Public Sector Governance and Accountability Series: Budgeting and ...

462 Alta Fölscher
development budget and the recurrent budget recording government’s
ongoing costs. Together these two budgets formed the legal instrument that
controlled public expenditure. The annual recurrent budget was the outcome
of adjusting existing funding for administrative units incrementally by
line item every year. The development budget consisted of the first year’s
funding for active projects from the five-year plan.
As the economy experienced a downtown in the 1970s, however, the
resulting fiscal pressure started exposing the weaknesses in the budgeting
system. Weak and short-term macroeconomic and fiscal planning processes
exacerbated soft constraints on in-year spending, leading to increasing levels
of debt. At the same time, shifts in the composition of expenditures marred
the ability of state institutions to deliver quality services. In the absence of
planning and budgeting tools to prioritize within existing recurrent spending,
new recurrent costs, plus the increased cost of ongoing activities, squeezed
out spending on public infrastructure. Within the recurrent budget, spending
on interest and on wages and salaries crowded out spending on operations
and maintenance, resulting in deteriorating public infrastructure and weakened
public services.
The Kenyan government responded over the next two decades with
several initiatives aimed at improving fiscal management, the link between
planning and budgeting, and the link between budgeting and service delivery.
In 1973, the country introduced the Programme Review and Forward
Budgeting Procedure, a reform not unlike the medium-term expenditure
frameworks that became popular more than two decades later. The procedure
provided tools that brought policy analysis into the budget process
through the review of ongoing programs, and it extended the planning
horizon to three years. It gave spending ministries indicative three-year
rolling ceilings. In return, ministries were allowed to identify the priorities
on which the resources would be spent, but they were required to take the
forward cost of their choices into account. However, as Byaruhanga (2004)
argues, the new system did not pay sufficient attention to the process
through which the allocations were made, with the result that instead of
ensuring competition between spending proposals, the new system merely
extended incremental budgeting over the medium term. It also did not
succeed in providing realistic resource frameworks, because resource framework
estimations were not based on credible macroeconomic forecasts.
Spending ministries, therefore, still operated under conditions of resource
uncertainty during the spending year.
As the government’s ongoing expenditure obligations increased without
commensurate macroeconomic growth, chronic fiscal imbalance threatened
macroeconomic stability. At one point in the early 1980s, the deficit stood at