Water is the currency of survival. But who funds the flow when public coffers run dry?
As global finance leaders gathered at the Fourth International Conference on Financing for Development (FFD4) in Seville, Kenya tabled a fiscal plan blending macroeconomic realism with development urgency. Its FY2025/26 budget, themed Sustaining Bottom-up Economic Transformation Agenda, Fiscal Consolidation and Investing in Climate Change Mitigation and Adaptation for Improved Livelihoods, projects a US$33.5 billion expenditure.
This comes at a pivotal juncture. Kenya, like many emerging economies, is balancing restructuring public finance, debt, controlling inflation, and economic development while accelerating SDG 6.
FFD4 has reignited global momentum to reform international financial architecture, mobilising resources while ensuring debt sustainability. Against this backdrop, Kenya’s FY2025/2026 budget strategically repositions public finance to prioritise essential sectors like water. It targets the deficit of 4.8% of GDP by the end of FY2025/26, stabilising public debt within 55% (± 5%) by 2028.
Kenya is balancing restructuring public finance, debt, controlling inflation, and economic development while accelerating SDG 6
Debt service alone will consume US$10.6 billion in FY2025/26. For the water sector, this implies a tighter squeeze: direct budgetary allocations will decline to US$857 billion from US$943 billion in FY2024/25. This re-prioritisation compels water sector agencies to deliver more with less exchequer funding.
Historically, Kenya’s water infrastructure development has relied heavily on Official Development Assistance (ODA), with World Bank, African Development Bank, KfW, USAID, and EU funding up to 70-76% of capital projects. While foundational, this donor dependency has exacerbated our debt burden, underscoring the urgency of long-term debt sustainability affirmed by both FFD4 and SDG 17.4.
Kenya's current fiscal trajectory responds to these imperatives, positioning it as an attractive partner within a reformed, equitable global financial system. Still, challenges are stark.
Recent data indicates piped water coverage has risen to 70% from 65% serving over 21.5 million people. However, only 31% have safely managed sanitation, 38% have a home handwashing facility, 11% of domestic wastewater is safely treated, and Integrated Water Resources Management lags at 62%. The elephant in the room: Non-Revenue Water levels at 45% nationally, causing US$92 million annual losses. Climate extremes worsen the challenges. As Water Cabinet Secretary, Eng. Eric Mugaa puts it, “Climate change is fundamentally a water crisis.”
To stay on track for its 2030 targets, Kenya must increase water coverage by at least 2% and sewerage coverage by 3.5% annually. Investing in water is a catalyst for holistic development; it is linked to other SDGs, reinforcing FFD4's emphasis on integrated, cross-sectoral and climate-conscious development.
This budget is a bold fiscal plan for sustainable market-oriented water security, critical for Kenya's long-term economic development
A key reform unveiled by Cabinet Secretary for Treasury and Economic Planning, CPA John Mbadi, is the adoption of Zero-Based Budgeting (ZBB) for FY2025/26: "Every budget item must be justified annually, demonstrating efficiency and strategic alignment.” For the water sector, ZBB is a hard pivot towards eliminating inefficiencies, wasteful underperforming programmes, while incentivising innovation, responding to FFD4's call for centrality of public budgets; a cornerstone of the Whole-of-Government Approach.
According to the National Water and Sanitation Investment Plan (NAWASIP 2022-2030), achieving universal water coverage requires US$6.8 billion with a US$3.6 billion funding deficit. Given fiscal constraints, this substantial financing gap necessitates a radical departure from traditional funding models, which FFD4 catalyses by fostering innovative approaches beyond conventional aid. The budget's strategic emphasis on private sector engagement is an innovative response to the financing gap. Therefore, US$2.8 billion is expected from Public-Private Partnerships (PPPs), US$313 million from water service providers (WSPs) commercial borrowing, leaving a shortfall of US$549 million.
Success hinges on robust legal frameworks, transparent procurement processes, and viable commercial terms that attract sophisticated investors. The objective is to transform WSPs into financially autonomous, credit-worthy utilities.
The Water Services Regulatory Board (WASREB) is helping. It has revised tariff structures designed to improve WSP revenues and creditworthiness. Already, 83 WSPs have attained a B credit rating or higher, making them bankable and reducing dependency on exchequer support through commercial credit.
Key to WSP viability is effective debt recovery from consumers and aggressive reduction of Non-Revenue Water (NRW). A case in point is Nairobi City Water and Sewerage Company. Through digitalisation and targeted leakage control, its revenue leapt to US$78 million in FY 2024/25, up 24% in two years.
Climate resilience is vital to the budget and water agenda. All projects are now screened for climate resilience towards safeguarding water supply chains and livelihoods from environmental shocks. This positions Kenya to tap into global climate funds and align with FFD4's focus on climate-aligned investment and development.
Good governance principles will make or break this shift in attracting public and private capital. External control through Supreme Audit Institutions, like the Office of the Auditor-General, ensures a feedback loop between planning and execution, directly contributing to SDG 16. Cabinet Secretary Mbadi highlighted that citizen participation through platforms like Bunge la Mwananchi shaped public budget responsiveness to citizen needs.
Transparency is the new gold standard. From July 1, 2025, a nationwide e-procurement system will digitise all government procurement, including water investments, enhancing traceability and reducing corruption. Simultaneously, the rollout of the Treasury Single Account (TSA) centralises cash management for better oversight, aligning with FFD4’s push for modern, credible and accountable public finance systems.
This Whole-of-Government approach reduces inefficiencies and strengthens public trust, an essential factor in securing investments.
The constraints imposed by the fiscal consolidation of Kenya's 2025/2026 water budget and significant debt burden are compelling re-engineering of water governance. While the reduced direct exchequer allocation presents an immediate challenge to SDG 6 timelines, it could be a blessing in disguise as it concurrently triggers a crucial maturation: a shift from donor dependency towards self-reliance, innovative financing, and rigorous accountability.
The success of this ambitious blueprint hinges on the effective implementation of Zero-Based Budgeting, robust institutional governance, innovation, technology, sustained private sector engagement, and a transparent public finance framework. So, this budget is a bold fiscal plan for sustainable market-oriented water security, critical for Kenya's long-term economic development and investment appeal.
As Mtchera Chirwa, Director of Water and Sanitation at the African Development Bank, aptly put it, “Across Africa, the financing gap for water is over $50 billion annually. Governments alone can’t close it; the private sector must invest more in water.” Kenya's 2025/2026 budget reflects a bold step towards realising this vision, aligning with FFD4.
Kenya showcases its fiscal shift, addressing key questions: Can fiscal consolidation align with SDGs? Can market-based financing replace aid? Can governments deliver more with less?
Kenya’s response: not only possible but the path forward.
