Uhuru Kenyatta’s Sh32bn last budget discrepancy


National Treasury Cabinet Secretary Ukur Yatani addressing the media at parliament buildings after unveiling the Sh3.3 trillion Budget on April 7, 2022. PHOTO | JEFF ANGOTE | NMG

President Uhuru Kenyatta’s last budget in office had a Sh32 billion ‘budget discrepancy’, the first negative inconsistency in more than seven years.

The latest Quarterly Economic and Budgetary Review covering the financial year ending June 30, 2022 shows that Kenya received revenues and grants amounting to Sh2.2 trillion against expenditure and net lending of Sh3.02 trillion. This created a budget deficit of Sh780.4 billion. But when doing the books, the National Treasury ended up with a negative Sh32 billion budget discrepancy, which it has attributed to missing information after budget expenditures and revenues failed to balance.

In previous years, there has either been a zero discrepancy or a positive discrepancy.

The biggest positive discrepancy happened in 2019/20 when the Treasury reported a Sh52.6 billion discrepancy.

Treasury, in responses to inquiries from the Business Daily, says there is no cause for alarm since budgets are not executed in an ideal situation adding that when reporting on actual budget execution, discrepancies may and do usually arise due to incomplete information on actual budget execution data such as gaps or omissions in expenditures, financing items or revenues reported.

A negative discrepancy, is caused by data gaps in expenditures and financing, and is reported when financing of the budget deficit is less than what is needed. It occurs when expenditure is overstated or whenever financing is understated.

A positive discrepancy is the opposite and implies that either financing is overstated or the expenditures are understated during reporting.

The Treasury said when it prepares the budget as a plan for future action, there is usually no statistical discrepancy since revenues are equal to expenditure.

Discrepancies should also not arise since in the cases where expenditures are higher than revenues, Kenya plugs the hole by borrowing to balance the budget, thereby leaving no discrepancy.

“These gaps mainly arise due to issues related to timing: this information on actual expenditure is obtained from preliminary returns from spending units (Ministries, Departments and Agencies (MDAs)) 15 days after the end of the particular quarter, implying that the actual data is yet to be audited, and is incomplete since some units have not yet reported their expenditure.”

Treasury notes that for example, agencies that collect their own revenue (Appropriation-in-Aid (AIA)) must report to their parent ministry, for it to include them in their expenditure returns.

In other cases, MDAs make commitments in anticipation of expected financing, which may delay and since the government uses cash accounting, the commitments might not be recognised in their returns, resulting in expenditure under-reporting.

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“When these information gaps closes, the size of the discrepancy should reduce. However, in real world practice, it is almost impossible to eliminate these discrepancies when reporting actual outturns.”

“They simply indicate that the deficits arising from the difference between expenditures and revenues is not equal to its (deficit’s) own financing.”

Treasury said there should be no room for alarm since in most cases, the financing data is taken as more accurate because it emanates from the banking system.

“Expenditures, on the other hand, are reported on commitments-basis, meaning that if these commitments are not captured accurately for a myriad of reasons, then the deficit on cash basis might be overstated leading to a negative discrepancy.”

Treasury says statistical discrepancy is not carried forward into the next financial year and previous years are revised once new information becomes available.

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Budget experts have raised concerns in the recent past over an increase in supplementary budgets and slow auditing processes that make following Kenya’s budget cycle a tedious process.

Mr John Kinuthia, a public finance specialist at the International Budget Partnership notes budgets are slow processes and it takes time before allocations are made, approved and implemented and the impact is felt.

“In Kenya, the full budget cycle lasts 28 months (two years and four months) from formulation to audit. Because we approve a budget each year, it means there are always three overlapping budget cycles,” says Kinuthia.

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