Public Sector Budgeting in Kenya

  

Date Posted: 5/27/2013 8:30:39 AM

Posted By: Chadeshady  Membership Level: Gold  Total Points: 1697

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The Government Budgetary System
Every government uses a budget as an important tool to define the direction of its national policy, the cost implications of government programs and the possible sources of revenues during a fiscal year. It contains the following items:
• A policy statement
• An inventory of program priorities
• Distribution and allocation of the corresponding resources
• Budget implementation and evaluation reports for the previous budget cycle

Normally, the annual budget outlines the broad economic policies of the government and estimates of revenue and expenditure, and is presented to Parliament for consideration and approval annually before 20th June. The budget communicates to the government on how much funds will be allocated to the various classes of expenditure and possible sources of revenue during the fiscal year.

Classifications of Government Budgets
Surplus budgets – arises when government revenues exceed government expenditures.
Deficit budgets – arises when the government spending exceeds its revenue.
Balanced budget – arises when revenues equal expenditures.

Although the type of budget that a country will adopt will depend on the country’s circumstances, a surplus budget is rarely attained in developing countries. A balanced budget on the other hand is rarely achieved. The Kenya budget is majorly a capitalist budget as expenditure is recognized first followed by possible sources of revenues. The broad aims of the budget are to ensure economic stabilization, social order and harmony as well as a means of government performance evaluation and accountability.

Types of Budgets Prepared by the Kenyan Government
Legislative Budgets – this is a budget prepared and adopted by the legislature directly or through its committees.
Executive Budget – prepared by the executive branch of the government and is normally adopted by the legislature but the initiative is undertaken by the executive.
Cash Budget – shows the flow of funds to and from the government and payments made.
Revenue and Capital Budgets – revenue

accounts cover the items that are of a recurring nature and consist of revenue receipts from tax revenue and non-tax revenue. Capital accounts on the other hand cover items that are in the nature of acquiring and disposal of capital assets; and incorporate the transactions in the public account.
The Government Budgetary Process
a) The Constitutional Provision
The Ministry of Finance derives its mandate from the Constitution of Kenya which provides for proper budgetary process and expenditure management of governmental financial resources and the preparation of annual estimates of revenues and expenditures that are laid before Parliament every year for approval. This has to be before 20th June each year.

This stage provides the Members of Parliament an opportunity to address the broad range of activities facing the country and request for financial resources for funding these activities. To enable the Government to finance its operations, Parliament authorizes by voting an account the appropriation of funds required for purposes of enabling the Government to carry out its activities. MPs hence have the opportunity to discuss changes in the Finance Bill with the Minister of Finance as long as such changes do not alter the global expenditure ceilings.

The budgetary process is preceded by two major activities namely:
• Setting of national priorities and objectives under the Medium Term Expenditure Framework (MTEF)
• Defining the Macro-Economic Framework
The law allows for the preparation of supplementary estimates for tabling before Parliament if need arises.

b) Legal Framework in Budget Preparation
Kenya has a legal framework that governs raising Government revenues and allocation and use of public resources as stipulated in the Constitution. The principle laws include:
• Part VII of the Constitution which stipulates the management of Government finances; this section requires the Minister of Finance for the time to prepare annual estimates of revenues and expenditures and lay them before Parliament.

• The Exchequer and Audit Act, Cap 412 which specifies the modalities for raising Government revenue, appointment of accounting officers and those who manage the revenue generation process, provides procedures for expenditure controls and management of Government assets including accounting and auditing.

These laws provide for accounting, auditing and disclosures as well as division of responsibilities among the different players in management of Government Finances. Government aimed at translating the nation-wide consultative process which was as a result of the interim PRSP (2001), into a coherent action program through the introduction of the Economic Recovery Strategy (ERS) for Wealth and Employment Creation 2003-2007. The ERS aimed at reversing the long-standing trend of economic decline and poverty increase. Other Government commitments in the ERS included:
• Improving the quality of Public Finance Management (PFM)
• Economic growth
• Poverty reduction
• Improved governance

The appropriate national priorities are determined in consultation with stakeholders at national, sectoral and community levels. To set the priorities, the sector ministries identify their sectoral stakeholders out of whom a sample is invited to participate in the consultative process. The joint public and private sector group then develops the sectoral priorities to go into the budget for funding.

The Role of the Executive in the Budgetary Process
The executive of Kenya has considerable powers in the budgetary process which are derived from the Constitution which gives it powers to initiate Appropriation Bills as well as the powers of the President to approve or reject any amendments of tax charges and expenditures except where such powers seek to reduce such expenditures. The roles of the executive arm of the Government in the budget process are:
1. Planning and Budget Formulation
2. Implementation, Audit and Monitoring

Planning and Budget Formulation
The Ministries of Finance and Planning have an important role in budget formulation. For a long time, the Ministry of Planning prepared long-term development plans that ran parallel to the annual budget prepared by the Ministry of Finance. Initially, the spending agencies had considerable autonomy in preparing their annual budget without consideration of national strategic plans. With the MTEF budgets, all ministries are required to adhere to the national priorities, a measure that is likely to result to better budget formulation that ensures proper linkage between budgeting and planning.

Implementation, Audit and Monitoring
The President, through the Ministry of Finance, authorizes withdrawals from the Consolidated Funds in accordance with the Appropriation Act. The funds are then allocated to accounting officers of various spending agencies. The centralization of powers in the executive is quite strong in this stage of the budget process. The executive, through the National Audit Office, audits public expenditures. This office also monitors the budget by ensuring that all withdrawals from the Consolidated Fund are within the Appropriation Act. All spending agencies are expected to periodically submit their vote book balance to the Ministry of Finance, which publishes the quarterly monitoring reports.

a) Public Accounts Committee (PAC) and Public Investment Committee (PIC).
These two are the most active committees in Parliament as they play an oversight role that ensures that the Executive is accountable to Parliament in public finances as voted by the House.

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