The budget-making process and monitoring in Kenya. Presented by CORETRA Limited in 2008

1. THE BUDGET MAKING
PROCESS IN KENYA
CORETRA LTD - 2008

2. SCOPE OF PRESENTATION
 Definition of term budgeting
 Steps involved in budgeting in Kenya
 Macro fiscal framework
 Main sectors in the
 Medium Term Expenditure Framework
 Weaknesses of the Process
 Budget monitoring
 RBM based monitoring

3. Budgeting
what is budgeting
 It is a financial plan indicating expenditure
outlays and revenue receipts and includes:
 Types of budget
-micro level i.e household or a firm
- macro level i.e industry or group of
household
- national budgeting is in the second
category

4. Steps involved in the budgeting
 Preparation of the financial plan
 Review of the plan by the legislature
 Execution of the plan
 Monitoring and evaluation
 Public reporting of the results

5. Questions we need to know in the preparation
process
 What is the framework in which the budget is
made in Kenya
 Who is responsible in the preparing the
budget
 What are the basic steps
 What are the major weaknesses
 How can changes in the budget plans be
programmed and targeted

6. Budget process in Kenya
phase 1: macroeconomic planning
 Budget Outlook Paper- projects the GDP
growth forecast in the medium term
 The revenue estimates from domestic and
external sources are projected
 The level of inflation based underlying money
market behavior and other external factors
 The projected recurrent and capital
expenditure and net lending
 The estimates of domestic Borrowing and
external resources

7. Phase 2: strategic Planning
 Sector Working Groups are formed to-
Review Sector policies, programs, activities
-Costing of the programs and activities
-prioritization of the programs/projects
-Sector resources bidding and hearing

8. Phase 3:Financial planning
 Ministries consolidate their allocation
according to the ceilings
 Budget itemization
 Submission of the budget to treasury
 Treasury approval
 Parliament approval (cabinet approval)
 A three year budget presented to parliament
(Recurrent and Capital)

9. Phase 4: Budget execution
 Parliament approval after the debate of each
vote (Appropriation Bill)
 Cash budgeting projection (quarterly ceilings)
 Issuance of AIE to the districts
 Monthly expenditure monitoring
 Reallocations revised Estimates
 Appropriation Account- close of the books

10. Macro fiscal framework
 The Key Macro-economic objectives over the
medium term are as follows:
 The real GDP is forecasted to increase in the
range -6 to 7percent
 Inflation will be maintained at 5 percent
 The Balance of Payments will improve to
build up import reserves to cover minimum
3.5 months
 These assumptions are consistent with those
underlying the PRGF supported macro-
economic program

11. The Medium Term Macro-Fiscal Framework
cont
 To achieve these objectives appropriate
fiscal, monetary and exchange rate policies
are maintained
 To sustain Economic Recovery and vision
2030 structural reforms in financial sector,
privatization of state owned enterprises and
reducing the administrative barriers to the
private sector i.e. licensing

12. The Medium Term Macro-Fiscal Framework
cont
 To achieve these objectives appropriate
fiscal, monetary and exchange rate policies
are maintained
 To sustain Economic Recovery Strategy
 and vision 2030 three pillars –
 Economic pillar which aims at achieving a
high and sustained non inflationary, economic
growth at 10 % by 2012
 Social pillar which aims at achieving a just
and cohesive society enjoying equitable social
development

13. Macro fiscal frame work cont
 A political pillar which seeks to achieve an
issue based, people centered and accountable
democratic political system
 structural reforms in financial sector
privatization of state owned enterprises and
reducing the administrative barriers to the
private sector i.e. licensing

14. Medium Term Monetary Policy
 In Budget Framework takes into
considerations
 A monetary policy that aims at maintaining
a low rate of inflation below 5 percent
 Strengthening the external reserves of the
Central Bank
 Reduced government domestic borrowing
to avail credit for the private sector-
crowding out effect

15. Medium Term Monetary Policy
 In Budget Framework we have taken into
account
 A monetary policy that aims at maintaining a
low rate of inflation below 5 percent
 Strengthening the external reserves of the
Central Bank
 Reduced government domestic borrowing to
avail credit for the private sector

16. Revenue Policies
 No tax increases is anticipated but the focus
will be to improve tax administration to meet
revenue targets
 The revenue policies focus is to maintain ratio
to GDP in the range of 21-22 percent

17. Expenditure Policies
 These fall into two categories:
 Improve on Public Expenditure /Financial
Management
 Contain increases in actual expenditure
Implementation of PEM reforms

18. Expenditure Policies
cont
 During the fiscal year 2007/08 efforts will be
made to
 Ensuring that the budget is implemented as
presented in the Parliament to minimize re-
allocations
 Reduction in the stock of the pending bills
through strict commitment controls
 Strengthening of public procurement in the
government by implementing the new
procurement Act

19. Expenditure measures
 Other expenditure measures will include
Containing growth of the wage bill to attain
7.4 percent of GDP 2007/08
 Wages increase to be limited to growth in
productivity
 Implement full Voluntary Early Retirement
Scheme
 With a view to achieving MDGs, limits of
the wage bill will be relaxed to allow
additional recruitment for health workers
and security

20. Expenditure measures
cont
 Transfers and subsidies to state corporation
will be adjusted downward to ensure they
account to 1.6% of GDP
 More resources to be shifted to core poverty
programs
 Provides fiscal space to allow completion of
stalled projects by 2008/09

21. Medium –Term Resources Allocation
 The resources allocation reflects the ERS
priorities
 The ministries are identifying their strategic
priorities according to ERS,MDG Vision
2030 etc
 The M&E framework is used to generate
the performance indicators targets
 The budget framework 2007/08 shifts
resources towards education, Health,
Agriculture and Infrastructure

22. Re-orienting Expenditures
 The allocation of resources to the Health
sector increased to 8% of the total
expenditure in 2007/08 and projected to 9.4%
in 2008/09
 Education will continue to take the bulk of
resources which is projected at 27-28%
 Overall share of resources going to social
and economic sectors rises from 60.6 percent
to 66.5 percent over the next three years

23. Additional Budget Support
 In the event of additional budget support, the
resources will be used to
 Scale up programs in the priority areas;
and
 Reduce Domestic debt

24. Budget sectors cont
 Agriculture and Rural development;
 Health
 Education
 Physical infrastructure
 Public administration
 Public safety law and order
 General economic services
 National security
 Information and communication technology

25. Significance of MTEF budgeting system
 MTEF is an objective oriented budget
 Planned interventions meant to accelerate
economic development selecting few priority
areas
 The MTEF is three years rolled budget
 Core prioritization of projects and programs
 From 2003-2007 the budget was planned on
the basis of Economic Recovery Strategy
Paper for Employment and Wealth Creation
 Vision 2030 is now the new basis for public
sector budgeting

26. Who participates in the process
 It is a participatory budgeting process
 All stakeholders are represented in the nine
sectors in the public sector
 The process also includes the private, civil,
NGOs thematic groups (open and transparent
 The Health sector comprises of –MOH,
FBO,NGO, Dev Partners and private sector
 The resources envelop is bid openly by all
stakeholders

27. Budget execution
 After the budget speech, the Parliament debates on
each ministry vote
 Appropriation Bill approval allows drawing of
resources from the consolidated fund for recurrent
and development
 The treasury issues exchequer to the line ministries
to enable them spend
 Currently the system is zero balance accounting
 Non spending accounting units denied additional
funding

28. Budget implementation MOH
 AIE disbursement 15th date beginning a quarter
 Cheques are disbursed before 10th every month
 Flow of funds to the facilities electronic through KCB
and COP Bank end July
 Facilities will be procurement units
 All expenditures to be approved by facilities boards
 Returns to be given on monthly basis
 New G-Pay System-electronic transfer by CBK

29. General weaknesses of budget process
 Kenya has a dual budget system recurrent
and development
 Macroeconomic framework not explicit
Projections of the ensuing years may not be
deeply analyzed
 Public Expenditure Reviews not exhaustive
 Prioritization of the programs may not be well
represented
 Appropriation in Aid accounting
 Poor accounting of the quasi fiscal
expenditures and extra budgetary funds

30. End of budget process
 Questions and clarifications

31. Budget Monitoring process
Why do we monitor the budget

32. Definition
Results-Based Monitoring
(what we will call “monitoring”)
is a continuous process of collecting and
analyzing information to compare how well a
budget activities on project, program or
policy is being implemented against expected
results
In budget we track utilization of recurrent
and development expenditures

33. The Power of Measuring Results
 If you do not measure results, you can
not tell success from failure
 If you can not see success, you can not
reward it
 If you can not reward success, you are
probably rewarding failure
 If you can not see success, you can not
learn from it
 If you can not recognize failure, you can
not correct it
 If you can demonstrate results, you can
win public support
Adapted from Osborne & Gaebler, 1992

34. Results-Based Monitoring and
Evaluation
 What Are We Talking About?
 Results based Public Finance
Management
 Results-based monitoring and evaluation
measures how well governments are
performing
 Results-based monitoring and evaluation
is a management tool!
 Emphasizes on assessing how outcomes
are being achieved over time

35. Reasons to Do Results-Based M&E
 Provides crucial information about public
sector performance
 Provides a view over time on the status of
a project, program, or policy
 Promotes credibility and public confidence
 Helps formulate and justify budget
requests
 Identifies potentially promising programs
or practices

36. Reasons to Do RBM M&E (cont.)
 Focuses attention on achieving
outcomes
 Helps establish key goals and
objectives
 Permits managers to identify and
take action to correct weaknesses
 Supports a development agenda
towards more accountability

37. Power of measuring results
Outcomes
• Intermediate effects of
outputs on clients
Outputs
• Products and services
produced
Activities
• Tasks personnel
undertake to transform
inputs to outputs
Inputs
• Financial, human, and
material resources
Goal
(Impacts)
• Long-term, widespread
improvement in society
ImplementationResults
Binnendijk, 2000

38. Results-Based Monitoring:
Oral Re-hydration Therapy
Binnendijk, 2000
Outcomes
• Improved use of ORT in
management of childhood
diarrhea
Outputs
• Increased maternal knowledge
of and access to ORT services
Activities
• Media campaigns to educate
mothers, health personnel
trained in ORT, etc.
Inputs
• Funds, ORT supplies,
trainers, etc.
Goal
(Impacts)
• Child mortality and
morbidity reduced

39. Why monitor the budget
 To compare the actual implementation of
policies with the original targets
 Identify gaps between the planned and actual
expenditure/ revenue/ borrowing for the
purpose of planning
 Identify areas of weaknesses which are
addressed in the ensuing budget process

40. Budget monitoring process
 Monitors expenditure on monthly basis and
prepare outturn
 Monitors and analyses monthly revenue flows
actual vs. target from all revenue collecting
agencies (KRA,CBK) public bodies etc
 Monitors core poverty projects/programs
 Receives on monthly basis stock of pending
bills, disbursement of donor funds both
revenue and direct payment

41. Significance of Budget Monitoring
 Measures the success of failure of budget
policies, projects or programs
 Guides the policy makers in identifying gaps
 Guides the project managers, development
partners and government on the impacts of
the budget

42. Reports produced
 Prepares monthly budget outturn/ quarterly
budget reports
 Prepares the expenditure outturn (monthly)
 Budget outlook /Strategy papers
 The information feeds into Public Expenditure
Reviews- rates performance
 Feeds into Economic Survey
 Annual appropriation Accounts
 Annual investment reports

43. What are the major problems of monitoring
 Accuracy and timeliness of the data
 Lack of the adherence to the work plans
 Inconsistency in expenditure pattern vs. the
budget
 Inappropriate data monitoring system;
computerized versus manual e.g. district level
 Appropriation in aid and the pending bills
stock
 Flow of data especially on donor funded
projects with direct disbursement

44. Budget monitoring
 Questions for clarification