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

Country Case Study: Kenya 463
just under 10 percent of gross domestic product (GDP). Investment expenditure
and other, more discretionary spending items—such as spending on
goods and services and on maintenance—came under increasing pressure.
The development budget contained many incomplete and underfunded
projects. An attempt to revitalize the Programme Review and Forward Budgeting
Procedure in the early 1980s did not significantly change outcomes.
However, it created new institutions that, in some form, persist today: a project
appraisal and monitoring division in the Ministry of Finance, the estimates
working groups, and the sectoral planning groups. Despite these interventions,
the forward budget still remained, in essence, delinked from the annual
budget because the ceilings used for annual budget preparation were not
derived from the forward budget (Kiringai and West 2002).
In 1985, Kenya made another attempt at expenditure prioritization:
the Budget Rationalisation Programme. The program was aimed at instilling
fiscal discipline while ensuring adequate funding for infrastructure
investment, operations, and maintenance through concentrating resources
on priority programs and projects. It was introduced in response to concerns
about persistent fiscal imbalances and their compounded effect on both the
private sector and public budgets (by the mid-1980s debt service constituted
25 percent of expenditure). The program still saw the existing Programme
Review and Forward Budgeting Procedure as the vehicle for change
but insisted on a systematic review of all ongoing projects and programs.
Rigorous appraisal procedures were introduced before new projects could
be approved. Only those projects that contributed to increased production,
created employment, generated income, targeted the poor, conserved foreign
exchange, and minimized the requirement for recurrent resources were
supposed to be funded (Kiringai and West 2002).
Although the program promised a smaller, more effective budget on
paper, in practice it did not achieve the shifting of funds from lesser- to
higher-priority spending items. The response to smaller resource envelopes
was to cut expenditure items across the board without taking into account
whether the spending was on the explicit priorities. At the same time, the
number of ongoing projects could not be reduced in practice. The sectoral
planning groups still did not operate well, failing in their mandate to ensure
effective links between policy, project planning, and budgeting. The budget
structure and classification system made their effective functioning virtually
impossible. The recurrent cost of development projects still was not assessed
properly for project appraisal or budgeting processes.
As the development budget became increasingly unmanageable and the
need for renewed investment in public infrastructure grew, the early 1990s
saw the introduction of a rolling public investment plan as a tool to improve