The country is feeling the economic and health impact of Covid-19 as it enters Financial Year 2020/21. As economic activity and revenue collection stall, optimising the impact of public spending is critical.
The best way to achieve efficient and effective use of public funds is through sound Public Finance Management (PFM).
Implementation of the new PFM reform strategy for 2018-2023 by Kenya is an essential step towards achieving Vision 2030. The European Union (EU) wants to be a key partner of Kenya in this area and has offered a Sh3.1 billion (€26 million) grant for a PFM budget support programme to boost the implementation.
The government has adopted an innovative approach by formulating a PFM Reform Strategy that draws on an analysis of where structural challenges in the administration of public funds undermine efficient service delivery.
The Kenya PFM Reform Strategy 2018-2023 focuses on budgeting, public investment decisions, cash management, public procurement, wages and salaries in the public sector, management of public funds by education and health facilities, financial reporting and auditing, as well as curbing corruption.
The implementation of coordinated reforms in these areas should collectively improve Kenya’s fiscal situation and service delivery for the citizens.
But this is easier said than done; the proposed changes are complex and require sustained efforts, cooperation between actors that do not traditionally work together and much government ownership and political buy-in.
Why PFM reforms?
Kenya is a lower middle-income country; it has a stable political system, a fast-growing services sector and strong regional trade ties and is a transport hub.
It has huge potential for diversified growth, but faces many challenges, such as inequality and poverty, corruption, vulnerability of the agricultural sector to climate patterns and barriers to trade.
To eradicate the challenges, particularly corruption, and improve services and livelihoods in the way that Kenyans desire, long-term structural reforms are needed.
This complements short-term service delivery fixes that are otherwise useful and necessary — such as to address the immediate needs arising from Covid-19.
The EU PFM Budget Support programme is a results-based instrument. The EU provides grants that are disbursed directly into the Consolidated Account in proportion to the degree of progress that the government achieves against specific targets it has set in the strategy.
The determining factors are timeliness of transfers to counties, revenue collection, Customs clearance, transparency of procurement and public investment management, as well as curbing corruption.
One way of illustrating the approach is to focus on the counties, which depend, for a large majority of their income, on transfers from the national government as most major taxes are collected at the national level.
During Fiscal Year 2018/2019, according to the cash disbursement schedule approved by the Senate, Sh240 billion was supposed to have been thus transferred by the end of March 2019 but, in reality, only Sh201 billion was actually moved.
This shortfall seriously undermined the capacity of counties to implement their budgets and deliver devolved services, for example in the health sector or agricultural extension services.
To improve the situation, the PFM Reform Strategy focuses on service delivery, enforcing a timely and full transfer of funds from the national to county governments as stipulated in the budget documents. This is absolutely essential.
Accordingly, reforms have been identified at a central level to make revenue forecasts more realistic and improve revenue collection, cash management and predictability of funds.
At their end of the bargain, counties need to submit their procurement and cash plans, as well as reports to the national government on time. Improvements of the counties’ own sources of revenue collection are also necessary to further enhance available resources.
The strategy provides a platform to ensure all parts of the public administration work together to improve service delivery and the lives of wananchi.
The EU and the National Treasury monitor achievements in terms of PMF reform implementation through regular policy dialogue.
The programme was launched on December 6 last year at a signing ceremony in Nairobi between European Commissioner for International Partnerships Jutta Urpilainen and Kenya’s National Treasury Cabinet Secretary Ukur Yatani. A first disbursement of €7 million took place on July 2.
Mr Mordue is the European Union Ambassador to Kenya. @EUinKenya @EUmordue