Kenya is feeling the economic and health impact of Covid-19 as it enters the financial year 2020/21. In times like these, as economic activity and revenue collection stall, optimising the impact of public spending has become critical.
The best way to achieve efficient and effective use of public funds is through sound Public Finance Management (PFM). The implementation of the new PFM Reform Strategy 2018-2023 by the government is an essential step towards achieving the Vision 2030 objectives.
The European Union (EU) wants to be a key partner of the Kenyan government in this area and has offered a Sh3.1 billion grant for a PFM budget support programme, to boost implementation of the strategy.
Kenya 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 the budgeting process, 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 and curbing corruption. The implementation of coordinated reforms in these areas should collectively improve Kenya’s fiscal situation and service delivery for Kenyan citizens. But this is easier said than done.
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Why does it make sense to focus on PFM reforms to improve service delivery? Kenya is a lower middle-income country. As such it has a stable political system, a fast-growing services sector, strong regional trade ties, and it 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, barriers to trade, to name just four.
To eradicate these challenges, in particular corruption, and improve services and livelihoods, long-term structural reforms are needed. This complements short-term service delivery fixes that are otherwise useful and necessary, for example, to address the immediate needs arising from Covid-19.
The EU PFM Budget Support programme is a results-based instrument. In other words, the EU provides grants that are disbursed directly into the consolidated account of the Government of Kenya in proportion to the degree of progress it achieves against specific targets it has set itself in the PFM reform strategy. The determining factors for disbursement are timeliness of transfers to counties, revenue collection, customs clearance, the transparency of procurement processes and public investment management, as well as curbing corruption.
During the 2018/19 fiscal year, Sh240 billion was supposed to have been transferred from national government to the counties by the end of March 2019. But in reality only Sh201 billion was actually transferred.
To improve the situation, the PFM Reform Strategy focuses on service delivery, enforcing a timely and full transfer of funds from national to county governments as stipulated in the budget documents. This is absolutely essential. Accordingly, reforms have been identified at central level to make revenue forecasts more realistic, and improve revenue collection, cash management and predictability of funds.
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At their end of the bargain, counties need to submit their procurement and cash plans, as well reports to central government on time. The EU and National Treasury monitor achievement in terms of PMF reform implementation through regular policy dialogue.
- The writer is the European Union Ambassador to Kenya. Twitter @EUinKenya, @EUmordue