The Budget Policy Statement (BPS) is a national planning and budgeting document in Kenya which contains the 3P’s and 1C. That is performance, projections, priorities and ceilings of the national government.
I was reading the memorandum and found these proposals quite resourceful and hence shared them here for your information:
- Public Debt: Public debt levels have risen to unsustainable levels and are eating into critical spending on social services. While the national ordinary revenue has grown at an average of 13 per cent over the last six years, debt financing has grown at an average of 30 per cent. We propose that Parliament must reduce the deficit approved in this BPS and hence tame the increment in debt in the medium term. Parliament must also tame within year increment of the deficit for the next financial year (2020/21). Over the long term, Parliament should through the debt strategy seeks ways to negotiate the composition of our current debt obligations.
- Health Sector: Kenya’s national government has made a commitment on Universal Health Coverage. Noting that health is a largely devolved function, there is a need to ensure that national and county efforts are coordinated.
- Education: There is a notable increase in the share of the education sector budget to the total budget from 25 per cent in 2019/20 to 28 per cent in 2020/21. This is largely towards allocations to TSC. There is however limited focus on the governments focus on 100 per cent transition especially in expanding infrastructure to ease congestion in current facilities. We urge parliament to balance the allocations to ensure all round development of the sector.
- Allocation to equitable share for county is declining and the growth factor uncertain. The 2020/21 allocation is set to remain at the same level as in 2019/20 which in essence is a decrease if we are to factor in a 5.7 per cent year-on-year inflation. Counties own source revenues are also not showing growth and may need greater action if they are too.
- National ordinary revenue growth is declining year on year for the last 6 years. On average the growth of revenue has been at 13 per cent over the last 6 years. This is to be commended. That said, Table 1 shows that save for the projections of 2019/20 there has been a decline from 18 per cent in 2013/14 to 2 per cent in 2020/21 in the growth of revenue. There is need for a revamping of productive economy that creates gainful employment to enhance the growth in the ordinary revenue.
- Although county governments are key in delivery of services, the equitable share allocations to them has been on a decline the last six years. Year on year growth has declined from 15 per cent in 2015/16 to an anticipated zero growth in 2020/21 (see table 5). If one was to factor inflation of 5.7 per cent (as of December 2019) then the allocations to the counties will be a negative. This compares poorly with a constant growth of ordinary revenue of about 13 per cent over the period.
- Counties own source revenue growth is uncertain and only covers a small proportion of their expenditures. All counties are dependent on the equitable share to fund their budgets. The last full year of data we have covered the period of 2018/19. In that year, counties raised Ksh 40 billion from their own sources. This was just 11 per cent of the Kshs. 376 billion expenditure across all the 47 counties for that year. Therefore, revenue collected by counties funded only one-tenth of the actual spending for the year.
- The disbursements to county governments are lower than other national releases. The exchequer issues to the disadvantage of counties has been registered over several years in the past. For instance, as at 31 December 2019 (half year of 2019/2020 FY) Counties had received only 31 per cent of their estimated revenue as compared 57 per cent to Consolidated Fund Services (CFS) and 40 per cent to national government expenditures (see table 6). This could explain the low absorptions and increasing levels of pending bills as counties prioritize recurrent expenses. To address this challenge, parliament should focus and enforce that the cash disbursements schedules are followed.
- The BPS indicates that 831000 jobs have been created every year since 2013. This would translate to over 4 million jobs yet the number of Tax Payers as per the revenue authority records does not reflect that.
To address the increasing debt we propose that parliament considers the following:
- Implementing balanced budgets with very well-defined budget deficit limits if necessary, in order avoid large deficit budgets.
- Accumulate public debt based on national priorities with clear impact analysis based on the Country’s economic challenges. This will reduce populist projects that do not address key economic priorities by taking into consideration socioeconomic impacts of debt financed projects.
- To Shift debt composition towards external debt relative to domestic debt, to reverse the current trends.
- Rely more on concessional loans and grants rather than on expensive bilateral loans that are non-concessional, thus reduce high interest rates payments, averting possibility of debt overhang and
- Implement government-to-government partnerships and other Public Private Partnerships (PPP) models based on independent cost-benefit, Cost-Effectiveness and value-for-money studies, to prevent expensive low priority bilateral, donor-led investments funded by debt.
there is a notable reduction in allocation of funds to the health sector from the supplementary 2019/20 budget as well as the ceiling for FY 2020/21 as demonstrated in the Figure 7. Whereas the allocated budget in 2019/20 was raised to Kshs. 115 billion in the supplementary budget 1 (2019/20), the Country was implementing UHC pilot project in only 4 counties at a cost of Kshs. 4 billion. The budget statement presented to Parliament for 2019/20 indicated that the government allocated Ksh 48 billion for the rollout of UHC. In 2020, the country anticipates rolling out the UHC project in the remaining 43 counties with 23 counties already having committed to the project. A key question is what percentage of the the projected state department of Health funding of the Kshs. 114 billion will be committed for the country wide roll-out of the UHC. In addition, how will the funding be rolled out to counties? Is the national government going the conditional grants way or will the funds be channeled through NHIF similar to the linda Mama arrangement? Parliament needs to get clarity on this approach to anticipate the challenges that have been observed in both options.
We propose that the BPS ceiling for the FY 2020/21 is revised to address the funding needs with reference to the current 5.8% inflation rates. At the bare minimum, the government should endeavor to cover the costs codified within the supplementary budget No. 1 of FY 2019/20. Currently, the BPS ceiling of 2020 is Kshs. 1 billion less than the total supplementary budget 1 of 2019/20 which is 115.6 billion, and this undermines the strides realized under UHC implementation. Ensure all resources earmarked for health for the FY 2020/21 meet all the programming needs underscored in the BPS 2020/21 and increase the average total of the expenditure to have emergency funds that in totality are cushioned from 5.8% inflation rate.
Low absorption rate in development budget leading to poor service delivery
There is need to improve absorption of development expenditure especially in development heavy sectors e.g. environment which houses Ministry of water and sanitation, for the citizens to access quality and timely services. Just to note from the sector report a significant number of projects are still incomplete. Table 9: above indicates low absorption in the environment protection, water and natural resources from FY 2016/17 up to 2018/19. In the sector report, this low absorption rate has been linked to late disbursement of funds by the exchequer.
We propose that parliament considers the following in approving the BPS 2020;
- Value for Money. There is need for parliament to provide oversight role to ensure that the loans taken are utilized efficiently for realization of value for money. It is evident that most infrastructure development projects are 50% incomplete and yet more is being borrowed to fund infrastructure development.
- Equitable allocations. Parliament to ensure that spending for critical sectors are allocated based on the need of the community especially on essential services like water and sanitation.
- Justification for MDAs budget reductions. The government needs to give justification on the reductions MDAs and Development budget allocation reductions being made. Water and sanitation for instance is a main enabler for the Big Four agenda (Universal health, Manufacturing, Affordable housing and Food security) and a basic human right as stipulated in the 2010 Constitution of Kenya.
- Timely disbursements of funds to MDAs. Parliament need to strengthen oversight to ensure that funds are released in a timely manner to different Ministries. This will be through Parliament understanding the root cause of delays and acting in accordance to the constitution.
- Coordination of shared functions. National Government is implementing programmes in counties especially on shared responsibilities e.g. water and sanitation and climate change. It is incumbent that the National and County Governments jointly prioritize and implement such programs to ensure that they reach the underserved, avoid duplication and foster sustainability.
The funding for education sector is increasing from 25% in FY 2019/20 to 28% in FY 2020/21. However, this is primarily driven by TSC allocation and post training and skills development.
Many organizations participated in coming up with the proposals highlighted above:
- IBP Kenya
- IPF Kenya
- Development Initiatives (DI)
- Economic Liberation Front
- Health Rights Advocacy Forum;
- Open Institute
- National Tax Payers Association
- Pawa 254
- Transparency International (TI);
- VSO and
- WSUP among others