A county’s fiscal strategy paper is the soul of budgeting past, present, future

Saturday March 22 2014

Jason Lakin

Jason Lakin 

By Jason Lakin

Every Kenyan county must produce a Fiscal Strategy Paper to guide its budget by February 28 each year.

This year, most counties made considerable effort to meet this deadline for the first time. With little technical guidance and capacity (many county officers were appointed weeks before the paper was due), many counties still managed to table these papers in their respective county assemblies on time, while also making them available to the public.

We should applaud these attempts to meet budget timelines, but it is clear from a review of some of these papers that most officials (and citizens, for that matter) have not yet understood what these documents are all about.

To guide both those who produce these papers, and those who are supposed to read them (assembly members and the public), here is some free advice:
The County Fiscal Strategy Paper (CFSP) should focus on the past, the present and the future of the budget in the county. What does this mean?

Let’s start with the past. The paper should inform readers about the implementation of the current year’s budget in at least the first two quarters of the year.This includes information on both revenue collection and expenditure.

Have we met our revenue targets? Were they realistic or too ambitious? Are all government departments spending money as planned? Have there been challenges in some departments in meeting targets? We need this information to inform our thinking about revenue and spending estimates for the coming year.

If we overestimated our revenues, we should not repeat that mistake in the coming year. If certain departments are not able to spend money, we should not give them more without reforms.

We move to the present. The present is where we are today in terms of the current budget, particularly whether we are currently making adjustments to meet our targets.

At national level, the Budget Policy Statement (which is the national equivalent of the CFSP) usually comes out around the same time as the supplementary budget.

The supplementary is an attempt to correct for anything we didn’t anticipate at the beginning of last year. Counties may or may not have supplementary budgets this year, but they should explain how they are currently adjusting (if at all) either to meet targets, or to revise targets in order to make them more realistic.

The future is really the core of the CFSP, while the past and present are mainly intended to guide our thinking about the future. The future section of the paper should discuss a few key issues.

The first is the total revenue and expenditure that the county expects to get in the next year (and ideally, the next 3-5 years). Along with this should be a discussion of the debt. Counties do not currently have deficits, but some do have debts inherited from the local authorities. This is the overall fiscal picture for the county.

Estimates

Because the main source of revenue in many counties is fixed by the national transfer, and because counties are not currently allowed to have deficits, the main issue here is the estimate of own revenues for the coming year and how realistic it is.

This depends on our assumptions about the economy, which should also be explained here. Whether the county has adequately prepared itself to manage inherited debt should also be considered.

After a look at the big picture, the single most important element in the CFSP is the decision about how much of the budget to allocate to each sector. This is where the broad priorities for the county are set.

Do we want to spend more on agriculture or health? If water is a priority, then which sector will receive less in order to finance more water investment? If nothing else, the main purpose in tabling the CFSP is to encourage debate about these broad priorities.

This is not the time to discuss every project or programme within each sector. The detailed spending within the sector will be discussed when the full budget is tabled by April 30. By then, the approved CFSP will guide the overall distribution of funds to sectors, which should no longer be contested.

In considering priorities, the county is required to look at what national government is doing and ensure there is “alignment.” Many counties have interpreted alignment to mean copy-pasting the national Budget Policy Statement into their CFSP.

It would be better to focus on how national priorities can inform county spending. If the national government is investing in irrigation projects, can the county use its own funds to broaden or deepen this investment?

If that is unnecessary, can the county shift its own irrigation funds elsewhere? Finally, if the county is receiving conditional funding for specific projects, how has it accounted for these?

Jason Lakin is senior programme officer and research fellow with the International Budget Partnership. E-mail: [email protected]

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