This report was prepared by a Fiscal Affairs Department (FAD) team comprising Messrs. M. Katz (head), and D. Last, Ms. G. Everaert, and Mr. V. Ramachandran (PFM Resident Advisor AFRITAC East). Discussions were held with the Minister of Finance, Governor of the CBK, Deputy Mayor of the City of Nairobi, members of Parliament, senior officials in the Ministry of Finance, Planning and National Development, Local Government, Roads and Public Works, Health, the CBK, KRA, DPM, Public Service Commission, KENAO, Kenya Roads Board, Kenyatta National Hospital, Kenya Railways, KIPPRA, NSSF, RBA, TARDA, KPLC, the World Bank and the PFM Development Partner Group.
Formal wage employment in the private and public sector (1.8 million) constitutes only a very small share of total formal and informal employment (8.3 million). Public employment is estimated at 7.9 percent of total employment. Compared to the total labor force (estimated at 11.4 million in 2004), the share of public employment in the total labor force is 5.7 percent. Data are available at http://www.cbs.go.ke/.
DGIPE was created in the context of the Public Enterprise Reform Program and Privatization Policy Paper of 1994.
The extent of QFAs in other sectors is not known, as the mission was not able to cover all sectors.
Kenya Ferry Services provides free transport to pedestrians, for which it receives compensation according to a formula agreed with government. End-users prices for electricity are regulated at below production cost. A three way arrangement in 2006/07 between KPLC, KENGEN and the government provides for an annual price subsidy of around Ksh 2.6 billion. Tana and Athi Rivers Authority (TARDA) subsidize its fully-owned company that provides drinking water to several towns. Kenya Power and Lighting Corporation (KPLC) manage the rural electrification program on behalf of the government, funded from earmarked revenues and external financing.
For instance, in 2006, a cut flower business was required to obtain 60 licenses to operate, while a tour operator was required 11 licenses, seven of which were to be displayed on the vehicle windscreen (“Reducing Business Licenses in Kenya”, report by the Working Committee on Regulatory Reforms for Business Activity in Kenya).
The 2007/08 Finance Bill proposes to eliminate 205 licenses and simplify another 371.
The government maintains a direct oversight role in the banking sector through the Banking Act, which empowers the MoF to approve changes to bank charges and fees. The government has proposed changes in the governance structure of the central bank which would establish a Monetary Policy Committee to be chaired by the Governor of the CBK. The Board of Directors would have responsibilities over issues other than monetary policy.
The levy is set at 1.5 percent of every debt issue, but with a cap of Ksh 3 billion from this fiscal year onward.
Salaries of members of Parliament are over 200 times per capita GDP—are well above those in neighboring countries, or developed countries such as the U.S., U.K., or Norway. (Source: The Parliamentary and Human Rights Accountability Charter as presented in the vision 2030 presentation.
The expenditure and revenue responsibilities of Local Authorities are detailed out in parts IX through XIII of the revised Local Government Act of 1998.
The Integrated Payroll and Personnel Database (IPPD) has provided decentralized payroll and personnel management systems in most line ministries, while the Integrated Financial Management Information System (IFMIS) is an Oracle-based software package that is currently being rolled out to all line ministries, initially for budgetary and accounting functions.
The External Loans and Credit Act (Cap 422) was amended to effectively increases from Ksh320 billion to Ksh 500 billion the maximum amount the Minister can borrow from external resources. Similarly, the maximum amount under (Cap 461) guaranteed Loans Act, was increased from Ksh 40 billion to Ksh 80 billion in July 1993.
It is noteworthy that the Fiscal Management Bill currently before Parliament finds it necessary to empower the PS to collect the information required under that Bill.
The consultants contracted by the World Bank have recently submitted their report on the PPP Policy Framework.
The aggregate spending of fund accounts, SAGAs, EBFs, and regional development authorities is estimated at around Ksh 60 billion (over 10 percent of budgetary resources).
Furthermore, as a result of being grouped together with state corporations of a commercial nature, it is also not possible to identify their deposits in the CBK banking sector surveys, or establish their overall sectoral impact in the statistical publications of the KNBS.
However, the ability of the commission of customs or the Minister of Finance to waive penalties is not recognized under the East African Community Customs Management Act (EACCMA). Nevertheless, the EACCMA contains a provision to grant the commissioner of customs the power to waive penalties and interest that relate to matters before the commencement of the customs union.
This creates two accountability centers for the same taxes, and therefore the potential for conflicting rulings. However, this arrangement is seen by the authorities as a means to improve the performance of the offices, allowing for greater specialization and enhanced revenue performance.
The KRA Act allows for funding up to 2% of collected revenues, but this has been negotiated downwards by MoF.
Commissions include the public service, the teachers, the judiciary, and the parliamentary service. Additional employment groups are members of Parliament, defense, national security and intelligence personnel, and local authority councilors.
A proposal to make public and open to scrutiny the wealth declarations of ministers and senior officials has been made in the form or the Miscellaneous Amendments Bill, but is yet to be passed. Work is ongoing to computerize the information on wealth declarations and link these to income tax returns collected by the tax administration.
The conclusion of investigations into the Anglo-Leasing scandal is waiting closure of foreign investigations, whereas domestic investigations have been finalized.
Sector working groups include participation by external stakeholders, such as business groups and NGOs, and also hold an annual public meeting open to any interested member of the public. The sector working group reports are posted on the MoF website (http://www.treasury.go.ke).
The BSP for 2007/08 was available in June 2007.
Since the reestablishment of the East African Community, the official Budget Day of the founding member countries (Kenya, Tanzania and Uganda) has been synchronized to the second Thursday in June.
Some 1000 dispensaries have been built under the CDF, but these have remained empty due to lack of budget allocation for their operating costs. The Ministry of Health has developed a plan to absorb the recurrent costs from operationalizing these over a three year period, beginning FY 2007/08.
The budget speech, does not mention the public debt target.
In addition to a financial programming framework used in the MoF, an internal model used by the CBK, KIPPRA uses the KIPPRA-Treasury Macro Model which is a macro-fiscal model that focuses on growth, and the expenditure side of the budget. In addition, macroeconomic assumptions are identified separately, and include assumptions on growth, inflation, changes in the terms of trade, import and export growth, main decisions that affect wage growth, among others.
It is included in the BOPA, BSP and final budget speech.
A debt sustainability workshop took place in May 2007, following which the government is preparing a Debt Management Strategy which includes a debt sustainability analysis, with drafts already circulated for comments.
The Minister of Finance initiates the sessional paper in Parliament. The ceilings were last revised in July 2000.
Despite financing of the budget for 2.2 percent of GDP through privatization receipts, the BSP 2007/08-2009/10 does not cite shortfall in privatization proceeds as a risk.
The Report of the Controller and Auditor General on The Appropriation Accounts and Accounts of the Funds for the fiscal year 2004/05.
Ksh. 419,770,823 at the end of 2004/05.
Constitution Article 99(2): Revenues or other monies received pertaining to the central government of Kenya may be paid into public funds, held outside the consolidated fund, which may be created by an act of parliament. No moneys can be withdrawn from such funds unless authorized by law.
2006 PEFA report indicates that pending bills were reduced from Kh 18 billion in 2002/03 to K Sh 12 billion in 2004/05. As a percentage of total expenditures, this represents a decline from 9 percent to 4 percent.
Even though the government was entitled by law to use CBK overdraft facilities up to Ksh 13 billion by end-June 2006 the overdraft was only Ksh 41 million.
The BSD, IAGD, DMD, EAD, ERD, and the DGIPE, as well as the Secretary to Pensions department are represented on the Exchequer Committee, which is chaired by the Finance Secretary.
Treasury Circular No. 4 of March 1997 as amended in October 2003.
Treasury circular No. 16/2005 of 4th October 2005.
Risk-Based Audit Approach Report on a Pilot Follow-Up: Ministry of Health and Ministry of Planning and National Development October 2005, supported by GTZ.
This has recently been ratified by Parliament.
The DPM is in the process of rationalizing allowances (about 77 are on the books), but progress so far has been slow.
Kenya has chosen the Oracle Financials system for their IFMIS, under a project which started in 2002. Currently IFMIS has been rolled out to 24 line ministries (out of the 43 votes) which have started using the new system from July 2007 for their headquarter-based operations, and operational modules include the general ledger, accounts payable, and purchasing modules.
There is limited follow up of the submission of quarterly reports, which is not tied to transfer of funds under LATF, although the Act provides for the imposition of fines for late submission.
Article 228(4) of the Local Government Act authorizes the Minister of Local Government to prescribe rules for the keeping of Local Government Accounts.
GFMA 2004 Article 29.
The August 2006 FAD TA mission reviewed current practices and laid out a strategy and action plan for the Budget Department to start implementing a program budgeting approach over the next few years.
The latest published audited accounts for the government are those for FY2004/05. However, a recently completed survey of all public and publicly guaranteed debt in parastatals suggests that outstanding debt at end-June 2006 amounted to Ksh 43.5 billion, which includes Ksh 18.4 billion on account of the National Bank of Kenya (NBK), and Ksh 6.5 billion on account of Kenya Telkom. In May 2007, the government has taken over the guaranteed debt to the NBK through issuance of a Ksh 20 billion special purpose bond, mostly related to parastatals that defaulted on their loans to the NBK. The government is also in the process of restructuring Kenya Telkom and will, in the process, take over some Ksh 11 billion of its contingent liabilities, apart from other restructuring costs.
Kenya Data ROSC – IMF, October 2005.
These calculations, which are based on original budget versus actuals, differ from the 2006 PEFA report, which used revised budget data instead of original budget.
Article 4 (b).
The Report of the Controller and Auditor General on The Appropriation Accounts and Accounts of the Funds for the year 2004/05.
Ksh. 419,770,823 at the end of 2004/05.
Public Audit Act, Section 35.
Public Audit Act, Section 46.
Public Audit Act, Section 37.
Public Audit Act, Section 11(3).
Public Audit Act, Sections 19 and 28.
Sector hearings take place after finalization of the BOPA, but before the preparations of the BSP. Sector hearings took place in March during the formulation of the 2007/08 budget.
KIPPRA Discussion Papers No. 11 and 16, and KIPPRA Working Paper No. 5.
Kenya – Strengthening the Budget and Fiscal Reporting System: a Reform Agenda. Khemani, Ramachandran, Ljungman and Shall, January 2007.
FAD through AFRITAC East has been providing technical assistance in upgrading the GFMA and financial regulations since October 2006.
A World Bank Policy Framework consultant’s report on PPPs has recently been issued and is being studied by the authorities.
Before closing its 2007 session, the Parliament had approved the Advisory Board of the Public Procurement Oversight Authority.
The latest figures published in the March 2007 QBR indicate that government deposits in the banking system exceed Ksh 73 billion, or around 3.5% of GDP.