, the upward adjustment of VAT on
petroleum product in July 2023 from 8.0 percent to 16.0 percent to eliminate tax credits from
the sector exacted upward pressures on prices. However, prices of cooking gas continued to
decline and moderated inflation reflecting the impact of the zero-rating of VAT on liquefied
petroleum gas (LPG).
61. Core (non-food non-fuel) inflation remained stable at 3.7 percent in both August and
September 2023, from a peak of 4.4 percent in March 2023. The decline is attributed to the tight
monetary policy and muted demand pressures.
Figure 9: Inflation Rate, Percent
10.0
9.0
8.0 8.4
7.5% upper bound
7.0 6.8
Percent
6.0
5 percent target
5.0
4.0
3.0
2.0 2.5% lower bound
1.0
0.0
Overall year-on-year inflation Overall average annual inflation

Monetary and Credit Developments
62. Broad money supply, M3, grew by 14.3 percent in the year to July 2023 compared to a
growth of 7.6 percent in the year to July 2022 (Table 15). The primary source of the increase
in M3 was an improvement in the Net Foreign Assets (NFA) and Net Domestic Assets (NDA)
of the banking system. the NFA of the banking system in the year to July 2023 expanded by
56.6 percent compared to a contraction of 46.8 percent in the year to July 2022. The increase in
net foreign assets, mainly reflected increase in commercial banks’ foreign assets.
63. Net Domestic Assets (NDA) registered a growth of 10.2 percent in the year to July 2023,
compared to a growth of 19.5 percent over a similar period in 2022. The growth in NDA was
mainly supported by increase in domestic credit particularly resilient private sector credit and
net lending to government. Growth of domestic credit extended by the banking system to the
Government declined to a growth of 16.1 percent in the year to July 2023 compared to a growth
of 25.4 percent in the year to July 2022. Lending to other public sector grew by 16.7 percent in
the year to July 2023 mainly due to advances to parastatals.
34
Table 15: Money and Credit Developments (12 Months to July 2023, Ksh billion)
Source of Data: Central Bank of Kenya
64. Growth in private sector credit from the banking system remained resilient as business
activities improved and grew by 10.3 percent in the year to July 2023 compared to a growth of
14.2 percent in the year to July 2022 (Figure 8). Improved credit expansion was registered in
various sub-sectors that include finance and insurance, mining, transport and communication,
agriculture and manufacturing. On a monthly basis, credit extension contracted by 8.5 percent
in the year to July 2023 reflecting further tightening of the monetary policy in June 2023.
Figure 10: Private Sector Credit
Interest Rates Developments
65. Reflecting the tight monetary policy stance, interest rates increased in the year to August
2023. The interbank rate increased to 12.5 percent in August 2023 compared to 5.4 percent in
August 2022 while the 91-day Treasury Bills rate increased to 13.4 percent compared to 8.6
35
percent over the same period (Figure 9). The 182-day Treasury Bills rate increased to 13.4
percent in August 2023 from 9.5 percent in August 2022 while the 364-day also increased to
13.6 percent from 9.9 percent over the same period. The introduction of the interest rate
corridor, in August 2023, is expected to align the interbank rate to the Central Bank Rate and
thereby improve the transmission of the monetary policy.
Figure 11: Short Term Interest Rates, Percent
66. Commercial banks average lending and deposit rates increased in the year to July 2023 in
tandem with the tightening of the monetary policy stance. The average lending rate increased
to 13.5 percent in July 2023 from 12.4 percent in July 2022 while the average deposit rate
increased to 8.1 percent from 6.7 percent over the same period. Consequently, the average
interest rate spread declined to 5.4 percent in July 2023 from 5.6 percent in July 2022 (Figure
12).
Figure 12: Commercial Bank Rates, Percent
External Sector Developments

67. The current account balance narrowed by 20.6 percent to US$ 4,629.4 million (4.4 percent
of GDP) in June 2023 from US$5,833.9 million (5.1 percent of GDP) in June 2022, reflecting
lower imports, strong performance of export of goods and services as well as increased
remittances (Table 16). Improvement in trade and the continued recovery in tourism continues
36
to boost export revenues in 2023. In the year to June 2023, exports grew by 2.1 percent primarily
driven by improved receipts from tea and manufactured goods. The increase in receipts from
tea exports reflects higher prices attributed to lower global supply due to drought amid resilient
demand from traditional markets.
68. The continued recovery in tourism sector recorded a tourists increase by 25.2 percent in
the year to June 2023 and travel and transportation services receipts increased by 24.2 percent
during the same period. Growth in imports declined by 6.1 percent in the 12 months to June
2023, as oil prices moderated and reduced imports for infrastructure related equipment. In this
respect, the balance in the merchandise account improved by USD 1,316.3 million to a deficit
of USD 10,678.0 million in June 2023. Receipts from remittances remained resilient and
amounted to USD 4,017 million in the 12 months to June 2023, and were 0.1 percent higher
compared to a similar period in 2022.
Table 16: Balance of Payments (USD Million)
69. The capital account balance improved by USD 28.1 million to register a surplus of USD
189.7 million in June 2023 compared to a surplus of USD 161.6 million in the similar period in
2022. Net financial inflows slowed down but remained vibrant at USD 4,061.5 million in June
2023 compared to USD 4,746.6 million in June 2022. The net financial inflows were mainly in
the form of other investments, financial derivatives and direct investments. Portfolio
investments registered a net outflow during the period.
70. The overall balance of payments was a surplus of USD 1,113.5 million (1.1 percent of
GDP) in June 2023 from a surplus of USD 1,555.5 million (1.4 percent of GDP) in June 2022
(Figure 13).
37
Figure 13: Performance of Balance of Payments and its Components (Percent of GDP)
Foreign Exchange Reserves

71. The banking system’s foreign exchange holdings remained strong at USD 13,165.6
million in June 2023, an improvement from USD 12,580.6 million in June 2022. The official
foreign exchange reserves held by the Central Bank stood at USD 8,036.7 million compared to
USD 8,494.9 million over the same period (Figure 14). Commercial banks holdings improved
to USD 5,128.8 million in June 2023 from USD 4,085.6 million in June 2022.
72. The official reserves in June 2023 represented 4.4 months of import cover as compared to
the 4.9 months of import cover in June 2022. These reserves were above the minimum of 4.0
months of imports cover and provides adequate buffer against short-term shocks in the foreign
exchange market.
Figure 14: Foreign Exchange Reserves (USD Million)
Exchange Rate Developments

73. The Kenyan foreign exchange market remained under pressure as global economic
uncertainty regarding the ongoing Russian-Ukraine conflict as well as increase in interest rates
in advanced economies in response to inflationary pressures weighed in the exchange rate.
38
Specifically, the headwind from a strengthening dollar, boosted by rising US interest rates and
elevated commodity prices, the exchange rate to the Kenya Shilling weakened at a rate of 20.5
percent in the 12 months to August 2023 compared to 9.3 percent in the 12 months to August
2022. The Kenya Shilling exchanged at an average of Ksh 143.9 in August 2023 compared to
an average of Ksh 119.5 in August 2022. Against the Euro, the Kenya shilling weakened to
exchange at Ksh 157.1 in August 2023 compared to Ksh 121.0 in August 2022 while against
the Sterling Pound the Kenyan Shilling weakened to exchange at Ksh 182.9 compared to Ksh
143.5, over the same period (Figure 15). The Kenyan Shilling was supported by increased
remittances, adequate foreign exchange reserves and improved exports receipts.
Figure 15: Kenya Shillings Exchange Rate
Capital Markets Developments

74. Activity in the capital markets slowed down in August 2023 compared to August 2022 as
advanced economies tightened their monetary policy amid inflationary pressures. The NSE 20
Share Index declined to 1,540 points in August 2023 compared to 1,751 points in August 2022
while Market capitalization declined to Ksh 1,545 billion from Ksh 2,142 billion over the same
period (Figure 16).
Figure 16: Performance of the Nairobi Securities Exchange
Source of Data: Nairobi Securities Exchange
39
C. Kenya’s Macroeconomic Outlook
75. Kenya’s economic performance is projected to remain strong and resilient over the
medium term (Table 17 in calendar years and Annex Table 1 in fiscal years). The economy
recorded a strong growth of 5.3 percent in the first quarter reflecting a strong recovery in
agriculture sector and buoyant services sector including financial and insurance, information
and communication, wholesale and retail trade and transport and storage. The economy is
expected to remain strong and expand by 5.5 percent in 2023 (5.6 percent in FY 2023/24) and
5.7 percent in 2024 (5.9 percent in FY 2024/25).
76. This growth will be supported by the strong recovery in agriculture and resilient services
sector that both drive the industrial sector. The adequate rainfall during the long rain season in
most parts of the country and the anticipated short rains later in 2023 will continue to support
activities in the agriculture, electricity, and water supply sectors. The improved availability of
raw materials following the recovery in agriculture and a decline in global commodity prices
will support food processing in the manufacturing sector. Additionally, activities in the
construction sector will be boosted by the affordable housing programme. Services sector will
be supported by resilient activities in the financial and insurance, information and
communication, wholesale and retail trade and transport and storage, among others. The easing
of global commodity prices and supply chain constraints coupled with robust private sector
investment are expected to support domestic demand.
77. On the demand side, private consumption is expected to remain on a robust growth path
in the near term. The easing of inflationary pressures will result in strong household disposable
income, which in turn will support household consumption. The interventions by the
Government through the Financial inclusion initiative popularly known as the Hustlers’ Fund
will strengthen MSMEs thereby correcting market failures for the vast majority of Kenya's at
the bottom of the pyramid. This will strengthen the private sector led growth opportunities. The
multi-year fiscal consolidation program by the Government has been incorporated in the
projections and is expected to lower the fiscal deficit and achieve a positive primary balance
over the medium term. This will reduce debt vulnerabilities and strengthen debt sustainability
and provide the needed confidence for investors. This will boost private investment and
economic vibrancy over the medium term. The lower domestic financing needs of the
Government, will enable the expanded lending to the private sector by the banking sector.
78. The development spending in the budget will be retained at an average of 5.6 percent of
GDP so as not to impact on growth momentum. This will support capacity for future growth.
The spending will enhance Government investment in the nine priority value chains (Leather,
Cotton, Dairy, Edible Oils, Tea, Rice, Blue economy, Natural Resources (including Minerals
and Forestry), and Building Materials). Additionally, it will support investments in key projects
under the Bottom-Up Economic Transformation Agenda (BETA) including construction of
dams, improvement of road networks and ports and laying of additional National Fiber Optic
network. Enhanced digitalization, is expected to improve efficiency and productivity in the
economy. In particular, investment in digital superhighway will result in enhanced connectivity
and access to broadband services which will lower the cost of doing business, enhance
efficiency and create employment opportunity.
79. Kenya’s exports of goods and services is expected to continue strengthening supported by
receipts from tourism and implementation of crops and livestock value chains, specifically,
exports of tea, coffee, vegetables and fresh horticultural produce, among others. The expected
recovery of Kenya’s trading partners and the implementation of Africa Continental Free Trade
Area (AfCFTA) will enhance demand for exports of Kenyan manufactured products. Current
40
account deficit will average 5.4 percent of GDP between 2023 and 2027. The projected robust
domestic demand sustained by private investment, will sustain imports of raw materials,
machinery and equipment for private construction, and household consumption. In addition,
global oil prices are expected to stabilize. In the Balance of Payments Statement, external
financing needs will be met mainly by equity inflows and foreign direct investment given the
conducive business climate that Government has created particularly the fiscal policy
predictability. Improvement in the current account, boosted by robust export earnings and
strong remittance inflows will continue to support stability in the foreign exchange market.
Monetary Policy Management
80. The monetary policy stance is aimed at achieving price stability and providing adequate
credit to support economic activity. Consequently, overall inflation is expected to remain within
the Government target range of 5±2.5 percent in the medium term. This will be supported by
muted demand pressures consistent with prudent monetary policy and easing domestic and
global food prices. In addition, Government measures to support sufficient supply of staple food
items through zero rated imports and lower the cost of production through the ongoing fertilizer
and seeds subsidy program will exact downward pressure on inflation.
81. The Central Bank has continued to implement reforms to Modernize its Monetary Policy
Framework and Operations in Kenya, designed to enhance monetary policy transmission. In
particular, CBK has implemented a new monetary policy framework based on inflation
targeting. This will facilitate alignment of the short term rates with the Central Bank Rate
(CBR), reduce volatility in the interbank rate and improve monetary policy transmission, CBK
has implemented an interest rate corridor. The interest rate corridor is set at ± 250 basis points
around the CBR. In addition, the CBK has reduced the applicable interest rate to the Discount
Window from 600 basis points to 400 basis points above CBR to improve access to the Window.
82. The Central Bank has also introduced DhowCSD, an upgraded Central Securities
Depository infrastructure, that offers a simple, efficient, and secure portal by the Central Bank
of Kenya (CBK) to enable the public to invest in Government of Kenya securities. The platform
enables investors to participate and trade in Government securities market (Treasury Bills and
Bonds) on their mobile phones and on web based devices. The DhowCSD will transform
Kenya’s financial markets through enhanced operational efficiency and expansion of digital
access, market deepening for broader financial inclusion, and improved monetary policy
operations. Additionally, the DhowCSD will also improve the functioning of the interbank
market by facilitating collateralized lending amongst commercial banks and further reduce
segmentation in the interbank market.
83. The Central Bank will require a re-look at the Payments System and why preferences of
cash is rising and cash outside the banking sector is rising. This weakens the transmission of
monetary policy in the market.
41
Table 17: Kenya’s Macroeconomic Indicators and Projections
Source: The National Treasury

Risks to the economic outlook
84. There are down side risks to this macroeconomic outlook emanating from domestic as
well as external sources. On the domestic front, risks relate to unpredictable weather conditions
due to the impact of climate change which could adversely affect agricultural production and
result to domestic inflationary pressures and food insecurity. This supply shocks are thus
unpredictable and cannot be contained effectively and efficiently by monetary policy
instruments.
42
85. On the external front, uncertainties in the global economic outlook stemming from the
current geopolitical tension could result in higher commodity prices and slowdown the global
economic recovery that could impact on the domestic economy. Weaker global demand could
adversely affect the Kenya’s exports, foreign direct investments and remittances. Additionally,
high international commodity prices pose a risk to global and domestic inflation outcomes
which could lead to further tightening of financial conditions. Continued strengthening of US
dollar against other global currencies arising from aggressive monetary policy tightening
present significant risks to financial flows and puts pressures on the exchange rate with
implication to growth and inflation.
86. Upside risks are mostly linked to early easing of global financing conditions and lower
international fuel and food prices, which would strengthen Kenya’s external balances. This will
be reinforced by faster than projected rebound in economic activities that would result in higher
Government revenues providing fiscal space that would support fiscal consolidation. Optimal
coordination between monetary and fiscal policies are expected to result to a stable
macroeconomic conditions which is a necessary condition for investment and savings thereby
promoting economic growth.
43
IV. RESOURCE ALLOCATION FRAMEWORK
A. Implementation of the FY 2023/24 Budget
87. Budget implementation during the first two months of the FY 2023/24 has progressed
well. Total revenues amounted to Ksh 351.3 billion (2.2 percent of GDP) in August 2023 against
a target of Ksh 410 billion implying a performance rate of 85.6 percent. Total expenditure for
August 2023 was Ksh 415.9 billion and was below target of Ksh 546.7 billion by Ksh 130.8
billion. There are expenditure pressures arising from FY 2022/23 carryovers amounting to Ksh
77.5 billion which may necessitate revision of the budget. During the implementation process,
movement in interest rates and exchange rate have impacted on fiscal space. In order to maintain
the primary balance consistent with the fiscal consolidation path, expenditures have to be
maintained at the levels approved in printed estimates. In this respect, additional spending
pressures will be accommodated within the approved ceilings, that is reallocation possibilities,
except those of the security and education sectors. Ministries, Departments and Agencies are
expected to settle the carryovers from the FY 2022/23 budget as a first charge against the
budgetary allocations for the FY 2023/24 budget. The fiscal deficit including grants for the FY
2023/24 is therefore projected at 5.4 percent of GDP and will decline to 4.4 percent of GDP in
the FY 2024/25 and projected at 3.6 percent of GDP in the FY 2026/27.
88. Total revenues for the FY 2023/24 are projected at Ksh 3,007.5 billion (18.6 percent GDP)
with ordinary revenues projected at Ksh 2,576.4 billion (16.0 percent of GDP). Total
expenditures are projected at Ksh 3,913.5 billion (24.3 percent of GDP) with recurrent
expenditures projected at Ksh 2,687.2 billion (16.7 percent of GDP), development expenditures
are projected at Ksh 793.8 billion (4.9 percent of GDP) and an allocation of Ksh 2.8 billion to
Contingency Fund. Transfer to County Governments is projected at Ksh 429.7 billion (2.7
percent of GDP). The resulting fiscal deficit inclusive of grants of Ksh 863.8 billion (5.4 percent
of GDP) will be financed by a net external financing of Ksh 448.7 billion and a net domestic
financing of Ksh 415.1 billion (Annex Table 2 and 3).
B. Fiscal Policy for FY 2024/25 and Medium Term Budget
89. The fiscal policy stance in the FY 2024/25 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 designed
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 and ensure that Kenya’s development agenda honors the
principle of inter-generational equity.
90. Towards this end, emphasis will be placed on aggressive revenue mobilization through a
combination of tax administrative and tax policy reforms. In this regard, the Government will
implement the National Tax Policy which will guide taxation process in Kenya. The
Government will also finalize development of the Medium Term Revenue Strategy for the
period 2023/24 to 2026/27 which will provide a comprehensive framework for guiding tax
reforms in the medium term. Further, there is continuous effort to reform, modernize and
simplify tax laws and processes to enhance compliance and expand the tax base. The Kenya
Revenue Authority will continue to employ the use of technology to curb revenue leakages
including use of scanners; enhancements of iTax and Integrated Customs Management System
(iCMS); and full roll out of e-TIMS.
91. On the other hand, the Government will sustain efforts to improve efficiency in public
spending and ensure value for money by: eliminating non priority expenditures; rationalizing
44
tax expenditures; scaling up the use of Public Private Partnerships financing for commercially
viable projects; and rolling out an end-to-end e-procurement system.
92. The above reforms on the revenue and expenditure, will result in a gradual decline in the
overall fiscal deficit from 5.6 percent of GDP in FY 2022/23 to 5.4 percent of GDP in FY
2023/24 and projected at 4.4 percent of GDP in FY 2024/25 (Annex Table 2 and 3). This will
boost the country’s debt position and ensure the country’s development agenda is sustainably
funded.
FY 2024/25 Fiscal Projections
93. In the FY 2024/25 total revenue including Appropriation-in-Aid (A-i-A) is projected at
Ksh 3,407.8 billion (18.9 percent of GDP). Of this, ordinary revenue is projected at Ksh 2,918.9
billion (16.2 percent of GDP). This revenue performance will be underpinned by the on-going
reforms in policy and revenue administration. The overall expenditure and net lending is
projected at Ksh 4,257.3 billion (23.6 percent of GDP) comprising: recurrent expenditure of
Ksh 2,851.0 billion (15.8 percent of GDP); development expenditure of Ksh 957.3 billion (5.3
percent of GDP); transfer to Counties of Ksh 444.0 billion and Contingency Fund of Ksh 5.0
billion, respectively.
94. The resulting fiscal deficit of Ksh 800.2 billion (4.4 percent of GDP) in FY 2024/25 will
be financed by a net external financing of Ksh 296.5 billion (1.6 percent of GDP) and a net
domestic financing of Ksh 503.7 billion (2.8 percent of GDP).
Medium Term Fiscal Projections
95. Over the medium term, the Government’s total revenue including A-i-A is projected to
rise from 18.9 percent of GDP in the FY 2024/25 to 19.2 percent of GDP in FY 2025/26 and
further to 19.7 percent of GDP in the FY 2026/27. Total expenditure is projected at 23.6 percent
of GDP in the FY 2024/25; 23.1 percent of GDP in FY 2025/26 to ; and 23.3 percent of GDP
in the FY 2026/27. Of the total expenditures, recurrent expenditure is projected at 15.8 percent
of GDP in the FY 2024/25; 15.1 percent of GDP in the FY 2025/26 and 15.2 percent of GDP
in the FY 2026/27. Development and net lending expenditures are expected to remain stable at
around 5.0 percent of GDP over the medium term.
96. In line with the fiscal consolidation plan, the overall fiscal deficit is projected to decline
from 4.4 percent of GDP in the FY2024/25 to 3.7 percent of GDP in the FY 2025/26 and further
to 3.3 percent of GDP in the FY 2026/27 (Annex Table 2 and 3). This is intended to
significantly improve Kenya’s debt sustainability position.
C. FY 2024/25 and Medium-Term Budget Framework
97. The FY 2024/25 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. 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. Implementation of these priority
programmes aims at bringing down the cost of living; eradicating hunger; creating jobs; and
provide the greater majority of our citizens with much needed social security while expanding
the tax revenue base and improving foreign exchange balance.
98. To achieve the pillars, the Government will implement strategic interventions under the
following key enablers: Infrastructure; Manufacturing; Blue Economy; the Services Economy,
Environment and Climate Change; Education and Training; Women Agenda; Youth
45
Empowerment and Development Agenda; Social Protection; Sports, Culture and Arts; and
Governance.
Criteria for Resource Allocation
99. The resource allocation for the priority programmes will be developed 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 also ensures adequate resources are allocated to any
entity along the value chain and helps to eliminate duplication of roles and budgeting of
resources. Spending in these critical needs are 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.
100. Further, the MDAs will be encouraged to adopt efficiency in allocation of resources
through cost budgeting and reviewing the portfolio of externally funded projects. The MDAs
will also encouraged to restructure and re-align with the Government priority programmes.
Realization of these objectives will be achieved within the budget ceilings provided in this
BROP. 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;
vii. Cost effectiveness, efficiency and sustainability of the programme; and
viii. Requirements for furtherance and implementation of the Constitution.
101. Reflecting on the above, the Medium-Term Expenditure Framework provided in Table 18
and Annex Table 4 and 5 will guide resource allocation into the medium term.
102. To facilitate the finalization and approval of the 2023 BROP and other policy documents
within the stipulated timelines, MDAs are required to strictly undertake the activities outlined
in the Budget Calendar within the set timeframes. The Budget Calendar provided in Annex
Table 6 outlines the timeframes for delivery of policy documents, reports and relevant Bills.
46
Table 18: Medium Term Sector Ceilings, FY 2024/25 – FY 2026/27 (Ksh Million)
D. Public Participation and Involvement of Stakeholders

103. As required by the Public Finance Management (PFM) Act, 2012 this Budget Review and
Outlook Paper has been shared with various stakeholders and the public for comments before
its finalization. Specifically, the document has been reviewed and finalized during a retreat of
the Macro Working Group in Naivasha from 6th to 13th September, 2023 that brought together
36 Officers of the Macro Working Group from the following institutions: various Departments
of The National Treasury, the State Department of Economic Planning, the Central Bank of
Kenya, the Kenya Revenue Authority, the Kenya Institute of Public Policy Research Analysis
and the Commission on Revenue Allocation. Annex Table 8 provides a list of officers from the
Macro Working who attended the retreat. A summary of the comments received from the Macro
Working Group, various Stakeholders and the Public and the responses or actions taken are
summarized in Annex Table 9.
47
V. CONCLUSION AND NEXT STEPS
104. Global economic outlook remains uncertain reflecting the impact of the tightening of
monetary policy and escalation of geopolitical tensions particularly the ongoing war in Ukraine.
Consequently, the global growth is projected to slow down to 3.0 percent in 2023 and 2024
from 3.5 percent in 2022. Kenya’s economic performance is projected to remain strong and
resilient over the medium term. The economy recorded a strong growth of 5.3 percent in the
first quarter reflecting a strong recovery in agriculture sector and buoyant services sector
including financial and insurance, information and communication, wholesale and retail trade
and transport and storage. The economy is expected to remain strong and expand by 5.5 percent
in 2023 (5.6 percent in FY 2023/24) and 5.7 percent in 2024 (5.9 percent in FY 2024/25). The
growth outlook will be supported by broad-based private sector growth, resilient services sector,
the rebound in agriculture. The growth outlook will be reinforced by implementation of policies
and reforms under the priority sectors of the Bottom - Up Economic Transformation Agenda
geared towards economic turnaround and inclusive growth.
105. The fiscal performance in the FY 2022/23 was positive with total revenue collection
growing by 7.3 percent and amounting to Ksh 2,360.5 billion. This was a performance of 95.4
percent against the target. The positive growth in revenue was recorded in all tax revenue
categories, an indication of continued recovery in revenue collection. The implementation of
FY 2023/24 has started in earnest and we are looking forward to the smooth implementation of
planned programmes during the remainder of the financial year. Towards this end, the
Government will continue to pursue its growth friendly fiscal consolidation plan that will signal
debt sustainability and manageable fiscal gap. The plan will see a gradual decline in the fiscal
deficit from 5.4 percent of GDP in the FY 2023/24 to 4.4 percent of GDP in the FY 2024/25
and further to 3.6 percent of GDP in the FY 2026/27. This will be supported by enhanced
revenue mobilization, reprioritization and rationalization of expenditures but above all grow the
tax base through an appropriate tax regime. This will ultimately reduce public debt and create
fiscal space over the medium term to finance priority capital projects.
106. In the FY 2024/25 budget, all the spending units are expected to lay emphasis on the
priority programmes under the BETA by increasing investments in Agricultural Transformation
and Inclusive Growth; Micro, Small and Medium Enterprise (MSME); Housing and Settlement;
Healthcare; and Digital Superhighway and Creative Industry. The budgeting for the FY
2023/24, as stated in the 2023 Budget Policy Statement will strictly be through a value chain
under five clusters, namely, Finance and Production Economy; Infrastructure; Land and Natural
Resource; Social Sectors; and Governance and Public Administration. This will ensure
adequate resources are directed towards the nine value chains, namely, (i) Leather; (ii)Cotton;
(iii) Dairy; (iv) Edible Oils; (v) Tea; (vi) Rice; (vii) Blue Economy; (viii) Natural Resources
Including Minerals & Forestry); and (ix) Building Materials that are under implementation in
the FY 2023/24 budget.
107. Given the limited resources, the Sector Working Groups (SWGs) and Government
Ministries, Departments and Agencies (MDAs) are therefore directed to critically review,
evaluate and prioritize all budget allocations to strictly achieve the BETA priorities. The hard
sector ceilings provided for the FY 2024/25 budget and the Medium Term will form the basis
of allocations. The sector ceilings will guide the development of sector budget proposal which
will form inputs into the 2024 Budget Policy Statement
48
Annex Table 1: Macroeconomic Indicators for the FY 2021/22- 2027/28 Period
49
Annex Table 2: Government Operations for the FY 2021/22 - 2027/28 Period, Ksh Billion
50
Annex Table 3: Government Operations for the FY 2021/22 - 2027/28 Period (% of GDP)
51
Annex Table 4: Development Sector Ceilings for the FY 2024/25-2026/27 MTEF Period
(Ksh Million)
52
Annex Table 4: Development Sector Ceilings for the FY 2024/25-2026/27 MTEF Period
(Ksh Million)…Contd
53
Million)
54
Million)…Contd.
55
Annex Table 6: Budget Calendar for the FY 2024/25 Medium-Term Budget
Source: National Treasury
56
Annex Table 7: County Governments’ Fiscal Performance for FY 2022/23

57
Annex Table 8: Members of the Macro Working Group who attended the Retreat in Naivasha from September 6-13, 2023 to review and
finalize this 2023 Budget Review and Outlook Paper
S/No. Institution/ Department Name Designation
1 The National Treasury Macro & Fiscal Affairs 1. Mr. Musa Kathanje Director/ Macro & Fiscal Affairs
2. Mr. John Njera Director Planning
3. Mr. Johnson Mwangi Director Planning
4. Mr. Maurice Omete Senior Economist
5. Ms. Catherine Kalachia Senior Economist
6. Ms. Lucy Muraya Senior Economist
7. Ms. Geraldine Kyalo Senior Economist
8. Ms. Phyllis Muthoni Economist I
9. Mr. Thomas Kipyego Economist I
10. Ms. Ann Nyagah Economist II
11. Ms. Agnes Angwenyi Office Administrative Assistant
12. Ms. Beatrice Muriithi Principal Assistant Office
Administrator
13. Ms. Irene Asava Senior Assistant Office
Administrator
14. Ms. Jane Karanja Senior Assistant Office
Administrator
15. Ms. Jane Wanjiku Office Administrative Assistant
Intergovernmental Fiscal Relations 16. Ms. Elizabeth Nzioka Senior Deputy Director
17. Mr. Brian K. Cheruiyot Principal Economist
Debt Policy, Strategy and Risk Management 18. Mr Cleophas Kirwa Senior Debt Management Officer
Debt Recording and Settlement 19. Mr. Samuel Gitahi Economist I
Resource Mobilization 20. Ms. Khadija Swaleh Economist
Government Investment and Public Enterprises 21. Mr. Paul Kiagu Chief Economist
58
S/No. Institution/ Department Name Designation
Accounting Services 22.CPA Purity Mutheu Principal Accountant
Pensions 23. CPA Judith Nyakawa Senior Deputy Director
Public Private Partnerships 24. Mr. James Kimani Principal Economist
Finance Unit 25. Mr. Ambrose Ogango Senior Chief Finance Officer
2 State Department of Economic State Department of Economic Planning 26. Mr. Jackson Kiprono Principal Economist
Planning 27. Ms. Peninah Kawira Senior Economist
3 Central Bank of Kenya Central Bank of Kenya 28. Ms. Esther W. Kariuki Deputy Manager
29. Mr. Julius K. Bett Economist
4 Kenya Revenue Authority Kenya Revenue Authority 30. Ms. Jane Kanina Assistant Manager
31. Mr. Walter Mokaya Officer
5 Kenya National Bureau of Kenya National Bureau of Statistics 32. Mr. James Gekara Abuga Senior Manager
Statistics
6 Commission on Revenue Commission on Revenue Allocation 33. Ms. Lineth Oyugi Director/Economic Affairs
Allocation
7 Kenya Institute of Public Policy Kenya Institute of Public Policy, Research and 34. Mr. Benson Kiriga Senior Policy Analyst
and Research Analysis Analysis 35. Ms. Laureen Karima Policy Analyst
59
Annex Table 9: Summary of Comments Received from Stakeholders and Public on the 2023 BROP
POLICY AREA PARAGRAPH RECOMMENDATIONS RESPONSE/ACTION TAKEN
Fiscal 5 The National Government should set realistic revenue The revenue projections for FY 2022/23 were quite
Performance - targets. conservative. The below target performance was largely
Revenue and attributed to the uncertain operating environment related to
Expenditures the general elections and the negative impact of the geo-
politics that led to global economic slowdown and supply
chain disruptions.
6 Future upward adjustments in taxes more so The National Treasury is in the process of developing a
consumption taxes should be gradually implemented Medium Term Revenue Strategy that will will provide a
over the medium term. Even as the government comprehensive framework for guiding tax reforms for
institutes these measures in an effort to increase revenue boosting revenues and improving the tax system over the
collection, it is important that consideration is given so medium-term.
that these tax changes do not jeopardise the goal of
revenue maximisation due to their negative effects on
private consumption and investment
7 The 2023 BROP should have information of Paragraph 6 provides explanation for the below target
underperformance of all revenue streams. performance of the major tax heads. The reasons include:
decline in oil volumes, motor vehicle imports and deliveries
of domestic excisable goods; subdued growth in the
construction, transport and manufacturing sectors owing to
the high cost of inputs and increasing inflationary pressures.
11 Actual external grants in FY 2022/23 amounted to Ksh The external grants projections for FY 2023/24 and the
23.1 billion representing 55.4 percent of the revised medium term have been moderated in order not to interrupt
target of Ksh 41.7 billion. This led to a low programme implementation of planned development activities.
absorption for externally funded programmes. There is
need to provide more accurate budget projections for
the external grants to avoid a negative impact on
planned development activities.
12 In the FY 2022/23 recurrent expenditure grew by 7.9 The under-spending for the FY 2022/23 budget was both in
percent while development projects (net) contracted by recurrent and development budget and can partly be explained
60
11.7 percent. The Government should focus on growing by below target disbursements for externally funded projects
the development budget to accelerate economic and low revenue collection. To reverse this, the Government
development in the country. This can be achieved by will put in place appropriate measures to increase revenue
cutting down on recurrent expenditure and non-core collection, improve absorption of resources from
activities. development partners and explore alternative financing
strategies early in the financial year to ensure the budget is
fully funded. Consequently, development expenditure is
projected to grow from Ksh 793.8 billion (4.9 percent of GDP)
in FY 2023/24 to 1,390.8 billion (5.7 percent of GDP) in FY
2027/28.
14 The Ministerial AIA has not been disintegrated by each The Budget Review and Outlook Paper usually provides
ministry and state agencies. It is difficult to know how performance of broad revenue categories. A full breakdown
much each state agency contributed. Further, there is no of revenues including AIA is usually provided in the Budget
explanation on the under-collection of the Ministerial Policy Statement that is finalized in February of every year.
AIA and expenditure absorption.
Table 3 There were several MDAs whose percentage of total The over 100 percent expenditure was due MDAs committing
expenditure to target exceeded 100 percent and there is beyond their budgets.
no reasons behind such performance and the way
forward in the subsequent financial years. The BROP
should explain the reasons behind the over 100 percent
expenditure performance to the target and the measures
taken to address such occurrence in the current and
subsequent financial year.
Provisional expenditure under the Judiciary Fund in the This is noted and will be reviewed once the actual expenditure
FY 2022/23 has been captured. Please note that actual has been finalized and shared with the National Treasury.
expenditure shall be captured upon finalization of the
Financial Report which is currently under preparation
and is expected to be finalized by 30th September, 2023.
16 There were no funds allocated for Contingency Fund Table 4 shows that Contingency Fund was allocated Ksh 2.0
and there is no narrative to explain it. This allocation is billion in FY 2022/23. The resources were utilized to cater for
a requirement by law. The allocation would have come
61
in handy to help in unforeseen circumstances. The the additional expenditures arising from the unforeseen
allocation would have helped in the provision of circumstances in the Supplementary I and II expenditures
subsidies like fuel subsidies that would help cushion
Kenyans.
Fiscal 19 (i) In FY 2022/23 there was lapse in the fiscal discipline in The FY 2022/23 was a challenging year marked by the
Responsibility relation to the timely closure of the financial year and transition from the previous Administration to the current one.
Principles opening of the subsequent financial year. Even though The first half of the FY 2022/23 was marked by slow
these delays are supported with valid reasons, we implementation of programmes and projects due to
observe they affect budget implementation of the inadequate revenues. In part, revenue performance was
subsequent financial year. The Government should affected by the general slowdown of economic activities
ensure adherence to year-end procedures in line with the occasioned by the adverse impact of shocks that hit the
applicable circulars issued by the National Treasury. country. Going forward, the Government will endeavour to
ensure strict adherence to year-end procedures in line with the
applicable circulars issued by the National Treasury.
19 (iii) Section 15 (2) (C) of the PFM Act 2012 requires over Table 5 provides data on performance in relation to fiscal
the medium term, the National Government’s responsibility principles for two previous years – FY 2021/22
borrowing shall be used only for the purpose of and FY 2022/23. As required by the PFM Act, the Table
financing development expenditures and not recurrent. further provides projections for four outer years. In FY
To demonstrate this has been complied with, there is 2023/24, the allocation for development expenditure is 34.4
need to use the three financial years’ data rather the percent of ministerial Government expenditure and is
previous FY 2022/23 only. projected to remain above the 30 percent threshold over the
medium term.
19 (iv) Debt service to revenue and grant ratio is projected to To reduce debt vulnerabilities, the Government has
be at 65.9 as of June 2024 from 55.1 as of June 2023 committed to a fiscal consolidation program (by broadening
and is attributed to the maturity of the international the tax revenue base and minimizing non-priority
sovereign bond. Also, the debt service-to-revenue ratio expenditures) and optimising the financing mix in favour of
as indicated in table 6 is projected at 24.9 in June 2024 concessional borrowing to finance capital investments.
from 16.6 in 2023 an indication of high risk debt Additionally, a steady and strong inflow of remittances and a
distress. In line with the Section 15 of the PFM Act favourable outlook for exports will play a major role in
2012, the 2023 BROP should clearly state the cost of supporting external debt sustainability.
any additional debt to the country and put strategies in
62
place to reduce the high risk of debt distress in the
medium term.
County 21 There was no utilization of the Equalization Fund. The During the year under review, the Equalisation Fund loaded
Governments’ Constitution of Kenya Article 204 provides for the Ksh 3,009,998,064.6 into the IFMIS system to facilitate
Fiscal circumstances for the utilization of the Equalization utilisation of unspent balances by implementing Ministry
Performance Fund. This means that there are marginalized areas that Departmental Agencies (MDAs) to fast-track payment of
are yet that are yet to enjoy equality in services to the pending bills and completion of First Marginalization Policy
level generally enjoyed by the rest of the nation. projects in the 14 beneficiary counties as appropriated in the
Equalisation Fund Appropriation Act, 2018 which does not
lapse.
Ksh 10.4 billion being allocation for FY 2021/22 and FY
2022/23 was appropriated through the Equalisation Fund
Appropriation Bill 2023 which was approved and enacted on
30th June, 2023. The Equalisation Fund Appropriation Act,
2023 will be utilized for implementation of projects for
Second Marginalisation Policy which have commenced in the
34 beneficiary counties.
Table 9 Table 9 on County Government Sources of Revenue for Table 9 has been amended to include the Ksh 399.6 billion .
FY 2022/23. It is misleading for the table to present that A footnote has also been inserted to explain that the 399.6
the budgeted county revenue for the FY 2022/23 as Ksh billion includes Ksh 370 billion Equitable Share for FY
370 billion. This fails to consider that Ksh. 29.6 billion 2022/23 and Ksh 29.6 billion balances not disbursed in FY
from the FY 2021/22 had not been disbursed to the 2021/22.
counties. The correct budgeted county revenue for the
FY 2022/23 should therefore be, Ksh 399.6 billion
23 Analyse Table 10 to show the growth trends for the Table 10 has been updated to show the growth rates in both
County Governments in total transfers from the equitable share and total transfers to counties from FY
previous financial year. 2017/18 to 2022/23.
23 Government should ensure shareable revenue is The Government is committed to fulfil the requirement of
transferred in timely and predictable manner. Article 202 (1) and Article 202 (9) of the Constitution by
ensuring equitable share are disbursed in time.
63
26 The data provided by the County Government for OSR The National Treasury notes that a number of County
(Own Source Revenue) targets appears to lack realism. Governments reported revenue collection way below their
The Government should assist the County Governments target. This could be attributed to a number of factors such as
in establishing their OSR (Own Source Revenue) lack of proper revenue administration structures, revenue
targets. Government need to support County leakages, lack of internal controls or unrealistic revenue
Governments to improve their capacity and enhance targets.
their ability to generate their own source of revenue The National Treasury in collaboration with stakeholders will
undertake a number of reforms to assist the counties in
enhancing revenue collection. Some of the measures include:
establishment of a Multi-Agency Taskforce on Tax Analysis
and Revenue Forecasting with an aim of developing a tool for
OSR Analysis and Forecasting among County Governments;
review of existing legislations; and automation of revenue
collection and management.
In addition, the National Treasury is planning to build the
capacity of County Governments to generate statistics that
conform to the Government Finance Statistics 2014 Manual
beginning in FY 2023/24. This will strengthen the County
Government’s fiscal policy making including realistic
revenue forecasting.
Table 11 Table 11: OSR Growth Trends from FY 2020/21 to FY Table 10 has been amended to include two additional columns
(currently Table 2022/23. The Table contains discrepancies in Own to provide information on AIA and other revenues collection
10) Source Revenue collection for various counties for the by County Governments. The figures by all the counties have
FY 2021/22 and 2022/23. These discrepancies could be been harmonised to ensure uniform comparison in the
as a result of some counties classifying revenue from measurement of Own Source Revenue.
Facility Improvement Funds (FIF) as part of the Own
The figures as reported have been obtained from County
Source Revenue and others not doing so. This has led to Governments Budget Implementation Review Report for the
underreporting of the OSR growth rates for Counties. FY 2022/23 prepared by the Office of the Controller of
Budget.
64
Table 11 should be amended to include the A-i-A and The National Treasury will liaise with all stakeholders to
other revenues generated by the counties. provide a clear guidelines on how to report all the revenues
The reported revenue collection for FY 2022/23 does collected by County Governments
not include the amount collected under the Health
Services Fund. The proper way to reflect the County’s
Performance is either to restate the previous year’s
revenue by reducing the health component or
incorporate the Health Services Fund Collection in the
FY 2022/23
The National Treasury should convene a meeting of the
PFM Institutions to discuss and provide guidelines on
how to report revenues from health facilities for
uniform and fair comparison among all counties.
45 How will the Government make sure that Counties The PFM Act, 2012 require the County Treasury to allocate
comply with Section 107 (20 (b) of PFM Act, 2012. over the medium term a minimum of thirty percent of the
County Government’s budget to be allocated to the
development expenditure. County Governments are expected
to put in place measures to address adherence to the fiscal
responsibility principles.
The inability of County Governments to adhere adherence to
fiscal responsibility principles will be address by building
capacity to County Governments on planning, budgeting and
revenue forecasting; adherence to the disbursement schedule
on equitable share transfers by the National Government and
actualization of the ICRMS.
46 The Government should establish measures to ensure The Public Finance Management (County Government)
that the County's payroll expenses do not surpass 35 Regulations, 2015 requires that expenditure on wages and
percent of the overall revenue. benefits for public officers shall not exceed 35 percent of the
total revenues. This means that on average County
65
Governments spent 41.7 percent of their total revenue on
wages which is higher than the threshold of 35 percent
provided by the PFM Act, 2012.
The inability of County Governments to adhere adherence to
fiscal responsibility principles will be address by building
capacity to County Governments on planning, budgeting and
revenue forecasting; adherence to the disbursement schedule
on equitable share transfers by the National Government and
actualization of the ICRMS.
47 The 2023 BROP should report stock of pending bills Table 13 provides data on pending bills by County
accrued by the County Governments and efforts to clear Governments. As at 30th June, 2023, County Governments
pending bills. reported pending bills of Ksh 164.76 billion as stated by the
Controller of Budget. The County Executive reported a total
of Ksh 163.1 billion while the County Assemblies reported a
total of Ksh 1.7 billion as their pending bills. In order to
adequately provide solution to the pending bills issues, the
Government intends to conduct a comprehensive study to
determine the causes of pending bills by the County
Governments given that at the end of the financial year all
counties received 100% of their equitable share and most of
their conditional grants.
47 Information on Pending Bills by MDAs and SOEs This recommendation has been noted and the Government
should be included in the 2023 BROP and will consider incorporating information on pending bills by
corresponding measures put in place to address the MDAs and SOEs in subsequent budget documents.
accumulation of pending bills. MDAs and SOEs have
the highest proportion of pending bills compared to
County Government
Macroeconomic 52 Amend paragraph to reflect the reason why there is The paragraph has been rephrased to include aggressive
Developments increased uncertainty in the global financial market. monetary policy tightening in the advanced economies as a
And Outlook reason for global financial market uncertainty.
66
67 What is the impact of the introduced interest rate The interest rate corridor will facilitate alignment of the short
corridor? term rates with the Central Bank Rate (CBR), reduce volatility
in the interbank rate and improve monetary policy
transmission. The interest rate corridor is set at ± 250 basis
points around the CBR.
76 The 2023 BROP is silent on the effects of the The Kenyan foreign exchange market remained under
weakening Kenya Shilling exchange rate and its impact pressure as a result of the global shocks largely driven by
on the country’s foreign debt. The National Treasury aggressive monetary policy tightening in advanced economies
should disclose the effects of the weakening Shilling on in response to inflationary pressures which weighed on the
foreign currency back debt stock and the way forward exchange rate and increased risk of debt distress. However,
improvement in the current account, boosted by robust export
earnings and strong remittance inflows the will continue to
support stability in the foreign exchange market.
79 In explaining the supply side projected growth, there is Paragraph has been amended to read, “Services sector will be
omission in explaining growth in the service sector. supported by resilient activities in the financial and insurance,
Include a paragraph to explain the projected growth in information and communication, wholesale and retail trade
services sector. and transport and storage, among others. The easing of global
commodity prices and supply chain constraints coupled with
robust private sector investment are expected to support
domestic demand.”
Table 18 Inflation over the medium term is expected to return to Table 18 has been amended to show that inflation is expected
the Government target range of 5.0±2.5 percent. The to return to the Government’s target range of 5.0±2.5 percent.
Table 18 does not reflect that. This will be supported by muted demand pressures consistent
with prudent monetary policy and easing domestic and global
food prices. In addition, Government measures to support
sufficient supply of staple food items through zero rated
imports and lower the cost of production through the ongoing
fertilizer and seeds subsidy program will exact downward
pressure on inflation.
The projected real GDP growth numbers at a constant Growth projections from 2024 to 2027 have been revised
5.6% in 2024-2027 were too conservative given the upwards taking into account the ongoing interventions from
67
ongoing Government investments to support economic both the Government and the private sectors to support
activities. specific sectors of the economy.
The Government should highlight the key monetary Paragraph 82 – 84 provides the monetary policy stance of the
policies introduced by the Central Bank of Kenya and Government that is aimed at achieving price stability and
the expected outcome of the implementation of the providing adequate credit to support economic activity.
policies. Towards this end, the Central Bank has continued to
implement reforms to Modernize its Monetary Policy
Framework and Operations in Kenya, designed to enhance
monetary policy transmission. The Central Bank has also
introduced DhowCSD, an upgraded Central Securities
Depository infrastructure, that offers a simple, efficient, and
secure portal by the Central Bank of Kenya (CBK) to enable
the public to invest in Government of Kenya securities.
Medium Term Table 19 The table presents a no change in the ceilings for the Table 19 has been reviewed. The sector ceilings for energy,
Sector Ceilings energy, infrastructure and ICT for the FY 2023/24 and infrastructure and ICT is projected to rise by 8.7 billion from
2024/25. The energy, infrastructure and ICT contain Ksh 532.4 billion in FY 2023/24 to Ksh 541.1 billion in FY
two key core pillars under the Bottom-up Economic 2024/25. The allocation FY 2024/25 is equivalent to 21.2
Transformation Agenda (BETA). The two pillars percent of the total expenditure, indicating the significance
namely: Housing and Settlement and Digital that the Government has laid on the sector which key towards
Superhighway and Creative Industry are among those the achievement of the objectives of the Bottom-Up Economic
envisaged to have the largest impact to the economy as Transformation Agenda
well as on household welfare in the medium term.
The expectation is that the implementation of these two
pillars will have some budgetary implications which if
any need to be reflected in the medium-term sector
ceilings.
THE NATIONAL TREASURY AND ECONOMIC PLANNING
SEPTEMBER 2023
68
69

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REPUBLIC OF KENYA

THE NATIONAL TREASURY AND ECONOMIC PLANNING

2023 BUDGET REVIEW

To obtain copies of the document, please contact:

Public Relations Office

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

Following the various Government interventions and improvement in weather conditions

NJUGUNA S. NDUNG’U, CBS

DR. CHRIS KIPTOO, CBS

II. REVIEW OF FISCAL PERFORMANCE FOR THE FY 2022/23 ...... 13

III. MACROECONOMIC DEVELOPMENTS AND OUTLOOK ............ 31

IV. RESOURCE ALLOCATION FRAMEWORK...................................... 44

V. CONCLUSION AND NEXT STEPS ....................................................... 48

Annex Table 1: Macroeconomic Indicators for the FY 2021/22-27/28 Period.......................49

A-i-A Appropriation in Aid

Objective of the 2023 Budget Review and Outlook Paper

Source of Data: The National Treasury

1 The 27.7 percent is exclusive of Ministry of Defense and NIS

PV of debt–to-GDP ratio 40 27.8 29.5 30.5 29.4 28.0 27.1

PV of debt-to-exports ratio 180 228.3 220.4 210.8 195.6 181.7 170.3

Source: IMF Country Report No. 23/266-July 2023

Source of Data: National Treasury

Source of Data: Controller of Budget

Source of Data: Controller of Budget

Absorption rates of the Recurrent Expenditure

Source: Controller of Budget

Absorption rates of the Development Expenditure

Source: Controller of Budget

38. Analysis of development expenditure as a proportion of the development budget for FY

Source: Controller of Budget

Source of data: Controller of Budget

Source of Data: Controller of Budget

Source of Data: Controller of Budget

A. World Economic Outlook

B. Kenya’s Economic Performance and Outlook

Source of Data: Kenya National Bureau of Statistics

Source of Data: Kenya National Bureau of Statistics

Overall year-on-year inflation Overall average annual inflation

Monetary and Credit Developments

Source of Data: Central Bank of Kenya

Source of Data: Central Bank of Kenya

Interest Rates Developments

Source of Data: Central Bank of Kenya

Source of Data: Central Bank of Kenya

External Sector Developments

Source of Data: Central Bank of Kenya

Source of Data: Central Bank of Kenya

Foreign Exchange Reserves

Source of Data: Central Bank of Kenya

Exchange Rate Developments

Source of Data: Central Bank of Kenya

Capital Markets Developments

Source of Data: Nairobi Securities Exchange

Source: The National Treasury

D. Public Participation and Involvement of Stakeholders

Source: The National Treasury

Source: The National Treasury

Source: The National Treasury

Source: National Treasury