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The tough options for Kenya in next budget

kenya budgetWhen the next government sits down to work on its first budget, it will find that it neither has the luxury of time nor options.

For a start, the authorities will have to whip its members, both in Parliament and Senate, to fast-track the passage of the Division of Revenue Bill and the County Allocation of Revenue Bill which, according to the Constitution, must be in place at least two months before the end of the financial year (by April 30).

“To comply, Parliament has to dispense the Division of Revenue Bill and County Allocation of Revenue Bill as early as possible. This implies that the National Treasury, National Assembly, and by extension the Senate will have to take great care to ensure that the process is not held hostage within the limited time frame,” the Parliamentary Budget Office says in a report released last week.

The MPs have 28 days to get the Budget and Appropriations Committee in place to scrutinise the budget and approve the Division of Revenue Bill — between the National Government and the County Governments — and the County Allocation of Revenue Bill that will determine allocations to each of the 47 counties.

They have not even picked a party whip or even the committee on selection, which will deal with appointing members of the National Assembly to specific departmental committees to deal with budgets of different ministries and government departments. The National Assembly is also yet to name a committee on appointments that will vet Cabinet secretaries before they are formally appointed.

The Cabinet secretary in charge of Finance is required to table the annual estimates and the Division of Revenue Bill, plus the County Allocation of Revenue Bill, before April 30.

That, however, should be the least of their worries. The greatest headache will be coming up with a budget that will entrench devolution and at the same time spur economic growth with focus on uplifting Kenyans from poverty.

Deal with issues

“The budgetary allocations should be in line with the expenditure priorities of the country, according to the Constitution, distribution of functions between the two levels of government, and Vision 2030,” says the report.

In this, the government will have to deal with the issues of rapid population growth, insecurity, the shift to devolved governments, and the tight legal deadlines by which to pass supporting laws.

The Parliamentary Budget Office has pinpointed the four issues as those that are likely to have a “downside risk” to the national economy if left unattended. High inflation, unfavourable weather conditions, and high interest rates also pose a threat to the economy.

To allow the country to make enough money to implement the devolution of power and resources as envisioned in Kenya’s 31-month-old Constitution, the report has recommended that the taxman clamps down on tax evasion, alongside targeting capital gains and landlords.

“To broaden the tax bracket, the tax authority needs to consider levying taxes on incomes or capital gains from appreciation of properties, stocks, and other marketable assets,” the Budget Office noted.
It said most investors have adopted “a wait-and-see attitude and hold investment flows” until the “post-election euphoria” dissipates.

“The extent to which the post-election euphoria persists will also affect the gains made by the economy and the growth trajectory in the near medium term,” the Budget Office noted in the report dated March 27 this year.

The office is a body of technocrats employed by Parliament to advise members of the National Assembly and the Senate on budget matters.

With the fertility rate at five children per woman, it is of the view that such population growth will require a lot of investment in hospitals and schools, including employing more nurses, doctors, and teachers.

“This is likely to put fiscal pressure on the recurrent budget directed to social infrastructure such as in the education and health sectors,” it said in its report titled Setting the Pace for Sustainable Growth: Budget Options 2013/14 and the Medium Term, which was released five days ago.

The technocrats in Parliament have recommended that the Executive and Parliament consider a “policy shift” to control population growth.

The mandarins have also advised that in making the next budget, more money should be pumped into job creation because “unemployment among the youth in Kenya is without a doubt becoming a security concern.”

The threat that the Al Shabaab militia poses to tourism is a case for more money for the police to allow for crime detection and prevention.

However, it is devolution that has the brains at the Budget Office on tenterhooks. Their argument is that “devolution is not a panacea for economic growth.”

Bring services closer

“While devolution has enormous potential to change livelihoods through bringing services closer to the people, poor management of the process, unprecedented challenges, and lack of innovation can easily obliterate the expected gains,” the Parliamentary Budget Office noted.

The report makes a plea to county bosses to involve people at the grassroots when they come up with projects. The idea is to ensure that those projects are beneficial to the public and not simply ghost ideas with no material benefit to residents.

“Some of the likely risks of devolution include decentralisation of corruption to the counties, disconnect between high expectations by the citizens and the economic realities, the budget absorption capacity of the counties, and risks associated with disruption of seamless service delivery occasioned by weak administration.

For the counties, the Parliamentary Budget Office is apprehensive that while the disbursement of Sh238.7 billion to each of the 47 counties will spur development, there is no guarantee that the counties that have been lagging behind will grow at the same rate as those that benefited from the skewed development.

“Redistributing national resources will not necessarily bring about equitable development across the 47 counties. In actual fact, devolution is likely to perpetuate inequality as not all counties will be able to immediately absorb fully the resources that will be allocated to them. Also, some counties lack the capacity to effectively take up the constitutionally devolved functions,” the report added.

The Budget Office has recommended that the counties get busy with training their staff to handle the increased responsibilities.

There is also a proposal for transparent and accountable processes to make sure that those handling the billions in the counties do not steal from the public.

“Otherwise, there is a risk that devolution may achieve nothing more than devolved corruption,” said the office.

Low budget absorption

It said not all 47 counties were equipped for “immediate take off.” “Some counties lack proper roads, social amenities including health and education facilities, adequate supply of electricity, and other public works. This coupled with low budget absorption capacity poses risk of disruption of seamless service delivery by the county governments,” the report added.

“The counties are likely to face strong headwinds in implementation of their functions if there is rushed transition without the requisite capacity. There is a need to ensure that, as resources are devolved to the counties, the county staff can properly manage these resources by carrying out proper planning, budget execution, monitoring, and evaluation,” the Budget Office report added.

An insider at the Budget Office said the counties will have to come up with development plans that are aligned to the country’s development road map — the Vision 2030. If that is not done, there is concern that most of the money will be gobbled up in operations and payment of salaries.

“The plan should clearly outline the development priorities and criteria for allocation of resources. Functional departments within the county government should also develop a strategic plan outlining vision, mission, and commitment to service delivery in its area of jurisdiction,” the Budget Office noted.

“Since counties can freely determine their expenditure priorities, local development strategies should be tailor-made to address local needs. This will enable counties to be their own drivers of economic change,” the Budget Office said.

There is also an urgent push to have the county public service boards quickly settle down and do their job of recruiting staff and implementing the plans.

Funding of the budget will also present another headache. With falling revenue collection against increasing expenditure, the government will find its funding options limited.-Nation

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