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

482 Alta Fölscher
MTEF, these ceilings were derived by taking into account policy priorities
and their relation to the functions of ministries (particularly objectives of
enhanced economic growth for poverty reduction), historical sector
resource allocations, proposed sector priorities, donor commitments, and
projected realization of revenues.
The decision to roll over the MTEF sector ceilings from the previous
years as the starting point for sector and ministry planning is a recent one.
Over the seven years of budget preparation in an MTEF process, Kenya has
varied the form and base of expenditure ceilings considerably.
At first, the Fiscal Strategy Paper, the precursor of the BOPA, provided
input-denominated sector ceilings. All personnel expenditure was allocated
to the public administration sector (under the argument that ministries in
this sector control salaries and wages), and all capital infrastructure spending
was allocated to the infrastructure sector. Other sectors, such as the
social spending sector, worked with the remainder of spending items only.
Although this method did allocate budgeting responsibility to the sectors
that had the most control over the line items for which budgets were prepared,
it hindered proper expenditure review, policy analysis, and consideration
of the full cost of new policy proposals. Instead of improving the link
between planning and budgeting, it weakened that link by a continued
emphasis on line-item budgeting.
For the 2004/05 budget, the BOPA (which introduced a two-phased
budget process preceding formation of the annual budget, as described in
the next section) for the first time provided sector ceilings that included all
expenditure lines. However, these ceilings also already included indications
from the Ministry of Finance, working through the MEWG, of what sector
shares in additional resources should be. This system worked reasonably
well: even though sectors perceived that the bidding process would not
change final ceilings significantly, the component ministries in each sector
still had to compete for their share of the additional resources allocated to
the sector. The sector as a whole also had an opportunity to bid for additional
resources, on the basis of its analysis of policy and expenditure.
For 2006/07, after a review of the MTEF in 2004, the Ministry of Finance
decided to issue indicative ministry ceilings in the BOPA. These ceilings
already included an assessment of how projected additional resources
should be allocated among ministries.
Allocating additional available resources to ministries so early in the
MTEF-budget process had two drawbacks. First, it provided little incentive
for ministries to undertake thorough policy and expenditure reviews
because they perceived that allocations were as good as finalized. Ministries