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

Country Case Study: Kenya 465
current activities, were largely ignored. Critical weaknesses included poor
forecasting ability, an ineffective medium-term perspective, the failure to
cost future resource requirements properly, cash rationing and late release
of funds, repetitive budgeting during the spending year, fragmentation of
spending between budgets and revenue sources, dysfunctional political
interference in budgeting, a limited classification structure, weak expenditure
controls, and weak accounting and reporting systems (Byaruhanga
2004; Khasiani and Makau 2005; Kiringai and West 2002).
By 1997, Kenya was faced with consistently low economic growth (on
average 1.3 percent over the six years since 1990), large public expenditure
outlays (nearly 32 percent of GDP in 1997/98), and high debt stock and
interest payments at 6.1 percent of GDP (Republic of Kenya 2003b). Against
this macrofiscal background, the quality of spending was low. Wages and
salaries to 228,000 public servants absorbed a high percentage of the budget.
Transfers and subsidies demanded an increasing budget share as more activities
moved off budget and outside routine budget scrutiny. Development
expenditure was low (at 5.5 percent of GDP) and declining. Within the
recurrent budget, actual expenditure and revenue were routinely lower than
budgeted because resource estimates remained overly optimistic. Budget
implementation remained weak. Although some ministries routinely underspent,
others—particularly the National Assembly, State House, and the
Office of the President—routinely overspent (Byaruhanga 2004; Kiringai
and West 2002; Republic of Kenya 2003b, 2004a, 2005). Significant in-year
shifts between items of expenditure took place within ministerial budgets,
with the first requests for virement or additional funds arriving as soon as
the budget was tabled in the country’s legislature. Overall, the credibility of
the budget process and the credibility of the budget were extremely low.
Concerns about the quality of public spending, rising poverty, and the
long-term economic outlook caused the Kenyan government to again review
its fiscal and budget management system. The result was a new wave of
reforms, spearheaded by a medium-term expenditure framework (MTEF)
approach to budgeting.
The New Reforms: Introduction of an MTEF
The 2000/01 budget was the first in Kenya to be prepared using an MTEF
system of budgeting. The aim was to match a top-down, medium-term
macrofiscal and policy perspective with bottom-up, medium-term sector
and ministry policy priorities and expenditure estimates. The introduction
of an MTEF spearheaded a series of reforms that recognized that poor links