Kenya’s economy has continued to expand, clocking a growth rate of 4.6% in 2024, according to the African Development Bank’s (AfDB) Country Focus Report 2025.
- •But behind these headline numbers lies a more troubling reality—Kenya’s public finances are burdened by weak tax collection, soaring debt repayment obligations, and fiscal inefficiencies that undermine the promise of inclusive development .
- •The report delivers a sobering assessment of Kenya’s tax structure.
- •Years of digitalization reforms, including iTax and e-TIMS, have failed to lift the tax-to-GDP ratio above 13%, well below the 20% African average and Kenya’s 25% Vision 2030 target.
Informality dominates, with 86% of the workforce outside the formal tax net. Kenya’s tax collection relies too heavily on a narrow base. Income tax contributes 47%, VAT 24%, and excise duties 15%. Non-tax revenues remain low at 2.3% of GDP, far below the 5.8% average across Africa. Worse still, tax incentives cost the exchequer over KES 100 billion annually, draining resources that could support national development.
Debt: The Growing Weight on Public Finances
Debt repayments weigh heavily on Kenya’s public finances. By mid-2024, public debt declined to 65.7% of GDP, down from 73.1% in 2023, aided by currency appreciation and liability management. Despite this, the debt remains unsustainable, with 60% of tax revenue absorbed by debt servicing.
The problem worsens with the debt structure. External debt accounts for 49.7% of total debt, exposing the country to exchange rate risks and external shocks. Credit rating agencies Moody’s, Fitch, and S&P downgraded Kenya in 2024, citing continued skepticism over debt sustainability.
Counties—Devolved Power, Dispersed Inefficiency
Devolution aimed to strengthen grassroots governance but has created new fiscal challenges. Counties struggle with low absorption of development funds, poor own-source revenue mobilization, and inflated recurrent spending. This leaves limited space for meaningful development projects.
These inefficiencies are significant. The AfDB estimates that public sector inefficiencies drain up to 5% of GDP annually. Fragmented fiscal oversight at county level has worsened accountability and weakened service delivery, even as counties receive higher allocations.
