The Parliamentary Budget Office (PBO), in its report Budget Options for FY 2027/2028 and the Medium Term, identifies six priority areas for consideration in the upcoming budget and the medium-term expenditure framework.  

The recommendations come against a backdrop of constrained public finances. Government revenue in FY 2025/2026 fell KSh60.2 billion short of target, while interest payments totalled KSh1.07 trillion. Public debt stood at KSh13.1 trillion at the end of June 2026. Although economic growth remains relatively resilient, averaging 4.6% between 2017 and 2025, the PBO identifies declining productivity and subdued investment as constraints on stronger economic performance.  

The report projects average economic growth of 4.8% between 2026 and 2028 under the baseline scenario, compared with 5.0% under an alternative scenario incorporating the proposed interventions. It also emphasises that most proposed options can be implemented within existing resources, with quantified options totalling KSh9.85 billion in FY 2027/2028.  

Key Policy Priorities and Proposed Interventions  

The PBO identifies six areas for prioritisation:  

• Research and innovation: Progressively increase research and development expenditure from approximately 0.8% of GDP towards the national target of 2%. The proposals include allocating KSh2 billion annually to the National Research Fund, establishing a coordinated research and innovation infrastructure, and encouraging private-sector investment through incentives and public-private partnerships.  

• Affordable housing: Prioritise mortgage financing for affordable housing units, direct Tenant Purchase Schemes and deposit assistance to social housing, encourage cash purchases, and improve the Boma Yangu allocation process. These interventions are expected to be budget-neutral.  

• Lokichar–Lamu crude oil pipeline: Update the project’s feasibility and bankability assessments, revive regional commercial negotiations, and consider phased development with private-sector partners.  

• Workforce development and labour mobility: Expand Bilateral Labour Agreements, standardise pre-departure training, strengthen the National Employment Authority, and improve welfare and reintegration support for Kenyans working abroad. The proposed interventions are estimated to require KSh7.85 billion in FY 2027/2028.  

• Climate financing: Operationalise the carbon budget mechanism, strengthen the Kenya National Carbon Registry and local verification capacity, and clarify carbon market benefit-sharing arrangements, including the Government’s 30% share of carbon revenue.  

• Health system transition: Increase domestic financing as Kenya assumes greater responsibility under the Kenya–US Health Cooperation Framework. The existing commitment provides for additional domestic health expenditure of KSh20 billion in FY 2027/2028, rising to KSh35 billion in FY 2028/2029 and to KSh50 billion in FY 2029/2030.  

Business Considerations Ahead of FY 2027/2028  

The report highlights a budgetary environment in which attention should be paid not only to proposed sector allocations but also to the Government’s capacity to finance its expenditure commitments. The projected fiscal deficit of 6.2% of GDP, revenue shortfalls and rising recurrent expenditure indicate that fiscal pressures will remain a central consideration in the next budget cycle.  

The Government’s approach to revenue mobilisation, expenditure rationalisation and domestic borrowing will therefore be particularly important. The PBO projects modest revenue growth, supported by economic activity and an expanding tax base, without changes to tax rates. However, the underlying revenue shortfall and expenditure pressures mean that the Finance Bill and any proposed changes to tax administration, compliance requirements and revenue collection warrant close scrutiny. The report does not propose any new taxes.  

The proposed interventions also indicate the sectors likely to attract policy attention and potential public investment. Developments in research and technology, housing, energy, labour mobility, carbon markets and healthcare will be relevant to organisations operating in these areas. In particular, the emphasis on private-sector participation in research and the proposed revival of the Lokichar–Lamu pipeline warrant attention for public-private partnerships, infrastructure financing and related investments.  

The PBO also highlights the need for better project selection, timely release of funds and stronger public investment management. These considerations are relevant to public procurement, infrastructure delivery and organisations supplying goods and services to Government, particularly when project implementation and payment timelines affect commercial planning.  

Budget Process and the Upcoming Election Year  

The August 2027 General Election will advance the FY 2027/2028 budget calendar. The Budget Policy Statement is expected to be approved by mid-December 2026, with the Appropriations Bill and Finance Bill expected by the end of March 2027, rather than the usual end-of-June deadline. The compressed timeline reduces the time available for parliamentary scrutiny and public participation. Early engagement with the National Treasury, relevant ministries, regulators and parliamentary committees will therefore be important to ensure that sector concerns and proposed amendments are considered within the available consultation period.  

The early budget approval will also mean that expenditure and revenue projections are prepared using fewer months of FY 2026/2027 outturn data. The PBO consequently calls for prudent assumptions and continued monitoring as new fiscal data become available.  

The PBO’s proposals should be treated as indicative policy recommendations rather than as approved Government commitments. Their adoption and implementation will depend on the Government’s policy decisions, available fiscal resources and the final budget approved by Parliament. The Budget Policy Statement, sector-specific allocations and the Finance Bill will therefore be key instruments for assessing which proposals are taken forward and for determining the measures that will shape Kenya’s economic and regulatory environment ahead of the August 2027 General Election.