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

472 Alta Fölscher
a guide to the menu of options for funding. At worst, it was mostly ignored
as new policies and projects were parachuted into the budget during the
spending year. These statements are true both at the central and ministerial
levels. At the center, priorities between competing spending obligations were
decided at the technical level against available cash. At the ministerial level,
ministries soon became adept at playing the games that would maximize a
ministry’s share in available cash (for example, by first funding lower-priority
avoidable activities and then applying for additional funds for high-priority
unavoidable expenditures).
Ironically, although budget preparation was highly centralized, the cashrationing
system passed responsibility for making decisions about funding
priorities at the ministerial level largely to ministries. In effect, responsibility
for real budgeting—namely, budgeting in line with actual available resources—
thus ended up with the spending agencies. But this responsibility came too
late in the process. Instead of being able to plan comprehensively and make
tradeoffs while time to implement the tradeoffs was still available, spending
agencies were in constant crisis management. In addition to transferring
funds from the development budget—where projects could be postponed
or suspended more easily—spending agencies built up huge stocks of pending
bills. Kenya ran a cash accounting system with authorities to incur expenditure
issued at the ministry level against the votebook. This system allowed
ministries to keep incurring expenditures—particularly on running credit
arrangements, such as for utility bills—without having cash available to
cover the obligation.
This disconnect between planning and budgeting was exacerbated
further because the subsequent year’s budget planning did not start from
actual expenditure (including an assessment of arrears). Rather, it took as a
starting point the previous year’s budgeted expenditure, partly because the
financial results were not ready in time for the next year’s budgeting cycle.
The proposed MTEF budget cycle comprised several instruments to
address these disconnects. Over the seven years of implementation, the
process has evolved to include increasingly effective instruments of expenditure
review and planning, an assessment of arrears, sector-based negotiation
and tradeoffs, joint work by the Ministry of Finance and line ministries,
and a new system of cash management and commitment control that
attempts to balance macrofiscal management imperatives with the need for
predictable cash releases.
The next section considers the current Kenyan allocative budget process,
and the subsequent section examines reforms to budget execution processes.