Quality of Kenya’s budget implementation declined in 2022 due to corruption and rapid accumulation of pending bills, the World Bank has warned in a new report.
The Country Policy and Institutional Assessment (CPIA) shows that Kenya was among the four countries in sub-Sahara that recorded a drop in the quality of budgetary and financial management, an indictment on the administration of retired President Uhuru Kenyatta whose last budget was implemented in the fiscal year ended June 2023.
“Challenges in the governance area remain, particularly in rule-based governance and corruption control,” the World Bank said about Kenya.
“Concerted efforts are needed to enhance transparency and accountability in public financial management and better access to information for effective participation and oversight by civil society organisations,” the global lender added.
In CPIA, countries are rated on a scale of 1 (low) to 6 (high) across 16 dimensions reflecting four areas: economic management, structural policies, policies for social inclusion and equity, and public sector management and institutions.
For the Quality of Budgetary and Financial Management, one of the 16 dimensions, Kenya had a score of 3.0, which is the only area the country that had a lower score than the 3.2 average for the 24 East and Southern African countries.
In 2021, Kenya had a score of 3.5 for the budget-making process, pointing to imprudent election-related spending.
Kenya's overall CPIA score for the 16 dimensions is 3.8.
Spending by most State corporations in the last 10 years has always received a damning verdict from the auditor general’s office, with a lot of wasteful expenditures, most of which have not been accounted for.
Other countries whose score in this area decreased include Burkina Faso, Cabo Verde and Malawi. The scores for Benin and the Republic of Congo increased.
Generally, budgetary and financial management in 2022 was dominated by concerns around budget credibility and government arrears.
“Credibility is severely undermined by the accumulation of arrears,” said the World Bank in the report.
Countries such as Congo, however, saw their scores in this area increase through credible borrowing plans and transparent budgeting.
“In establishing this credibility, a key element is clear oversight in the accumulation of liabilities through unregulated government commitments, such as arrears,” said the World Bank.
The Kenyan government’s headache with arrears continued into the new administration of President William Ruto with the total pending bills hitting Sh567.5 billion by the end of June.
This translated to a 29.2 percent rise, even as the Kenya Kwanza government vowed to cut the supplier debt, which has been blamed for cash flow woes in business.
“The national government policy on clearance of pending bills continues to be in force. The National Treasury is currently developing a comprehensive strategy to clear outstanding stock of verified pending bills of the national government over the medium term,” said the Treasury in the Quarterly Economic and Budgetary Review for the fourth quarter of the financial year 2022/23.
Nonetheless, Kenya continued to score highly on economic management, especially on monetary and exchange rate policy which improved due to the decision by the Central Bank of Kenya to raise its benchmark lending rate to contain inflation.
Some of the trade promotion actions that have been implemented are better customs clearance processes, reduced trade costs, and enhanced trade and port efficiency.
Earlier, the World Bank, in a different report, noted that the government arrears curtailed the flow of cash to the private sector, leaving a lot of companies without the cash to meet their obligations.
“Pending bills in Kenya and non-performing loans have been trending in the same direction for the last two years,” said the World Bank in its latest Kenya Economic Update report.
Former Central Bank of Kenya (CBK) Governor Patrick Njoroge in his last press briefing noted that the spike in non-performing loans was due to the delay in payment of pending bills by State corporations.
This, Dr Njoroge noted, has an element of collateral damage that is likely to further weaken the economy.
“So it is important to actually create positive dynamics, so you have a virtuous cycle beginning with the payment of the delayed payments,” he said, adding that the government should use the huge inflows it has received to clear the pending bills.