Support project to the implementation of the Public Finance Management reform strategy, through the GESDEK Program in Kenya – KENGEFIP

In Kenya, the National Treasury has initiated several Public Financial Management Reform (PFMR) initiatives under the PFMR strategy 2013-2018 that was renewed in a 2018-2023 Strategy. This PFMR strategy seeks to make Public Finance Management more efficient, effective, participatory and transparent resulting in improved accountability and better service delivery for Kenyans. The new County governments also have PFM responsibilities that were integrated within the new PFM strategy produced in 2018. The current PFMR strategy is based on eight results areas outlining key PFM reforms:

1. Sustainable and predictable fiscal space to deliver government programs.
2. Strategic and Transparent Spending on Public Investment and Service Delivery in Line with National and County Policy Commitments
3. Reliable cash for service delivery and public investment.
4. Value for money in procurement and contract management.
5. Value for money, performance & accountability in staffing for service delivery
6. Education institutions, health and other service facilities effectively manage public resources.
7. Disciplined financial management and accurate reporting.
8. Accountability delivered through audit, oversight and follow up

AFD has agreed to support the implementation of the PFMR Strategy, along with a sectoral budget support - GESDEK – co-financed with the World Bank, which uses the “Program for results” tool. The AFD support will be funded through two means:

• A soft loan in the form of a Sector Budget Support (SBS), of 30 million euros.
• A grant in the form of a Technical assistance support (TA) of 1.5 million euros, managed by Expertise France, the French public agency for international technical assistance.

The TA support will also aim to promote partnerships between Kenyan institutions and their French counterparts. Expertise France will ensure the mobilization and coordination of the technical expertise.

The PFMR Secretariat of the National Treasury has recruited a local coordinator in order to (i) monitor the implementation of the TA support in conjunction with the other departments of the National Treasury and the Office of the Auditor General, and to (ii) coordinate and complement the short-term expertise supports. 

Macro Fiscal Risks context

Kenya is currently facing a complicated fiscal situation where revenues have been decreasing for the past years whereas expenditure needs are still high to undertake the development program of the Big Four Agenda. The current crisis context led Kenyan Administration to present a very austere budget for Financial Year 2020/2021, with a drop in expenditures and a decrease in tax rates to support consumption. The current very uncertain context raises the need of establishing risk management scenarios and stress tests in order to restore key macroeconomic balances.

The annual estimates of revenues and expenditures are prepared on the basis of macroeconomic assumptions. These assumptions are then verified as part of the budget execution monitoring. In case of significant differences between forecasts and execution, and in order to avoid a slippage in public finances, it is essential to set up effective budgetary regulation mechanisms while preserving so-called protected spending. The same applies to the borrowing policy, which should provide for the ways but also the limits to meet the financing needs in case of under-execution of the revenues during the year.