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Ideas & Debate

Reform public finance before splitting IFMIS

National revenue shortfalls will hurt
National revenue shortfalls will hurt disbursements to counties. FILE PHOTO | NMG 

Last week, I looked at Auditor-General Edward Ouko’s suggestion to split IFMIS into IFMIS I for national government and IFMIS II for counties. I asked two questions: did we devolve a “computerised mess”, or did we “computerise a mess” in the first place? Mr Ouko’s 2016 IFMIS effectiveness review suggests that we very likely devolved a computerised mess.

Kenya needs a ‘fit for purpose’ IFMIS. It is astounding that our regional neighbours run the sort of IFMIS that integrates revenue forecasting and collection with expenditure planning and budgeting, exchequer issues, commitment control and procurement, treasury and asset management, performance and human resource management.

They have IFMIS solutions based on open portals that facilitate public access to updates on official spending, performance results and e-procurement opportunity. All ‘joined-up’ at national, regional and local level.

Yes, technically clever and publicly inclusive systems integration is key, but IFMIS is not the issue.

Kenya’s real problem is a public finance management (PFM) pathos inspired by an elitist political penchant for public obfuscation, tied to episodic PFM reform driven by donor, not public, demand. This motivates our highly skilled technocrats — now apparatchiks galore — towards opacity, not transparency.

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Think of PFM as the brainwork, or logos, before keyboards are touched, from revenue forecasts to expenditure plans, budgets, procurement, spending, cash management, accounting and reporting.

Let’s do a quick run through this year’s Sh3 trillion budget to clarify this point. What will this pay for?

Half will go to three “2022 constituencies,” shared roughly equally. First, education (basically, the humongous voting bloc known as teachers, who also happen to be important vote influencers at the local level).

Second, “mega-projects” (infrastructure including land, water and ICT). Third, “national political power” (presidency, interior, defence and treasury). That leaves Sh 1.5 trillion.

Next, Sh200 billion for the core “Big Four”, leaving Sh370 billion for counties and Sh130 billion for everything else, including Parliament and the Judiciary. Debt service will consume Sh700 billion and pensions a frightening Sh100 billion, with a few billions in change.

Revenue is projected at a record Sh2 trillion, so Kenya’s brand new trillion shilling budget hole will be acrobatically managed by financing and refinancing. It is shocking that an optimistic Sh500 billion shortfall, that is, a highest ever Sh1.5 trillion tax take, means that revenue is only half of total spending.

In this state of pathos, what is the priority: the “troika” of education-infrastructure-politics or the “Big Four”? Let’s go to counties, using recent data trends. Treating counties as a single whole, revenue from national government of Sh 370 billion (including conditional grants), plus own source revenue around the usual Sh50 billion and a cash carry forward of Sh30 billion equals a global Sh450 billion budget.

Trends suggest Sh140 billion is budgeted for general public services (“local political power”), Sh50 billion for infrastructure and Sh30 billion for early childhood education which totals Sh220 billion. Adding Sh200 billion for localised “Big Four” and Sh30 billion for everything else balances this global budget.

The same trends suggest Sh180 billion will go to the wage budget (Sh110 billion in 2017, Sh150 billion in 2017/18 and a likely Sh165 billion in 2018/19). That’s almost 40 per cent of the global county budget.

By law, development has to be 30 percent (Sh135 billion), which leaves another Sh135 billion for operations and maintenance (O&M).

Then, two things will happen. First, national revenue shortfalls will hurt disbursements to counties. The trend line tells us that, at most, only Sh300 billion (80 percent) will get to counties, including earmarked conditional grants. Second, own source revenue will hit its traditional 60 percent level, Sh30 billion.

Meanwhile, payroll is fixed at Sh180 billion. From the Sh150 billion left (because cash brought forward is sorting out pending bills), development gets its traditional 50 per cent (Sh70 billion, including grants), leaving Sh80 billion for O&M. In short, reduced local development and service delivery before we even consider the quality of this spending.

This is not an audit or an IFMIS problem. It's the collapse of PFM on the back of buccaneering revenue and expenditure plans and budgets, ‘it’s my turn to eat’ spend and zero reports on policy outcomes rather than procurement payments. Kenya’s big fat public spending isn’t buying results for the people.

An MP from central Kenya recently remarked on national TV that our public spending problem is a “national government that steals while working, and county governments that work while stealing.” This is the public service ethos that our noisy zero-sum politics has deliberately germinated over time.

Mr Ouko has signalled an important issue on IFMIS, and the PFM. Indeed, a 2018-2023 Public Finance Management Reform Strategy is almost ready, and improving IFMIS is one of its objectives. But, to answer the second question, we “computerised a (PFM) mess.” Let’s get PFM right, then fix IFMIS. Because, as I said at the start, modernisation is not reform.

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