Ideas & Debate

Tough questions for sectors on budget credibility


The National Treasury building. FILE PHOTO | NMG

President Uhuru Kenyatta’s Tuesday address in which he laid out his economic agenda for 2020, while reshuffling his administration offers a useful backdrop to the public hearings on the sector budget proposals for the coming 2020/21 financial year. More commonly referred to as “Sector Hearings’, this event offers the greatest access citizens have to the national government part of Kenya’s budget process. Between today (Wednesday) to Friday, national government sectors will “market” their forward budget priorities to the public.

The hearings are an important stage in the 2020/21 budget cycle, which is one part of the “3-in-1” public finance management cycle that works as follows. At any point in time during the year, government is (a) implementing the current year budget (in this case the 2019/20 budget), (b) finalising audits for previous years and (c) preparing the next year’s (2020/21) budget.

In the case of the audit, and without a substantive office holder, the Office of the Auditor-General is probably planning 2018/19, even though the most recent audit report in the public domain is for 2016/17, while the 2014/15 audit is the latest approved by Parliament. This latter version drives the current (2019/20) division of revenue between national and county governments, effectively a five-year backlog.

In the ideal, Kenya’s public finance management (PFM) cycle should work on the basis of “x” as the current year, “x-1” as the previous audit year and “”x+1” as the forthcoming budget year. That the 2017/18 audit is not yet published is disturbing given that Kenya is planning for 2020/21. This is the background that informs the current budget process.

The hearings are supposed to be a key cog in the budget cycle. In September, the Treasury publishes its Budget Review and Outlook Paper (BROP), reviewing progress since the previous (2019) Budget Policy Statement (BPS) was approved by Parliament and providing an economic and fiscal outlook for Kenya.

This outlook also presents sectors with resource ceilings to guide the preparation of their reports, which are the subject matter of these hearings. Public input is then supposed to guide the consolidation of these reports into the 2020 BPS that the Treasury is expected to publish in February.

This year, the hearings are being held in January, even though they were scheduled in Treasury’s original Budget Calendar for last November. It is likely that this might be about the “clean up” the new Treasury leadership team has had to first perform on Kenya’s public finance and debt records, plus pending bills.

Although Kenya’s Medium-Term Expenditure Framework (MTEF) comprises 10 sectors; only nine are subject to public scrutiny; the exception being National Security (Defence and Intelligence). Even for these nine sectors, the material to be consumed by the public is frightening, with individual sector reports this year ranging in length from 144 to 347 pages; an average of 253 pages – or 100 pages more than the Building Bridges Initiative (BBI) report.

Do these hearings really work? Recent data is telling. Going into the 2018/19 budget process, the sectors had spent – in total - 85 percent of 2017/18 budget (Sh1.38 trillion out of Sh1.63 trillion). The 2017 BROP (for 2018/19) set out an overall ceiling of Sh 1.7 trillion. Despite this guidance, sectors presented a total of Sh2.3 trillion in resource bids. The 2018 BPS cut these bids back to the original ceiling of Sh1.7 trillion, the subsequent budget estimates were Sh500 billion more, and actual spend for the year was Sh1.6 trillion (92 percent of budget).

For the current 2019/20 year, the 2018 BROP set a total ceiling of Sh1.78 trillion. Sector bids totalled Sh2.95 trillion. The BPS slapped this back to Sh1.82 trillion, and the budget estimates (probably illegally since the BPS should set the budget limit) came out at Sh1.93 trillion. For 2020/21, the subject of these hearings, a 2019 CBROP ceiling of Sh1.86 trillion has been countered by sector bids totaling Sh2.89 trillion.

Simply, for 2019/20 and 2020/21, resource bids have exceeded the resource “envelope” (or allocation) by at least Sh1 trillion each time. How should the public “participate” in understanding the reasoning for this speculative “over-bidding” by sectors at a time of fiscal restraint? What purpose do the hearings serve if the data presented by sectors bears no relation to reality? Shouldn’t past spending guide forward bidding?

Who are the “serial over-bidders”? Patterns change over time, but in the past two years, the Education, Health and GJLOS- governance, justice, law and order- sectors have bid way above their recurrent cost ceilings; most likely to cater for Kenya’s three “ring-fenced” public service job cadres - teachers, doctors and health workers and security personnel.

Speculative expenditure

On development, Energy, Infrastructure and ICT sector is the elephant in the room, requesting a whopping Sh700 billion plus (against an Sh300 billion ceiling) in both years, effectively half of overall sector “over-bidding”.

Excluding National Security which does not prepare a sector report, no sector has presented a bid within its ceiling. Don’t sectors trust Treasury, and Parliament? Does this over-bidding divert the budget’s purpose?

Naturally, sectors will present glowing justifications for their resource bids over the next three days, which will be interesting to observe with new sector leaders following the reshuffle. However, these hearings present a great opportunity for the public to purposively interrogate the increasingly speculative expenditure side of government, absent of endless debate around the juicier headlines of revenue collection and debt service.