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

492 Alta Fölscher
Realizing the costs and complexities of these agencies, the government
of Kenya embarked on a reform program aimed at reducing the burden on
the exchequer. The program would wind down some of the agencies and
privatize their functions (Khasiani and Makau 2006). Ministries are now
responsible for ensuring that they include agencies under their control and
oversight in MTEF planning. From the 2005/06 budget, ministries are also
required to fund any additional requests from agencies from within their
own budget ceilings.
Implementing a stronger link between planning and budgeting is a
function not only of the budget allocation process, but also of how well the
institutions of budget implementation link the intentions expressed through
the budget to activities that take place on the ground. The next section briefly
discusses key reforms in budget execution.
Reforms in Budget Execution
Budget implementation in Kenya comes with a long history of deviation
from the planned budget. The 2005 PER (Republic of Kenya 2005) found
that underspending on the development budget has been substantial (42
percent underspending in 2003/04) and rising, making it very difficult for the
government to achieve the IP-ERS objectives. Recurrent budget deviation
varies but is still significant. Historically, some ministries overspend while
others absorb that cost and underspend. In cash terms, spending is often
understated, because arrears that are built up are not captured. Pending bills
are a significant problem affecting financial management and control.
Deviation and rising pending bills reflect poor budgeting and planning,
undisciplined budget execution, lack of compliance with regulations, lack of
accountability, poor recordkeeping and management, weak procurement
and contracting systems, and low project completion rates. Often, incomplete
projects and pending bills attract large penalties and interest, which
diverts resources from identified priorities.
In contrast to the pre-MTEF years, the public finance reform program
in Kenya extended its scope to include budget execution issues to address
such deficiencies. The chapter now discusses a number of reforms that
belong particularly to systems of cash release management, expenditure
control, accounting, reporting, and monitoring.
Controlling cash management and commitment
The Ministry of Finance introduced a new system of cash-flow management
and zero-balance drawing accounts to synchronize cash inflows with budget