Report On Consideration Of The Expenditures Of The Consolidated Fund Services Under Supplementary Estimates I For Fy 25.26

REPUBLICOFKENYA THENATIONALASSEMBLY

THIRTEENTHPARLIAMENT (FIFTH SESSION)~2O26

THEPUBLICDEBTANDPRIVATIZATIONCOMMITTEE

REPORTONTHECONSIDERATIONOF THEEXPENDITURESOFTHE CONSOLIDATEDFUNDSERVICESUNDERTHEFIRSTSUPPLEMENTARY ESTIMATESFORTHEFINANCIALYEAR2025/26

APRIL 2026

H41h26

TABLEOFCONTENTS

| LISTOFACRONYMS&ABBREVIATIONS | LISTOFACRONYMS&ABBREVIATIONS | LISTOFACRONYMS&ABBREVIATIONS | |--------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------| | ANNEXURES. | ANNEXURES. | ANNEXURES. | | CHAIRPERSON'SFOREWORD 5 | CHAIRPERSON'SFOREWORD 5 | CHAIRPERSON'SFOREWORD 5 | | ACKNOWLEDGEMENTS. | ACKNOWLEDGEMENTS. | ACKNOWLEDGEMENTS. | | PREFACE | PREFACE | PREFACE | | a) | Establishment andMandateof the Committee. | 8 | | b) | MembershipoftheCommittee | 8 | | c) | CommitteeSecretariat... | | | d) | ParliamentaryBudgetOffice | | | 1) | INTRODUCTION... | 10 | | 2) THECONSOLIDATEDFUNDSERVICESEXPENDITURESANDTHESUPPLEMENTARY ESTIMATESNO.1FORFY2025/26 10 | 2) THECONSOLIDATEDFUNDSERVICESEXPENDITURESANDTHESUPPLEMENTARY ESTIMATESNO.1FORFY2025/26 10 | 2) THECONSOLIDATEDFUNDSERVICESEXPENDITURESANDTHESUPPLEMENTARY ESTIMATESNO.1FORFY2025/26 10 | | 2.1. PublicDebtServiceExpenditures. | 2.1. PublicDebtServiceExpenditures. | 11 | | 2.2. | 2.2. | PensionExpenditures.. 14 | | 2.3. | 2.3. | Salaries,Allowances&otherMiscellaneousExpenditures. 14 | | 3) | SUBMISSIONBYTHECONTROLLEROFBUDGET. 14 | SUBMISSIONBYTHECONTROLLEROFBUDGET. 14 | | 4) | SUBMISSIONBYTHECENTRALBANKOFKENYA 18 | SUBMISSIONBYTHECENTRALBANKOFKENYA 18 | | 5) | SUBMISSIONBYTHENATIONALTREASURY 20 | SUBMISSIONBYTHENATIONALTREASURY 20 | | 6) | COMMITTEEOBSERVATIONS 23 | COMMITTEEOBSERVATIONS 23 | | 7) | COMMITTEERECOMMENDATIONS. 24 | COMMITTEERECOMMENDATIONS. 24 |

LISTOFACRONYMS&ABBREVIATIONS

CBK

Central Bank ofKenya

CFS

ConsolidatedFundServices

GDP

GrossDomesticProduct

MDAs

Ministries,Departments andAgencies.

COB

Office of the Controller of Budget

PSSS

PublicServiceSuperannuationScheme

USD

UnitedStatesDollar

ANNEXURES

Annex1

Adoption Schedule

Annex2

Adoption Minutes

Annex3

StakeholderSubmissions

CHAIRPERSON'SFOREWORD

The consideration of Consolidated Fund Services underSupplementary Estimates No.I for FY 2025/26comes ata critical momentinKenya'sfiscalmanagement.The adjustments proposed under these Estimates reveal the growing pressure that statutory expenditures, particularly public debt service,continue to impose on the national budget. They also bring into sharper focus the challenge of preserving fiscal sustainability while maintaining the Government's capacity to finance essential public services and developmentpriorities.

In reviewing these Estimates,the Committee noted with concern the substantial increase in Consolidated Fund Services expenditure,largely driven by public debt service obligations. The revised projections confirm that debt service continues to absorb the Government's flexibility to respond to competing national priorities. Of particular concern is the rapid growth in debt redemptions, continued reliance on domestic borrowing to finance the fiscal deficit, and the implications this has for borrowing costs, refinancingrisk,and theoverall stabilityofthebudgetframework.

TheCommitteefurther observed that theSupplementaryEstimatesreflected awidening fiscal deficit and a corresponding increase in the public debt stock. This underscores the needforstrongerfiscal discipline,improved debtplanning,and morerigorousalignment between borrowing decisions, debt management operations, and the medium-term fiscal framework. While liability management operations may provide near-term relief, such interventions must be anchored in a coherent and transparent policy framework that supports not only immediate financing needs but alsomedium-and long-term debt sustainability.

TheCommitteealsotookcognizanceofbroader concerns arisingfromthemanagement of statutory obligations, including the adequacy ofbudget provisioningfor debt service, transparencyofdebtoperations,oversightimplications of off-budget and off-balance~ sheetfiscal commitments,and timeliness of pension disbursements.These issues go to the heart of public finance accountability and reinforce the need for stronger reporting, greater predictability in fiscal planning, and more effective parliamentary oversight over all obligations charged to the ConsolidatedFund.

Inundertaking this review,the Committeebenefitedfrom submissions by theNational Treasury,the Central Bank of Kenya,and the Office of the Controller of Budget. The Committee appreciates the cooperation of these institutions and acknowledges the value of theinformationandclarificationstheyprovided.TheCommitteealsorecognizesthe supportextendedbytheOfficeoftheSpeakeroftheNational AssemblyandtheOffice of the Clerk of the National Assembly in enabling it to effectively discharge its mandate.

ThisReport setsouttheCommittee'sfindings and recommendationsaimedat strengthening debt oversight,enhancing transparency and accountability in public borrowing, improving the management of Consolidated Fund Services, and safeguarding fiscal space for priority government programs.

OnbehalfofthePublicDebtandPrivatisationCommittee,andinaccordancewiththe Constitution ofKenya,thePublicFinance ManagementAct,and theStandingOrders of the National Assembly, I have the honour to present this Report on the Committee's consideration of theConsolidatedFundServicesunderSupplementaryEstimatesNo.I for FY2025/26.

Examination of the Consolidated Fund Service Expenditures (CFS), under Supplementary No. 1 Estimates for FY 2025/26.

The Committee examined the proposed changes to the Consolidated Fund Services (CFS) Expendituresinlinewith itsmandate andprepared thisreportfor considerationby the NationalAssembly.In reviewing the CFS expenditures,the Committee held meetingswith the Office of the Controller of Budget,the Central Bank of Kenya,and the National Treasury.

Key Recommendations

From the foregoing, the Committee recommends that the National and Economic Planning:

• 1.Expedites the development of theLiabilityManagementPolicy and submitsit to the NationalAssembly withinForty-Five(45)days.Thepolicy should ensure that all Liability Management Operations are undertaken in a manner that:
• i. Is in line with and supports a fiscal consolidation plan.
• ii. Expands thefiscal space.
• iii.
• iv. Contributestoa40percentreductionintotalpublicdebtservice obligationsoveraperiodof three(3)years.
• V. In addition to the use of commercial borrowing,consider an appropriatefinancingmixthatincludessemi-concessional loans and other concessional financing options in LMO transactions.

2. Enhances transparency and accountability by ensuring that all public debt, especiallydomesticdebt,isonboarded ontotheCommonwealthMeridianPublic Debt Management System within sixty (6o) days of the adoption of this Report.

• 3.S developing joint reporting standards with the Controller of Budget and the Central BankofKenyatotracktheutilizationofdomesticdebt.
• 4.Strengthens accountability and enhances the efficient and effectiveutilization of borrowed funds by issuing, within twenty (20) days of the adoption of this Report, guidelines and directives to all Ministries and State Departments (MDAs), within thirty (30) days after the close of each financialyear.Thereafter, the report should besubmitted to theNational Assemblyfor scrutiny.

5. Improves the timely disbursement of national government pension benefits to retiredcivilservantsby:

• ii. Ensuring that pensionersbenefits outstanding for morethan three(3) monthsshould bedisbursed within one(1)month of the adoption of this Report.Equally,that all future pension benefits should be disbursed within three (3) months ofbecoming due.
• iii. Developinga National GovernmentPensionPolicyStatement outliningthe framework for reporting on disbursement of pension benefits, including payment timelines, clearance of arrears, challenges and the roles and responsibilities of therelevant institutions.The statement should also establish astructured mechanismfor consultationwith representatives of serving and retired civil servantsin the design,review,and monitoring of pensionadministration.Thisstatementshouldbesubmitted totheNational Assembly within sixty (6o) days of the adoption of this Report.

ACKNOWLEDGEMENTS

TheCommitteeexpressesits appreciationto theOfficeoftheSpeaker of theNational Assembly and the Office of the Clerk of the National Assembly for the support provided in enabling it to discharge its mandate of reviewing the expenditures of the Consolidated Fund Services under Supplementary Estimates No. 1 for FY 2025/26. The Committee further conveys its sincere gratitude to the Central Bank of Kenya for its contribution, and totheNational Treasuryand the Officeof theControllerofBudgetforhonouringthe Committee's invitation and availing critical information.

Finally,theCommitteewould like tothanktheParliamentaryBudget Officeand the Directorate of Audit, Appropriations, and other Select Committees for the invaluable supportprovidedin thereviewof theConsolidatedFundServiceExpenditures and the finalization of thisreport.

It is therefore my pleasant undertaking, on behalf of the Public Debt and Privatization Committee,totable thisreport and recommend it for adoptionby thisNational Assembly.

SIGNED

HON.ABDISHURIE,CBS.MP. CHAIRPERSON,PUBLICDEBT&PRIVATIZATIONCOMMITTEE

APRIL

MoP

DATE

PREFACE

a)EstablishmentandMandateoftheCommittee

The powers of each House of Parliament to establish committees and to make Standing Ordersfor the orderly conduct of itsproceedings areprovidedfor underArticle124of the Constitution of Kenya,201o. To ensure effective oversight on matters concerning public debt, debt guarantees, public-private partnerships, and the privatization of national assets,the NationalAssemblyStanding Order 207Aestablishes thePublicDebt andPrivatization Committee,whichis tasked with specificmandates such as:

• i. Oversight of public debt and guarantees, pursuant to Article 214 of the Constitution;
• ii. ExaminemattersrelatingtodebtguaranteesbytheNationalgovernment;
• ii. Oversight ConsolidatedFundServicesexcludingaudited accounts;
• iv. Examinereportson thestatusoftheeconomyinrespectof thepublicdebt;
• V. Oversight of public-private partnership programs by the national government withrespectofthepublicdebt;and
• vi. Oversightprivatizationofnationalassets.

The Committee is therefore mandated,among other functions,to examine the ConsolidatedFundServiceExpenditures andproposerecommendationsto theHouse for adoption.

b)Membership of the Committee

following Members of Parliament:~

CHAIRPERSON

Hon.Abdi Shurie, CBS.MP. Balambala Constituency Jubilee Party

VICE-CHAIRPERSON Hon.Njoki Irene Mrembo, M.P Bahati Constituency

Hon.OmbokoMilembaM.P Emuhaya Constituency ANCParty

Hon.(Dr.) Irene Kasalu M.P Kitui County WiperParty

Hon.Kwenya, Thuku Zachary, M.P Kinangop Constituency Jubilee Party

Hon.Muiruri MuthamaStanley,M.P Lamu West Constituency Jubilee Party

Hon. Aden Daud, EBS, M.P WajirEastConstituency JubileeParty Jubilee Party Hon. (CPA) Suleka H. Harun. M.P NominatedMP UDM Party Hon. Kipkoros Joseph Makilap M.P Baringo North Constituency UDA Party Hon. Chege Njuguna M.P Kandara Constituency UDA Party Hon.AbdiAliAbdi,M.P Ijara Constituency NAP-K

Hon. Kirwa Abraham Kipsang, M.P Mosop Constituency UDA Party Hon.(Dr.) Daniel Manduku, M.P Nyaribari Masaba Constituency ODM Party Hon.BarongoNolfason Obadiah,M.P Bomachoge Borabu Constituency ODM Party

? CommitteeSecretariat

The Committee was supported by the following staff in the preparation of this report:

Mr.Chacha Machage SeniorFiscalAnalyst/HeadofSecretariat

Mr. Job Mugalavai Fiscal Analyst II/ Clerk Assistant

Mr.Timothy Chiko ResearchOfficerIII

Ms. Audrey Ogutu Legal Counsel II

Ms. Mwanasha Juma AssistantSerjeant-at-Arms

Mr.Yakub Ahmed Media Relations Officer III

Mr.Rehema Koech Audio Officer III

Mr.George Mbaluka Office Assistant

d) Parliamentary Budget Office

The Committee also received technical support from the following staff of the Parliamentary Budget Office:

FA (Dr.) Martin Masinde,OGW. Director,Parliamentary Budget Office (PBO)

Mr. Robert Nyaga SeniorDeputyDirector(PBO)

Ms.Julie Mwithiga Senior Fiscal Analyst

Hon. Letipila Dominic Eli, M.P Samburu North Constituency UDA Party

1) INTRODUCTION

• 1.TheSupplementaryEstimatesNo.1forFY2025/26weresubmitted to theNational AssemblybytheNationalTreasuryon3rdMarch2026pursuant toArticle223of the ConstitutionofKenya andSection 44of thePublicFinanceManagementAct,Cap. 412A.TheEstimatesincludeprovisions relatingto Consolidated Fund Services,which comprise statutory expenditures charged directly on the Consolidated Fund and, by theirnature,donot fallwithin the scope of theAppropriations1.These expenses include:
• i. Publicdebtservicingexpenditures;
• ii. Pension payments;
• iii. Salaryandallowancesforindependentofficesandconstitutional commissions; and,
• iv. Guaranteed debt payments,among other expenditures.
• 2.ThePublicDebt andPrivatizationCommitteeis thereforemandated toexamine the estimatesof the Consolidated Fund Service(CFS)Expendituresin accordancewith the National Assembly Standing Orders (S.O. 207A-1(c)), and table its report to the National Assembly (S.O.207A (4)).
• 3.ThisReport is organized as follows:Chapter Oneprovides the introduction and context of the review.Chapter TwoexaminestheConsolidated FundServices expendituresunderSupplementaryEstimatesNo.1forFY 2025/26,includingPublic DebtService,PensionExpenditures,and Salaries,Allowancesand otherMiscellaneous Expenditures.Chapters Three,Four and Five present the submissions by the Controller ofBudget,the CentralBankofKenya,and theNational Treasury,respectively.Chapter Six sets out the Committee's observations, while Chapter Seven contains the Committee'srecommendations.

2) THECONSOLIDATEDFUNDSERVICESEXPENDITURESANDTHE SUPPLEMENTARYESTIMATESNO.1FORFY2025/26

• 4.TheConsolidated FundServices (CFS)expenditures comprise of mandatory expendituresthatarecharged directlytotheConsolidated Fund asprovidedforunder the Constitution andvariousActs of Parliament.Theyinclude:a)public debtservicing expenditures, b) Pension payments, c) Salaries and allowances for holders of Constitutional and Independent Offices,and othermiscellaneous expenditures.
• 5.Consolidated Fund Services(CFS)expenditures forFY 2025/26areprojected atKshs. 2.58 trillion, representing an increase of Kshs.443.59 billion, or 23 percent,from Kshs.2.14 trillion in the FY 2025/26 Budget.This upward revision reverses the earlier expectationoffiscalreliefexpectedfromlowerCFS expendituresinFY 2025/26 compared to FY 2024/25.With this increase,CFSexpenditureswill remain thelargest and fastest-growing component of Government spending and are

• projected to continue rising steadily toKshs. 3.1 trillion by FY 2029/20302, spurred bypublicdebtserviceexpenditures.

6. The Supplementary I Estimates for FY 2025/26, Kshs. 2.58 trillion, CFS expenditures arebrokendownasfollows:

• Public debt service expenses-Kshs.1.9 trillion (91%);
• ii. Salaries,allowances&miscellaneousexpenditures-Kshs.4.7billion(o.2%).
• ii. Pensionexpenditure-Kshs.234.9billion(9%);and
• 7.Thisunderscores the need for a sustainable fiscal policy stance and prudent debt economicgrowthandjobcreation.

8. The Supplementary Estimates, prior to approval by the National Assembly, were based on anupwardrevision of totalrevenueprojectionsfromKshs.3.32trillion,equivalent to 17.2 per cent of GDP, to Kshs.3.39 trillion, equivalent to 17.9 per cent of GDP, alongside an increase in total expenditure from Kshs.4.27 trillion, or 22.2 per cent of GDP, toKshs.4.59 trillion,or 24.1 per cent of GDP. Consequently, the fiscal deficit widened from Kshs.901 billion, or 4.7 per cent of GDP, to Kshs. 1.154 trillion, or 6.1 percent of GDP3. The resultant effect is that the public debt stock is projected to increase by Kshs.1.154 trillion in FY 2025/26. This reflects a widening of the deficit, driven mainly by of expenditure growth, and signals a deviation from the fiscal deficit target for the year, with possible downside risk to the medium-term fiscal trajectory.

• 9.The fiscal deficit is expected tobe financed through a reduction in net foreign financingfromKshs.287.4 billion toKshs.229.8 billion,alongside an increase in net domestic financing from Kshs.613.5 billion toKshs.924.5 billion.This results in a marked shiftinthe composition of deficitfinancingtoward domesticsources,yielding a net external-to-domestic financing ratio of 20:80,respectively.Consequently,the growing reliance on domestic borrowing heightens the associated costs and risks, as reflected in this report.

2.1.PublicDebt Service Expenditures

• 10.Public debt service is projected to rise from Kshs.1.9 trillion in the Approved Budget to Kshs. 2.34 trillion under Supplementary Estimates No.1 for FY 2025/26, representing an increase of Kshs. 443.16 billion, or 23 per cent. As a result, public debtserviceconstitutesthelargestshareofConsolidatedFundServicesexpenditure undertheEstimates,accountingfor91percent.
• 11.Domesticdebtserviceisprojected toconstitute thelargest shareof total debt service expenditure at Kshs.1.43 trillion, or 61 per cent, while external debt service is projected at Kshs.916 billion, 0r 39 percent. This pattern highlights the rising cost of domesticborrowingrelativetoexternal borrowing.It reflectsthe continued reliance on domestic debt to finance fiscal operations, in contrast to external debt, which is

2SupplementaryEstimatesNo.1-FY2025/26

3NationalTreasurySubmission

• partly characterized by concessional and semi-concessional terms,including grace periodsandlongerrepaymentmaturities.
• 12.Under the Supplementary Estimates, public debt redemptions remain the principal driver of the increase in debt service expenditure, rising by Kshs.414.32 billion to Kshs.1.22trillion,comparedtoanincreaseofKshs.28.8billionininterestpayments to Kshs.1.13 trillion. This is mainly attributable to higher external debt redemptions, which have nearly doubled by Kshs.333.56 billion,or 98 per cent, from Kshs.340.19 billion in the Approved Budget to Kshs.673.76 billion in the Supplementary Estimates.
• 13.Overall, this trend points to increasing fiscal pressure in FY 2025/26 and highlights the need to recalibrate ongoing Liability Management Operations to achieve a more balancedfiscal relief acrossthe short,medium,and long-term.

a.DomesticDebtService

• 14.Domestic debt service is projected to increase by Kshs.113.09 billion,from Kshs.1.31 trillion toKshs.1.42 trillion under Supplementary Estimates No. I for FY 2025/26. Consequently, domestic debt service will remain the largest component of public debt expenditure, accounting for 61 per cent,and of Consolidated Fund Services expenditure,accounting for 55per cent. The increase in domestic debt service is driven by a rise in domestic debt redemptions of Kshs.80.75 billion, or 17 per cent, and an increase in interest payments of Kshs.32.34 billion. The projected increase in domestic interest payments is consistent with the current fiscal deficit financing strategy, which remains heavily reliant on domestic market borrowing.

i.DomesticDebtInterestPayments

• 15.Under the Supplementary Estimates, domestic interest payments are projected to rise from Kshs.851.42 billion in the Approved Budget to Kshs.883.42 billion, representing anetincreaseofKshs.32.34billion.Thisincreaseismainlyattributabletohigher interest payments on Treasury bonds, which are projected to increase by Kshs.27.18 billion, reflecting changes in interest obligations for Treasury bond instruments as the Government increasingly relies on medium to long-term domestic securities to moderaterefinancing risks associated with the domestic debt portfolio.
• 16.In addition, interest payments on Treasury bills are projected to record a net increase of Kshs.5.16 billion. This is attributable to an increase of Kshs.7.8 billion in Treasury bill interest payments, from Kshs.90.22 billion in the Approved Budget to Kshs.98.01 billion in the Supplementary Estimates. The increase is, however, partly offset by reductions of Kshs.2.51 billion in overdraft interest payments and Kshs.124.8 million ininterest onpre-1997Governmentborrowing.

ii.DomesticDebtRedemptionPayments

• 17.Domestic debt redemption expenditure under the Supplementary Estimates is projected at Kshs.544.26 billion, representing an increase of Kshs.80.75 billion from Kshs.463.51 billion.This increase is mainly attributable to theintroduction of a Kshs.6o billion provision for new loan redemptions and the inclusion of an infrastructurebond (IFB1/2023/7) amounting toKshs.42.65 billion.However, this increase is partly offset by lower redemption requirements in respect of the IMF on-

lent loan and the FXD1/2023/3 bond, following reductions of Kshs.2.5 billion and Kshs.19.4 billion, respectively.

b.External DebtService

• 18.The revised estimates for FY 2025/26 project external debt service expenditure at fromKshs.586.46billionintheApprovedEstimates.Thisupwardrevisioneffectively offsets thefiscal relief that had been anticipated at thebudget stage.
• 19.The increase is mainly driven by a rise in redemption expenditures of Kshs.333.57 billion, or 98 per cent, from Kshs.340.19 billion in the Approved Estimates for FY 2025/26 to Kshs.673 billion in the revised estimates, pointing to a concentration of principal repayments within the current financial year. This is largely attributable to debt obligations that ought to have been reflected in the original budget, including redemption costs relating to the 2018 International Sovereign Bond (UsD 2 billion), the 2019 International Sovereign Bond (USD 1.2 billion), and the 2018 International Sovereign Bond (USD 1 billion), which cumulatively amount to Kshs.141.35 billion.

i.ExternalDebtInterestExpenditures

• 20.External interest obligations are projected to decline on a net basis by Kshs.3.5 billion, from Kshs.246.27 billion in the Approved Estimates to Kshs.242.77billion in Supplementary Estimates No.I for FY 2025/26. The decline is mainly attributable to Kshs.22.12 billion to Kshs.11.06 billion, as well as lower provisions relating to loans from the IMF, China Development Bank, and the Export-Import Bank of China, among others.However,thisreduction is partlyoffset byincreased interest obligations arisingfromInternational SovereignBondsissuedin2025amountingto Kshs.14.09 billion, together with fees and commissions totaling Kshs.3.6 billion.

ii.ExternalDebtRedemptionExpenditures

• 21.TheSupplementaryEstimates reflectasubstantialincreaseinexternaldebt redemptions,underscoring the need to reassess the effectiveness of current liability management operations. External debt redemptions are projected to rise by Kshs.333.57 billion, 0r 98 per cent, from Kshs.340.19 billion in the Approved Budget toKshs.673.76 billion underSupplementaryEstimatesNo.I.
• 22.This change in the debt repayment profile points to growing fiscal pressure arising from continued reliance on commercial borrowing, particularly sovereign bonds characterized by large bullet repayments. The pressure is further compounded by the use of borrowing for both budget support and liability management operations, as the Government seeks to sustain expenditure levels amid rising debt service obligations andapersistentfiscaldeficit.
• 23.Theincreaseinexternaldebtredemptionexpendituresunder theSupplementary Estimates is largely attributable to debt obligations that were not captured in the originalFY2025/26Estimates.Theseincludethe2019InternationalSovereignBond (USD1.2 billion)amounting toKshs.43.85 billion,the 2018 International Sovereign Bond (USD 2 billion) amounting to Kshs.85.28 billion, and the 2018 International

Sovereign Bond (UsD 1 billion) amounting to Kshs.12.22 billion.The increase also reflects theinclusion of Kshs.135.70 billion in new loan redemptions and the upward revision of the TradeDevelopment Bank syndicated loanfromKshs.56.98billion to Kshs.115 billion.

2.2.PensionExpenditures

• 24.Pension expenditure is projected to remain unchanged at Kshs. 234.9 billion under SupplementaryEstimatesNo.IforFY 2025/26.However,thisincludes a reduction of Kshs. 3.97billion under Commuted Pension for Military Officers, which is offset by a correspondingincreaseofthesameamountunder thePublicServiceSuperannuation Scheme (PSSS).

2.3.Salaries, Allowances & other Miscellaneous Expenditures

• 25.A review of salaries,allowances and related expenditures shows that the allocation is projected to increase by Kshs.431.34 million, or 9 per cent,from Kshs.4.67billion to Kshs.5.o9 billion. This increase is mainly driven by the salary allocation to the Judicial Department, that rises fromKshs. 2.36 billion to Kshs.2.91 billion.There are no chargesincurred for guaranteed debt.

3) SUBMISSIONBYTHECONTROLLEROFBUDGET

Through their submissionbefore the Committee on30thMarch 2026, the Committee was informed that:

• 26.In the FY 2025/2026 budget, the Government, through the National Treasury, projected toraiseKshs.4.69 trillionfromvarious revenue and financingsources, comprising Tax Revenue of Kshs.2.63 trillion,Non-Tax Revenue of Kshs.127.65 billion,Domestic Borrowing of Kshs.1.1 trillion,External Loans and Grants of Kshs.569.81 billion, and other domestic financing amounting to Kshs.10.80 billion.
• 27.The Government further targeted toraiseKshs.672billionfromAppropriations in Aid (A-I-A), comprising Kshs.334.26 billion for ministerial Recurrent A-I-A and Kshs.337.74 billion for ministerial Development A-I-A.
• 28.ReceiptsintotheConsolidatedFundinthefirstsixmonthsofFY2025/26amounted to Kshs.2.17 trillion, representing 49 per cent of the annual target.
• 29.Consolidated Fund Services (CFS) expenditures comprise statutory obligations charged directly on the Consolidated Fund, and the approved CFS budget for FY 2025/2026 is Kshs.2.14 trillion, comprising Kshs.1,901.39 billion for Public Debt, Kshs.234.9 billion for Pensions and Gratuities, and Kshs.4.74 billion for Salaries and AllowancesforConstitutionalOfficeHoldersandMiscellaneousServices.
• 30.A review of the Draft Supplementary Estimates I for FY 2025/26 presented by the National Treasury for approval shows growth in CFS expenditure under Supplementary I, a slight decline in FY 2026/27,and growth again in FY 2027/28.
• 31.In the first six months of FY 2025/26, CFS expenditure amounted to Kshs.1.01 trillion, representing 47 per cent of the annual CFS estimates, with the increase in CFS

• payments over the period being mainly attributed to higher principal repayments on both external and domestic debt amounting toKshs.456.01 billion.
• 32.Debt servicing constituted the largest component of CFS expenditure, with total debt servicingcosts in thefirst sixmonths of thefinancial yearamounting toKshs.923.14 billion, comprising domestic debt service of Kshs.545.35 billion, representing 59 per cent (broken into Kshs. 183.67 billion in principal expenses and Kshs. 362.24 billion ininterest expense)
• 33.External debt service of Kshs. 377.24 billion, representing 41 per cent, comprising Kshs. 272.35 billion in principal payments and Kshs. 102.25 billion in interest payments,while Kshs. 548.73 million and Kshs.2.09 billion were incurred as commitmentfeesand othercharges,respectively.
• 34.Interest payments amounting toKshs.464.49 billion marginally exceeded principal repayments of Kshs. 456.01 billion,indicating that a significant share of public resources was directed towards servicing borrowing costs rather than reducing the debtstock;
• 35.Theincrease in CFSexpenditurewas drivenby several structural and macroeconomic factors, key among them the persistent year-on-year fiscal deficits, which had raised the public debt stock to approximately Kshs. 12.29 trillion as at the end of December 2025.
• 36.1nthefirstsix months of FY 2025/26,the National Treasury undertook a liability management operationtargetingtheUSD1BillionSovereignBondissuedin 2018 at 7.25 percent per annum and duein 2028,under which the Government spent a total of USD 657.9 million, equivalent to approximately Kshs. 86.2 billion, to buy back USD 628.4 million of the 2018 Eurobond due in 2028, comprising the principal amount of USD 628.4 million (Kshs. 82.3 billion), a premium of USD 23.57 million (Kshs.3.09billion),and accrued interest ofUSD5.89million(Kshs.0.77billion).
• 37.The high level of Consolidated Fund Services expenditure had significant implications forfiscal spaceand theimplementation oftheFY2025/2026budget,given that,with an allocation of approximately Kshs. 1.90 trillion, a substantial portion of Government resources was pre-committed to statutory obligations, particularly debt servicing, thereby limiting funds available for discretionary spending and reducing flexibility to reallocate resources in response to emerging priorities or economic shocks;
• 38.Continued reliance on borrowing to meet both budgetary needs and debt obligations reinforcedacycleofdebtaccumulation,therebyincreasingfuturefiscalpressure.
• 39.Overall, CFS expenditure significantly constrained fiscal space and undermined efficient implementation of the FY 2025/2026budget,thushighlighting the need for prudent debt management and fiscal discipline; and
• 40.Withregardtothestatusofdisbursementandutilizationofexternallyand domestically financedloans in FY 2025/26,totalexternalloan disbursements during thefirst sixmonths ofFY2025/2026 amounted to approximatelyKshs.240.5billion, while externalloan principal repayments stood at Kshs.272.35billion,and the net

changeindomesticdebtthroughTreasuryBillsandTreasuryBondsincreasedby Kshs.156.08 billion, reinforcing the continued reliance on domestic borrowing to financebudgetdeficits.

41.The structure of debt service payments reveals significant fiscal pressure.

• i. Debt Service Absorption:External principal repayments alone (Kshs.272.35 (Kshs.922.6 billion)
• ii. Interest Burden: Interest payments (Kshs.464.49 billion) account for 50.4 per cent of total debt service,indicating that half of debt payments are financing costs rather than debt reduction.

3. iii.

• iv. CommercialDebtRisk:Commercial loans accountforover90per cent of external disbursements, increasing exposure to higher interest rates and refinancing risk.

42.The current debt structure presents several operational challenges

• i. CashFlowStrain:Themismatchbetweenrevenuesanddebtrepayment obligations creates liquidity pressure,requiring careful cash planning to meet obligationsas theyfall due.
• ii. Refinancing Pressure/Liability management; Increased reliance on domestic borrowing and short-term instruments exposes the Government to frequent rolloversandinterestratevolatility.
• iii. Low Absorption Capacity; Slower disbursement of concessional loans where Bilateraldisbursed Kshs.6.0billion and MultilateralsKshs.31.9billion financing.
• iv. Rising Cost of Borrowing and Market Constraints; Recent liability management operations,including the buyback of Eurobonds,have been undertaken at ahigher cost,with newissuances attractingelevated coupon rates of 7.875 per cent and8.70 percent compared to7.25per cent and 8.00per centfortheretired bonds.Additionally,thepayment ofpremiums and accrued interest during buybacks imposes immediate fiscal costs.

5. 43.The allocationforPensions andGratuities inFY 2025/2026 amounted toKshs.234.90 billion,comparedtoKshs.223.15 billion allocated in FY 2024/2025,and was primarily composed of four key components, namely Ordinary Pension at Kshs.100.3 billion (42.7 per cent), Commuted Pension at Kshs.93.5 billion (39.8 per cent), the Pension Schemes at Kshs.6.6 billion (2.8 per cent). 6. 44.During thefirst six months of FY 2025/2026,total exchequer releasestoPensions and Gratuities amounted to Kshs.73.80 billion, representing 31 per cent of the annual

• budget estimates,while expenditure amounted toKshs.82.27billion,translating to an overallbudget absorptionrateof35percent.
• 45.ThePublicFinanceManagementframeworkrequires thatshort-termborrowingbe restricted tocashflowmanagement and,in thecaseofabankoverdraftfacility,that suchborrowingshould not exceedfivepercentofthemostrecent audited national governmentrevenue.
• 46.The Government overdraftfacilityattheCentralBankofKenya ispriced in linewith the prevailing Central Bank Rate (CBR),as determined under the CBK's monetary policyframework,whilethedeclinein overdraft interest paymentsduring the reporting period, compared to a similar period in FY 2024/25,was mainly attributed to the implementation of the Treasury Single Account (TsA) system that commenced inJuly2025 and thereductionin CBKinterest ratesfrom11.25percentinDecember 2024to9per cent inDecember 2025.

47.TheControlleroftheBudgetrecommended that:

• i. Tostrengthenfiscalconsolidation toaddresspersistentdeficits:The Governmentshouldimplementacrediblefiscal consolidationstrategywith aclear roadmapand measurablemilestonestoreducepersistentfiscal deficitsthroughenhanceddomesticrevenuemobilization,rationalizationof recurrentexpenditure,and optimal budgeting.This will reduce reliance on borrowing and ease pressure from the Consolidated Fund Services (CFS).
• ii. Torebalance thedebtportfoliotowardsconcessionalfinancing:Tolower debt servicing costs and reduce exposure to interest rate risk, there is an urgent need to prioritize concessional borrowing overexpensive commercial and domesticdebt.Credible cost-benefit analysesmustbeundertaken to informborrowingdecisions.
• ii. Tolengthendebtmaturityprofileandreducerefinancingrisk:Whereasthe government hasbeenactive in restricting external debt,especially the sovereignbonds throughliability management operations,thereis aneed to further focus on restructuring the entire debt portfolio by extending the maturityofdomesticdebtinstrumentsandreducingrelianceonshort-term borrowing. This will mitigate refinancing pressures and smooth the debt service obligations.
• iv. To enhance efficiency in utilization of borrowedfunds:Tomaximize the developmentalimpact ofborrowing,theGovernment shouldstrengthen project planning, procurement, and implementation frameworks, particularly forexternally financed projects, to improve absorption rates and ensurethatborrowedfundstranslateintoproductiveinvestments.Further, reporting.
• V. Tostrengthen transparency,accountability,and institutional frameworks: There is a need to enhance transparency and accountability in public debt management by establishing a comprehensive, regularly updated public debt

register,coupledwithgreaterdisclosureoftheutilizationofborrowedfunds. Theformation of an inter-agency oversight mechanism—bringing together keyinstitutionssuchastheCentralBankandtheControllerofBudget wouldfurther strengthen scrutiny over debt acquisition and utilization.The introductionoftheCommonwealthMeridiansoftwareforrecordingdebtis astepintherightdirection.

SUBMISSIONBYTHECENTRALBANKOFKENYA

Through the submission dated 27th March 2026, the Committee was informed that:

• 48.The Central Bank of Kenya is the principal agent in the issuance of domestic debt, namely Treasury Bills and Treasury Bonds,and that domestic borrowing constitutes more than 30 percent of total Exchequer receipts, with the related interest payments
• 49.The Bank also undertakes external debt service payments on behalf of the Government, which, comprising both principal and interest, account for about 35 percentoftotalCFSexpenditures.
• 50.Under the supplementary budget, total CFS expenditure increased by Kshs. 443.6 billion, mainly due to increases in foreign redemptions of Kshs. 333.6 billion and domesticredemptionsofKshs.8o.7billion.
• 51.Foreign redemptions include Kshs.144.4 billion relating to Liability Management Operations,including accrued interest,the October 2025 buyback of UsD 628.4 million of the 2028 notes, and the February 2026 buyback of USD 415.4 million of the2028and2032notes.
• 52.The Liability Management Operations have mitigated near-term refinancing risks by smoothing the debt maturity profile, while surplus proceeds from the new Eurobond issuances have strengthened foreign exchange reserves, supported stability of the Kenya shilling, and signaled renewed investor confidence in the fiscal trajectory.
• 53.Debt service is projected to account for 84.2 per cent of ordinary revenues in FY 2025/26, representing an increase of 15.2 percentage points from 69.0 per cent in the original budget, thereby implying that debt service will absorb the largest share of revenues and further constrain fiscal space for other expenditure items, including developmentexpenditure.
• 54.Debt service is also expected to account for more than half of total government expenditure in FY 2025/26, reflecting the rising cost of both domestic and external debt.
• 55.The continued increase in CFS expenditures poses a risk to the Government's intended growth-oriented fiscal consolidation strategy, which is anchored on the progressive reduction of the fiscal deficit through enhanced domestic revenue mobilization and expenditurerationalizationwhilesafeguardingessentialexpenditures.
• 56.The domestic market financing continues to support increasing budgetary requirements, underpinned by close coordination between the National Treasury and

• the Central Bank of Kenya,including joint planning on the issuance of Treasury securities in terms of timing,instrument mix,and auction sizes, so as to enhance predictability and maintain stable investor expectations, while liability management operations have supported the smoothing of the maturity profile, reduced refinancing risks, eased near-term fiscal pressures, and contributed to stability in the foreign exchangemarket.
• 57.AdditionalsupporttoGovernmentfinancinghasbeenderivedfromastableand diversified investor base, an appropriate mix of instruments for managing cost and risk,and the strongperformance of Treasurybond and Treasurybillauctions,which have continued to mitigate rollover risks,while improvements in market access and efficiency, particularly through the DhowCsD, have further strengthened the Governmentsecuritiesmarket.
• 58.Going forward,the role of the Central Bank of Kenya will remain critical in supporting Government financing,particularly in light of the revised domestic borrowing requirement of Kshs. 924.5 billion,equivalent to 4.7 per cent of GDP,and that continued coordinationwiththeNational Treasury,activeliquiditymanagement, and sustainedmarketdevelopmenteffortswillbenecessary tosecure cost-effective financing, preserve market confidence, and safeguard macro-financial stability.
• 59.The Government overdraft facility at the Central Bank of Kenyais intended toprovide temporaryaccommodationbyoffsettingfluctuationsbetweenreceiptsfrombudgeted revenue and payments,pursuant to Section 46(1)(3) of the Central Bank of Kenya Act, and is capped at 5 per cent of the gross recurrent revenue based on the Government'spreviousyear's audited accounts,while attracting amonthlyinterest balance and charged on a monthly basis.
• 60.Utilizationoftheoverdraftfacilityhas consistentlyremainedwithintheprescribed limit, thereby implying that there has been no disruption to normal market operations, and that as at the end of February 2026,the limit stood at Kshs.121.7 billion,against utilization ofKshs.63.6billion,representing52.3per cent
• 61.TheFY2025/26macroeconomic outlookremainsbroadlyfavorable,withrealGDP growth projected at 5.1 per cent, supported by recovery in agriculture and resilient performance in the services sector,while inflation remained within the medium-term target range, with headline inflation standing at 4.3 per cent as at end-February 2026, downfrom 4.6 per cent in August and September 2025.
• 62.Under Supplementary Estimates No.I,the fiscal outlook had shifted as higher expenditure widened thefiscal deficit to 6.1 percent of GDP, up from 4.7 percent in the Budget, and that although fiscal policy remains anchored on medium-term consolidation,thepaceof adjustmentin theneartermhasslowed.
• 63.Theoutlookremainssubjecttoelevated risks,particularly those arisingfrom the escalationofthewarinvolvingIranand thewiderMiddleEast,theongoingconflicts in Ukraine and Latin America,and the impact of protectionist policies by the United

• Statesontheglobaltradingenvironment,allofwhich could have adverseimplications forgrowth,inflation,andfiscaldevelopments.
• 64.The revised fiscal position implies higher borrowing requirements and, consequently, anincrease inthepublic debt stock,with the result that the present value ofpublic debtis expected toremain above the55percent anchor,althoughitisprojected to decline gradually over the medium term.
• 65.To effectively manage CFS expenditures and bolster long-term fiscal stability, the Governmentshould:

1. Sustain ongoing fiscal consolidation to narrow the primary deficit and containthegrowthofdebt-servicecosts.

• ii. Diversifyinvestmentfinancingthroughnon-debt-creatingfinancing models, specifically PPPs to fund critical public infrastructure.
• iii. Continued implementation of activeliability management strategy to smooth the maturity profile and mitigate refinancing risks in response to evolving marketconditions.
• iv. Prioritize concessional external financing to alleviate pressure on domestic
• V. Fully leverage the DhowCsD platform to improve liquidity forecasting, deepen the interbank and repo markets,and stabilize domesticborrowing cycles.
• vi. Fast track the operationalize the Treasury Single Account (TsA) to optimize

5) SUBMISSIONBYTHENATIONALTREASURY

The Committee was informed by the National Treasury, during its appearance before the Committeeon31stMarch2026,that:

• 66.Based on the fiscal performance in FY 2025/26, which has been marked by higherand Personnel Costs, support to education through the Higher Education Loans Board financed projects in critical sector.
• 67.The fiscal framework underpinning the FY 2025/26 Supplementary Estimates No. 1 provides that revenues are projected at Kshs. 3,392.3 billion or 17.9 per cent of GDP, up from Kshs. 3,321.7 billion or 17.2 per cent of GDPin the original Budget Estimates; expenditures are projected at Kshs.4,586.5billion or 24.1 per cent of GDP,up from the approved Budget Estimates of Kshs.4,269.9 billion or 22.2 per cent of GDP; and the fiscal deficit, including grants, for FY 2025/26 is projected at Kshs. 1,154.3 billion or 6.1 per cent of GDP, up from Kshs. 901.0 billion or 4.7 per cent of GDP in the Budget Estimates.

• 68.The projected fiscal deficit is expected tobefinanced through net domesticfinancing of Kshs. 924.5 billion and net foreign financing of Kshs. 229.8 billion.
• 69.TheSupplementaryBudget waspreparedagainst arapidlyevolvingglobal environment arisingfromtheongoingwarin theMiddleEast,whichhasheightened disruptions to energy markets, trade, and financial stability.
• 70.There are alsodomestic risks that could affect revenue performance,increase expenditure pressures,and worsen public debt sustainability,including slower economic growth, public debt vulnerabilities arising from exchange rate fluctuations, high pending bills, elevated wage expenditures, and climate-related shocks, and that, tomanage theserisks,the Governmentwould continuetomonitor developments in the Middle East and take appropriate response measures to cushion the economy.
• 71.Total Consolidated Fund Services expenditure under Supplementary Estimates I for FY 2025/26 amounts to Kshs. 2,584.62 billion, comprising projected public debt expenditure of Kshs.2,344.55 billion,pension costs of Kshs.234.90 billion, salaries for Constitutional and Independent Office holders of Kshs. 5.1o billion,and MiscellaneousServices ofKshs.O.o7billion.
• 72.The CFS interest andredemptionprojectionsunder Supplementary EstimatesI were based on updated macroeconomic assumptions,actual debt stock movements,and realized exchange rate outcomes, with the key assumptions being that the CBK overdraftfacilitywouldbefully utilized up toits maximum ceilingofKshs.121.67 billion at an interest rate of 8.75per cent; theinterest rate applied on pre-1997 Government debtwould be 3 per cent per annum on areducing balance; the91-day Treasurybill rateforFY2025/26SupplementaryEstimatesIwas assumed at7.87per cent; and the net domestic borrowing of Kshs.924.5 billion under FY 2025/26 SupplementaryEstimatesIwasexpected toberaised throughTreasurybondswith5year,10-year,15-year,20-yearand25-yeartenors.
• 73.The interest rate applied to each loan was the specific contracted rate for the respectiveloan,aseachfacilitycarriesitsowninterestrateasprovidedforinthe relevantloanagreement.
• 74.TheNationalTreasuryassumedanaverageannualdepreciationofapproximately5 per cent of theKenya shilling against all foreign currencies over the periodfrom FY 2025/26toFY2031/32,whileaninterestrateofapproximately10percentper annumwas assumedforproposed commercialloans,inlinewithprevailingmarket conditions.
• 75.CFSexpenditureswere projected toincreasefromKshs.2,141.03billion in thePrinted Estimates to Kshs. 2,584.62 billion in Supplementary Estimates I, representing an increase of Kshs. 443.59 billion;
• 76.This trend underscored theurgency offiscal consolidation throughmeasuressuch as enhanced revenue mobilization,expenditure rationalization, strengthened expenditurecontrols,and activedebtmanagement.

• 77.Domestic debt service comprises interest on Treasury Bonds, Treasury Bills, the Central Bank of Kenya overdraft facility,pre-1997 debt,and the redemption of maturingdomesticTreasurybonds.
• 78.Net domestic borrowing for FY 2025/26 was projected at Kshs. 634.75 billion in the PrintedEstimates andwasrevisedupwards toKshs.924.5billioninSupplementary pressure on projected domestic interest payments, particularly on Treasury bonds.
• 79.Domestic debt redemptions under Supplementary Estimates I amount to Kshs.544.26 billion, representing an increase of Kshs. 80.75 billion, or 17.4 per cent, from the Printed Estimates of Kshs.463.51 billion, mainly on account of FXD1/2023/3 domesticbond buyback and a newliability management provision of Kshs.60billion, alongside an IMF on-lent loan downward revision of Kshs. 2.5 billion.
• 80.External debt service, comprising interest and redemptions, increased from Kshs. 586.46billion in thePrintedEstimates toKshs.916.53billion inSupplementary Estimates I, with the increase in redemptions arising from liability management operations, a proposed debt swap provision of USD 1,ooo million, equivalent to approximatelyKshs.135billion,and theTradeDevelopmentBanksyndicated loan of Kshs. 58.o2 billion,while the reduction in interest payments was attributed to currency conversion undertaken through the conversion ofsomeUsD-denominated loansintoYuan-denominated terms.
• 81.The National Treasury had concluded liability management operations under which, in October 2025,proceedsfrom aUsD1.5billionInternational SovereignBond issuancewere used tobuy backUSD628million,equivalent to approximatelyKshs. 85.5 billion,of the 2028 International Sovereign Bond, thereby reducing the outstandingbalancefromUSD1billiontoUSD372million,whileinFebruary2026, the National Treasury returned to theinternational capital markets with a UsD 2.25 billion dual-tranche Eurobond, the proceeds of which were used to buy back USD 90.5millionofthe2028ISBandUSD324millionofthe2032ISB,reducingthe
• 82.The completed liability management operations had resulted in reduced refinancing risk,improvement in the debt profile,a positive market confidence signal, and nearterm costs in exchange for long-term benefit, and that the National Treasury was planning gadebt swap ofapproximately USD1,000 )million; xvi.thebudget allocationforSalaries andAllowancesfor ConstitutionalOffice holders was projected at Kshs. 5,097.04 million, representing an increase of Kshs. 431.33 million from the Approved Budget Estimates of Kshs. 4,665.71 million.
• 83.Pensions expenditure remained unchanged between the Printed Estimates and Supplementary Estimates I at Kshs. 234.90 billion.

6) COMMITTEEOBSERVATIONS

• 84.Arisingfrom the consideration of theestimates and submissionsfromstakeholders, theCommitteemadethefollowingpertinentobservations,THAT:
• 1.The Supplementary EstimatesNo.I for FY 2025/26 indicate that recourse to Article223has contributed to awidening of thefiscal deficit fromKshs.901 billion,equivalent to 4.7 percent of GDP,in the Approved Budget toKshs.1.154 trillion, equivalent to 6.1 per cent of GDP, under the Supplementary Estimates. Thisexpansionislargely attributable to expendituregrowthexceedingrevenue growth and implies a corresponding increase in the public debt stock by Kshs. 1.154 trillion.

2. The deviation from the fiscal deficit target, initially set at 4.3 per cent of GDP under the approved Medium-Term Debt Management Strategy for FY 2025/26, underscorestheneed for stronger fiscal discipline,more credible revenue and expenditure forecasting, and firmer adherence to the medium-term fiscal framework. 3. The deficit financing mix for the Supplementary Estimates remains in favor of domestic borrowing, with net domestic financing increasing from Kshs. 613.5 billion to Kshs. 924.5 billion, while net foreign financing declines from Kshs. 287.4billiontoKshs.229.8billion.Thisresultsin anexternal-to-domesticdeficit financing ratio of 20:80, thereby increasing exposure to the associated domestic debtcostsandrisks.

• 4.Consolidated Fund Services expenditure under Supplementary Estimates No.I for FY 2025/26hasincreasedfromKshs.2.14trillion intheApprovedBudget to Kshs. 2.58 trillion, representing an increase of Kshs. 443.59 billion, or 21 per cent.Thisupwardrevisionhas erodedthefiscalreliefthathadbeenanticipated betweenFY2024/25andFY2025/26andconfirmsthatmandatoryand statutoryexpenditurescontinuetoconstitutethelargestcomponentof Governmentexpenditure,relativetobothministerialrecurrentanddevelopment limiting fiscal space for productive budgetary expenditures.

5. The increase in Consolidated Fund Services expenditure signals heightened fiscal pressure in FY 2025/26 and underscores the need torecalibrate ongoingLiability ManagementOperations to achieve amorebalanced cost-riskprofile andfiscal relief over the short, medium, and long term. Such operations should be aligned toa fiscal consolidation plan,structured to support sectors that are critical to economicgrowth,andanchoredonamorediversifiedfinancingstrategythat reduces overreliance onsovereigncommercialborrowingthrough an appropriate mix of concessional and semi-concessional financing.

• 6.Publicdebtservicecontinuestoconstitutethelargestcomponentof Consolidated Fund Services expenditure, accounting for 91 per cent of total CFS expenditure underSupplementary EstimatesNo. I. The allocation hasincreased from Kshs.1.9 trillion in the Approved Budget to Kshs. 2.34 trillion, representing an increase of

• Kshs. 443.16 billion,or 23 per cent, mainly driven by higher redemption expenditures. This trend further compresses fiscal space and underscores the need to enhance the efficiency and productivity of loan utilization by MDAs.

7. Domestic debt service remains the largest component of the total public debt service expenditures - at Kshs.1.43 trillion (61 percent),compared to external debt service at Kshs. 916 billion, (39 percent).This underscores the persistently high cost of domestic borrowing relative to external financing. However, the increaseinConsolidatedFundServicesexpenditureunder theSupplementary Estimates is driven mainly by external debt service,which rises by Kshs. 330.07 billion, compared to an increase of Kshs.113.09billion in domestic debt service expenditure. 8. The rise in off-budget fiscal obligations raises significant transparency and accountability concerns, particularly where such expenditures bypass the ConsolidatedFundandarethereforenotsubjectedtothefulloversight frameworkoftheControllerofBudget.Intheabsenceofcomprehensive disclosure and reporting to the National Assembly, such arrangements may weakenlegislativeoversight.

• 9.Thelow level of pension disbursement,notwithstanding the importance of pensions as a key social protection and income support mechanism for retired public officers, points to weaknesses in budget execution and expenditure management that canhave adverse effect thewelfareofpensioners afteryears of public service. Disbursement of pensions, similar to salaries and allowances, should be a matter for prioritization.

7)COMMITTEERECOMMENDATIONS

• 85.TheCommitteethereforerecommendsthattheNationalTreasuryandEconomic Planning:
• 1.Expedites thedevelopmentoftheLiabilityManagementPolicy andsubmitsit to the National Assembly within Forty-Five (45) days. The policy should ensure that all LiabilityManagement Operations are undertaken in a manner that:
• i. Is in line with and supports a fiscal consolidation plan.
• ii. Expandsthefiscalspace.
• iii. Supports sectors necessary for economic growth.
• iv. Contributestoa40percentreductionintotalpublicdebtservice obligationsover aperiodof three(3)years.
• V. In addition tothe use of commercial borrowing,consider an appropriatefinancingmix thatincludessemi-concessional loansand other concessionalfinancing options inLMO transactions.

2. Enhances transparency and accountability by ensuring that all public debt, especiallydomesticdebt,isonboardedontotheCommonwealthMeridianPublic Debt Management System within sixty (6o) days of the adoption of this Report.

3. Strengthens the acquisition, application, and oversight of domestic borrowing by developing joint reporting standards with the Controller of Budget and the Central BankofKenyatotracktheutilizationofdomesticdebt. 2. 4.Strengthens accountability and enhances the efficient and effectiveutilization of borrowed funds by issuing, within twenty (20) days of the adoption of this Report, guidelines and directives to all Ministries and State Departments (MDAs), requiring them toprepare annualreports on the efficiencyof loan utilization within thirty (30) days after the close of each financialyear.Thereafter,the report shouldbe submitted to theNational Assemblyfor scrutiny. 3. 5.1 Improvesthetimelydisbursementofnationalgovernmentpensionbenefits to retiredcivilservantsby:

• i. Ensuring that pensionersbenefits outstanding for more than three(3) monthsshould bedisbursedwithin one(1)monthof theadoptionof this Report.Equally,thatallfuturepensionbenefitsshould bedisbursedwithin three(3)months ofbecomingdue.
• ii. DevelopingaNational GovernmentPensionPolicyStatementoutlining the framework for reporting on disbursement of pension benefits, including payment timelines, clearance of arrears, challenges and the roles and responsibilities oftherelevant institutions.Thestatementshould also establishastructuredmechanismforconsultationwithrepresentatives of serving and retired civil servants inthe design,review,and monitoringof pension administration.Thestatementshouldbesubmitted to theNational Assemblywithinsixty(6o)daysoftheadoptionofthisReport.

SIGNED

HON.ABDISHURIE,CBS.MP. CHAIRPERSON,PUBLICDEBT&PRIVATIZATIONCOMMITTEE

REPUBLICOFKENYA

13THPARLIAMENT NATIONALASSEMBLY-FIFTHSESSION-2026

PUBLICDEBTANDPRIVATIZATIONCOMMITTEEMEMBERS. ADOPTIONSCHEDULE

REPORTONTHECONSIDERATIONOFTHEEXPENDITURESOF THE CONSOLIDATED FUND SERVICES UNDER THE FIRST SUPPLEMENTARYESTIMATESFORTHEFINANCIALYEAR2025/26

3l.l aOb.. TIMEIO:s. Am. 七酉 DATE.2 SITTING

VENUECOmmITTEL.Room..aS.OvrIbR ToNPR PMALIAMRNITBVILDINON

| No. | NAME | SIGNATURE | |-------|--------------------------------------------------------|-------------| | 1. | The.Hon.Abdi Shurie CBS, M.P- Chairperson | | | 2. | The. Hon. Mrembo, Irene Njoki, M.P. - Vice-Chairperson | | | 3. | The. Hon. Omboko Milemba, CBS, M.P. | | | 4 | The. Hon. (Dr). Irene Kasalu, M.P. | | | 5. | The. Hon. Kwenya, Thuku Zachary, M.P. | | | 6. | The. Hon. Muiruri, Muthama Stanley, M.P. | | | 7. | The. Hon. Abdi, Abdi Ali, M.P. | |

Committee Clerk ..lclta...Mfcu

| No. | NAME | SIGNATURE | |-------|-------------------------------------------|-------------| | 8 | The. Hon. Aden Daud, EBS. M.P | | | 9. | The. Hon. Barongo, Nolfason Obadiah, M.P. | Xous | | 10. | The. Hon. Chege Njuguna, M.P. | | | 11. | The. Hon. (Dr) Daniel Manduku, M.P. | | | 12. | The. Hon. Kipkoros, Joseph Makilap, M.P. | | | 13. | The. Hon. Kirwa, Abraham Kipsang, M.P. | | | 14 | The. Hon. Letipila, Dominic Eli, M.P. | | | 15 | The. Hon. (CPA) Suleka H. Harun, M.P. | |

Date ?.. -.... Signature ..