How unspent billions are holding back Kenyan’s real growth

Only 15.8 per cent of the development budget was spent in the first half of the current fiscal year.

NAIROBI, KENYA: Despite spelling out an ambitious Budget, it has emerged that the biggest undoing for the Government is the high number of stalled projects pushed to the next financial year. The Jubilee administration promised big. A million jobs, more electricity, free Standard One laptops, ramp-up infrastructure projects, improved security and several initiatives to ease the cost of living.

But talk and delivering on the promises are two different ball games altogether. Instead of creating jobs, the Government is carrying out a rationalisation programme that could see thousands of civil servants retrenched to contain the spiralling wage bill.

To stimulate the economy we spend on capital, but as things stand, several projects planned for this financial year are yet to pick up. The absorption rate for the development budget is low. This is likely to dampen the country’s growth prospects.  In many instances, funds meant for infrastructure get diverted to pay for salaries and run operations.

National Treasury Cabinet Secretary Henry Rotich upped overall spending in the next financial year (2014/15 Budget) by 8 per cent from Sh1.64 trillion to Sh1.8 trillion. Of this, Treasury has allocated Sh487 billion for capital spending.

However, Controller of Budget Agnes Odhiambo paints a grim picture on how government ministries have been spending their development votes. For the first half of 2013/14 financial year (July to December 2013), the National government total expenditure was Sh439.5 billion comprising of Sh253.2 billion spent on recurrent activities, Sh115.8 billion spent on consolidated fund services (CFS) and Sh70.5 billion for development expenditure.

BENCHMARK

The recurrent expenditure represented an absorption rate of 41.5 per cent of the annual recurrent gross estimates while development and CFS expenditures represented 15.8 per cent and 30.4 per cent of their respective annual gross estimates. This is against a mid-year target of 50 per cent.

“The level of absorption of funds budgeted for development programmes has been low for the country to achieve the double digit economic growth envisaged by the Medium Term Plan,” she said.

Ms Odhiambo attributes this to the length procurement processes, delays in release of funds due to revenue shortfalls, weak reporting mechanisms, and weak monitoring and tracking systems.

She recommends that the resolutions agreed upon during a meeting of all Permanent Secretaries/Accounting Officers, organised by the Executive in conjunction with the then Ministry of Finance and the Office of the Controller of Budget in July 2012 on how to address challenges encountered in budget implementation, be enforced.

Some of the resolutions include the need for ministries, departments and agencies (MDAs) to enhance synchronisation of the strategic plans with workable, realistic work plans, procurement plans, and the budget and cash flow projections.

“Project preparation and design should be completed before securing finances. There is need to review the legal framework governing procurement and build capacity for procurement functions in the spending units. MDAs should develop and implement credible financial management systems, establish effective monitoring units and ensure establishment of effective project management units in addition to building capacity in project management of the spending agencies,” she said.

The Institute of Economic Affairs (IEA) in a note released last week says a comparison of the budgeted and actual outturns of expenditure shows that absorption of recurrent expenditure in 2012/13 stood at 94 per cent while that for development expenditure was relatively low at 66.2 per cent against a performance benchmark of at least 80 per cent.

IEA attributes this low absorption to the persistent challenge of lengthy procurement processes and delays in disbursement of donor funds. For the first half of 2013/14, disbursements amounted to Sh585.6 billion out of gross estimates of Sh1.65 billion and a net estimate of Sh1.39 billion.

GOES ELECTRONIC

It is only the health sector that surpassed the target at (85.1 per cent), Agriculture, Rural and Urban Development (59.7 per cent) and the Education sector that had received over 50 per cent of the total net estimated budgets an indicator of absorption or uptake capacity.

“In particular by first half of 2013/14, the absorption rate for development funds was a meagre 15.8 per cent of the annual development budget against a mid-year target of 50 per cent. This clearly denotes that low budget execution is still a major challenge and thus calls for parliament attention,” said IEA.

IEA suggests that the national government reviews the Public Procurement and Disposal Act 2005 to address causes of delays, and bring these proposed amendments for Parliament’s debate.

“There is need to strengthen spending units’ capacity and incentive to integrate procurement into planning processes. Improve institutional frameworks and streamline use of financial performance information, in order to address delays in release of funds.”