New rules to support Public Finance Act welcome, but still no public input

Saturday November 16 2013

 

By Jason Lakin

I was pleased to see this newspaper run a front-page story last week about the new regulations to implement Kenya’s Public Finance Management Act that are currently circulating in draft form.

These are the kind of technical documents often ignored by media, but that profoundly impact the way government works. So kudos to the editors for giving this story serious real estate.

The title of the story highlighted one element of the regulations of particular interest: The cap on borrowing.

The regulations suggest that national borrowing will be capped at 60 per cent of GDP, while debt guaranteed by government should not exceed 25 per cent of GDP.

Though the story doesn’t say so, this effectively caps county borrowing, because the Constitution already requires all county borrowing to be guaranteed by national government. These are weighty issues and deserve public debate.

At the same time, the story dwelt heavily on non-issues and brushed over some key issues. For example, three paragraphs are dedicated to the requirement that national and county governments set up Treasury Single Accounts (TSA), which was already contained in the Act and are not a new development. Neither the regulations (nor the news story) add much to what has already been known for the past year.

A worrying issue mentioned in passing in the story (and the regulations), and one which Kenya’s public accountants (ICPAK) have flagged, but that the story does not analyse, is the 35 per cent limit on the share of tax revenues that can be used for public employee compensation (including benefits).

At the county level, this cannot be right: Almost all counties will get the vast majority of their funding from national government transfers. If they are only allowed to spend 35 per cent of their own tax revenues on wages, most of them will have to fire nearly all of their staff.

Even at national level, if we use the 2013 Budget Policy Statement and look at the share of “wages & salaries” (including pensions) in total ordinary tax revenues for the revised 2012/13 budget, the current figure is about 45 per cent, which suggests substantial cuts at national level would be needed in a single year to meet the requirement. Where are these going to come from?

While The EastAfrican story flagged some important economic issues in the regulations, it missed entirely equally important procedural issues related to transparency and public participation.

The regulations contain good general language in favour of transparency of financial information, but fall short at the level of details. Probably the biggest gap in this regard is timeliness. Even where documents are to be made available, there are no requirements that they be made available in a timely fashion.

What does this mean? The budget process repeats every year and follows a strict timeline. One of the biggest omissions in the PFM Act itself is that there is no requirement that the budget estimates be made available to the public before the budget is approved by parliament.

Timely release of the budget estimates (meaning that they should be released on the same day they are sent to parliament, or at most one week afterward) is essential to meet the requirements of public participation in the budget process.

As it stands, the public does not have access to the detailed budget proposal at the time that the Parliamentary Budget Committee holds hearings to get public input on the budget (generally, in May).

No general bromide in favour of transparency can fix this problem; it should be specifically fixed in the regulations. There is similarly no requirement that the supplementary budgets be made available to the public in a timely fashion, and this is an equally egregious oversight in the Act and the regulations.

While the Act and the regulations require that the Treasury release a circular in August to kick off the budget process, one that should contain a calendar of opportunities for public participation in budgeting, there is no requirement that this circular be made public either.

The regulations do relatively little to increase the amount of information that is available to the public on budget implementation and could be enhanced to ensure regular production of reports on budget execution in the middle and end of the year, with more disaggregated figures.

When it comes to public participation, the regulations do not add any value. Last year, however, nine civil society organisations came together to propose a set of 10 principles that should inform public participation in public finance and to guide the formation of County Budget and Economic Forums as required by the Act.

It is disappointing to see that they have not been incorporated in the regulations. These principles are available online at http://internationalbudget.org/wp-content/uploads/PFM-Brief-.pdf and should be considered for inclusion. They include requirements for advance notice, participation throughout the budget cycle, and feedback mechanisms.

Dr Jason Lakin is a senior programme officer and research fellow at the International Budget Partnership

Advertisement