COUNTY FISCAL STRATEGY PAPER

Transcription

1 COUNTY GOVERNMENT OF TURKANA OFFICE OF THE COUNTY EXECUTIVE FINANCE AND PLANNING COUNTY FISCAL STRATEGY PAPER FEBRUARY 2016

2 Turkana County Fiscal Strategy Paper (CFSP) 2016 To obtain copies of the document, please contact: County Planning Unit Office of the Executive Finance and Planning County Treasury P. O. Box LODWAR, KENYA The document is also available on the internet at:

3 Foreword The County Fiscal Strategy Paper is the County s Government s strategy document for the budget, and provides the link between the Government s overall policies (as identified in the CIDP) and implemented through the annual budget. An important objective of the paper to re-emphasize the priorities and immediate concerns of the citizenry. It highlights how the county government will respond to these needs taking into account challenges of both the fiscal and macroeconomic conditions. The paper highlights the outcome of the previous financial year and also realigns itself to the broad national objectives as outlined by the national treasury in the Budget Policy Statement (BPS). It also contains vital information on: macroeconomic policy and plans; overall fiscal strategy, such as revenue projections; the overall resource envelope for the medium-term; overall priority interventions and proposed sectoral expenditure as outlined in the Medium term Expenditure Framework. The county priorities as outlined in the budget circular still remain. Therefore, this CFSP will emphasize on: a) Investing in agricultural transformation to ensure food security b) Investing in infrastructure in areas such as water, roads and energy c) Investing in quality and accessible health care services and quality education d) Enhancing a conducive business environment for wealth and employment creation e) Effective and efficient service delivery With these, it is our sincere hope that we will make a great milestone towards the realization of our county s development agenda. EKWOM NABUIN County Executive Finance and Planning 1

4 Acknowledgements This 2016 County Fiscal Strategy Paper is a continuation of the Turkana County Government s effort to ensure effective linkage between policies, planning and budgeting. It provides an updated resource envelop and presents a fiscal framework for the next budget and the medium term plan. It also updates the Medium Term Expenditure Framework (MTEF) for the financial years 2016/17 to 2018/19. It also sets indicative sectoral ceilings in line with indicative priorities and programmes as outlined in the County Integrated Development Plan 2013/17. This is vital in ensuring resources are directed to the key strategic objectives of wealth, improving livelihoods of the poor and employment creation. It provides specific expenditure ceilings for the ten sectors of the county and detailed guidelines that aim at restructuring the pattern of its expenditures towards the priority areas in the social and economic sectors. These priorities have been derived from the sectoral plans. The sectoral plans for the 2016/17 budget are consistent with the indicative priorities provided in the C.I.D.P thus representing continuity in the allocation of resources in the medium term perspective. The preparation of the 2016 Fiscal strategy paper was a cooperative effort. Much of the information in this report was obtained from the line sectors and various other government departments and agencies. We are grateful for their inputs. We are also grateful for the collaboration and comments we received from the executive members, County budget and Economic Forum Members chief officers and directors of the different sectors and other technical staff. The development partners also provided valuable comments. A core team in the county planning unit spent a significant amount of time to put together the report. In this regard, specifically, we are grateful to: H.E the governor Hon. Josphat Koli Nanok, H.E. the Deputy Governor Hon. Peter Lokoel, the County Secretary, the CEM in charge of Finance and Planning for his guidance and stewardship of the process and the Deputy Director of Planning Mr. Victor Lekaram. This work would not have been complete without the output of Mr. Simon Wangila, Statistician in the County Planning Unit, Mr. Kennedy Birgen, Kevin Emeri, Shadrack Lokuno and Shadrack Ekusi. Emathe Namuar CHIEF OFFICER 2

5 Table of Contents Acknowledgements... 2 Legal Basis for the Publication of the County Fiscal Strategy Paper... 5 Fiscal Responsibility Principles for the National and County Governments... 7 I. INTRODUCTION... 8 a. Overview... 8 b. Organization of the Paper... 8 II. ECONOMIC ENVIRONMENT AND OUTLOOK... 2 GLOBAL ENVIRONMENT AND OUTLOOK... 2 Overview of the Economic Performance... 2 Impact to the County... 3 NATIONAL ECONOMIC ENVIRONMENT... 4 Agriculture and Forestry... 4 Manufacturing... 4 Transport... 5 Accommodation and Restaurants... 5 Construction... 5 Electricity Supply... 5 Information and Communication... 6 Financial Intermediation... 6 Impact to the county III. COUNTY DEVELOPMENT PRORITIES/POLICIES TO ACHIEVE MEDIUM TERM OUTLOOK a. Introduction b. Agricultural transformation for food security c. Infrastructure development d. Expanding Road Network and public works e. Adequate water supply f. Access to Adequate, Affordable and Reliable Energy Supply g. Quality Health care and Education h. Quality and affordable healthcare i. Quality Education

6 j. Conducive business environment k. Effective and Efficient Service delivery IV. 2014/15 BUDGET FRAMEWORK l. County Governments Equitable Share of Revenue for Financial Year 2015/ m. Additional Conditional Allocations to County Governments PROPOSED VERTICAL DIVISION OF REVENUE FOR FY 2015/ HORIZONTAL DIVISION OF REVENUE AMONG COUNTIES SOURCES OF ADDITIONAL RESOURCES FOR TURKANA COUNTY a. Own revenues b. Borrowing c. Grants and donations FISCAL DISCIPLINE Revenue Projections Expenditure Forecasts Implications Recurrent Expenditure Development Expenditure Summary V. FISCAL FRAMEWORK, 2016/ / Fiscal Implications Fiscal Responsibility External Financing Fiscal Structural Reforms Risks VI. CONCLUSION AND NEXT STEPS Table 10: Proposed Ministerial Ceilings 2016/ Table 11: Proposed MTEF Projections for FY 2016/ /

7 Legal Basis for the Publication of the County Fiscal Strategy Paper The County Fiscal Strategy Paper is published in accordance with Section 117 of the Public Finance Management Act, The law states that: 1) The County Treasury shall prepare and submit to County Executive Committee the County Fiscal Strategy Paper for approval and the County Treasury shall submit the approved Fiscal Strategy Paper to the county assembly, by 28 th of February of each year. 2) The County Treasury shall align its County Fiscal Strategy Paper with the national objectives in the Budget Policy Statement. 3) In preparing the County Fiscal Strategy Paper, the County Treasury shall specify the broad strategic priorities and policy goals that will guide the county government in preparing their budget both for the coming financial year and over the medium term. 4) The county treasury shall include in its County Fiscal Strategy Paper the financial outlook with respect to county government revenues, expenditures and borrowing for the coming financial year and over the medium term. 5) In preparing the County Fiscal Strategy Paper, the County Treasury shall seek and take into account the views of - (a) The Commission of Revenue Allocation; (b) The public; (c) Interested persons or groups; (d) Any other forum that is established by legislation. 6) Not later than fourteen days after submitting the County Fiscal Strategy Paper to the county assembly, the county assembly shall consider and may adopt it with or without amendments. 7) The County Treasury shall consider any recommendations made by the county assembly when finalizing the budget proposal for the financial year concerned. 8) The County Treasury shall publish and publicize the County Fiscal Strategy Paper within seven days after it has been submitted to the county assembly. 5

8 Fiscal Responsibility Principles for the National and County Governments In line with the Constitution, the new Public Finance Management (PFM) Act, 2012, sets out the fiscal responsibility principles to ensure prudent and transparent management of public resources. The PFM law (Section 15) states that: 1) Over the medium term, a minimum of 30 percent of the national and county budgets shall be allocated to development expenditure 2) The national government s expenditure on wages and benefits for public officers shall not exceed a percentage of the national government revenue as prescribed by the regulations. 3) The county government s expenditure on wages and benefits for its public officers shall not exceed a percentage of the county government s total revenue as prescribed by the County Executive member for finance in regulations and approved by the County Assembly. 4) Over the medium term, the national and county government s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure. 5) Public debt and obligations shall be maintained at a sustainable level as approved by Parliament for the National Government and the county assemblies for the County Governments. 6) Fiscal risks shall be managed prudently; and 7) A reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future. 7

9 I. INTRODUCTION a. Overview 1. This is the Third Turkana County Fiscal Strategy Paper (CFSP) and prepared by the Office of the County Executive in charge of Finance and Planning. 2. The CFSP 2016 will continue to enhance Programme Based Budgeting (PBB) which seeks to re- orient the focus of the current budget from an input-based financial programming to result- based management of county development initiatives. This means that the PBB will link funds appropriated by the County Assembly to distinct deliverables and outcomes. Hence the budget for 2016/17 will provide a summary of programmes and their expected results for the same period. 3. Greater effort towards working with partners of goodwill will be made especially the Private Sector and Development Partners in achieving the county s goals. 4. A key government priority will be to increase the access of water for domestic, livestock and for agricultural us to boost food production 5. For the social sectors, operationalization of facilitates will be given priority to ensure enhanced access and quality of services provided. The interventions will see staffing, equipping and improvement of related needs to ensure standards are met and possibly surpassed. b. Organization of the Paper 6. The rest of this paper is organized as follows: Section II presents the recent economic development which is followed by County Medium Term Macroeconomic Framework. The County Development Priorities that outlines budget priorities and resources allocation. Section IV presents the budget framework for 2015/16 and Section V provides a summary of the fiscal framework and section VI summarizes the conclusion and next steps. 8

10 II. ECONOMIC ENVIRONMENT AND OUTLOOK GLOBAL ENVIRONMENT AND OUTLOOK Overview of the Economic Performance 7. Provisional estimates of Gross Domestic Product (GDP) show that the country's economy expanded by 5.8 per cent during the third quarter of 2015 compared to 5.2 per cent recorded during a similar quarter of 2014 as shown in Figure 1. The growth was mainly supported by strong expansions in Agriculture; Construction; Financial and Insurance; Wholesale and Retail Trade; and Transport and Storage. Activities of the Construction industry recorded the fastest growth of 14.1 per cent followed by Mining and Quarrying, Electricity Supply and Financial and Insurance with growths of 12.5 per cent, 11.0 per cent and 10.1 per cent, respectively. Accommodation and Food Services (Hotels and Restaurants) continued on the decline that started last year. 8. During the quarter, most of the macroeconomic indicators remained relatively stable. Inflation eased to an average of 6.14 per cent from 7.54 per cent recorded in the corresponding quarter of 2014 mainly due to decrease in transportation costs in line with the global fall of oil prices. Globally, Murban ADNOC crude oil prices halved to average at US$51.05 per barrel during the quarter under review compared to US$ in the same quarter of Domestically, the retail prices for light diesel declined by 20.0 per cent over the same period. 9. In the money market, the Kenyan Shilling strengthened against the Euro, Yen, South African Rand, Ugandan Shilling and the Tanzanian Shilling but weakened against the US Dollar and the Sterling Pound during the third quarter of 2015 compared to a similar period in Despite an upward revision of the Central Bank Rate (CBR), weighted interest rates on commercial banks loans and advances declined by 0.61 percentage points to average at per cent during the quarter under review compared to per cent in the same quarter of The CBR was adjusted from 8.50 per cent that prevailed in the first half of 2015 to 10.0 per cent in June and later to 11.5 per cent in July The volume of stocks traded at the Nairobi Securities Exchange (NSE) declined significantly to a monthly average of 4,251 shares compared to 5,100 shares during a similar quarter of During the review period, the value of total exports increased by 23.2 per cent while the import bill declined by 9.7 per cent, resulting to narrowing of the current account deficit by Kshs 86.5 billion compared to the same quarter in 2014.

11 Impact to the County 10. As the economy expands by measure of the increase in the GDP, more opportunities become available for both the local and external parties. Employment and unemployment pressures, production factor mobility (land, labour, capital and entrepreneurship) demand goes up, influx/migration towards projected areas of growth, competition, urbanization and the various conflicts that comes along etc. Whenever an economy experiences growth, capital accounts improve as a result of savings accumulated that is then translated into investments. In this effect, the county is set to realize more public and private investments for as long this trend persists. 11. The price of oil in the international market has a direct impact in the county economy. Thus, the entrant of Iran as an oil exporter may further cause the price of oil to decline and this will result in a situation whereby the oil prospectors will have no incentive to expand investments occasioned by the low prices. Further, a fall in the price of oil implies that the county will lose in the amount of realizable revenue, royalties, fees and other incidental charges. 12. Weakening of the US Dollar has both good and bad tidings for the county. As crude is traded in USD, a stronger dollar will generate more income to the county should extraction commence. However, a weakened shilling will imply that for all goods and services procured using foreign currency, residents will fork out more shillings.

12 NATIONAL ECONOMIC ENVIRONMENT OVERVIEW OF THE ECONOMIC PERFORMANCE BY SECTOR Agriculture and Forestry 13. During the third quarter 2015, the sector is estimated to have expanded by 7.1 per cent compared to 6.8 per cent recorded in similar quarter of The growth was supported by increase in the production of most major crops and the dairy sub-sector against a background of improved weather conditions. However, external demand for horticultural produce was negatively impacted on by the strengthening of the Kenyan Shilling against the Euro during the review period. Exports of cut flowers and fruits increased during the quarter under review while exports of fruits declined. 14. Production of tea, coffee and sugarcane increased during the review quarter. Tea exports increased to 95.8 thousand metric tonnes from 90.7 thousand metric tonnes in the corresponding quarter of The auction prices of tea increased by 45.5 per cent during the review period, to average at US$ 3.2 per kilogram. Over the same period, coffee auction sales recorded a marginal increase to stand at 8,015 metric tonnes compared to 7,930 metric tonnes. Cane deliveries increased by 3.8 per cent during the third quarter of 2015 to an estimated 1,738 metric tonnes from a decline of 7.2 per cent recorded in a similar quarter in The dairy sub-sector also reported improved performance during the review period supported by improved rains. Milk intake in the formal sector was estimated at 137 million litres in the third quarter of 2015 compared to 124 million litres during the same quarter last year. Manufacturing 16. Activities of the manufacturing sector benefited from lower oil and electricity prices during the review period. The sector was also boosted by a decline in the interest rates though they remained relatively high. Commercial bank credit to the manufacturing sector grew by 19.3 per cent from KSh billion by end September 2014 to KSh billion by end September The industry is estimated to have expanded by 2.8 per cent during the third quarter 2015 compared to a growth of 1.5 per cent in the same period of 2014.

13 Transport 17. During the quarter under review, the transport sector grew by 8.7 per cent compared to 7.8 per cent growth recorded in the same quarter of The accelerated growth was attributed to increased demand for freight transport and a fall in oil prices. Consequently, the consumption of light diesel, a key indicator of the sector, increased from thousand tonnes in the third quarter of 2014 to thousand tonnes during the review period. Accommodation and Restaurants 18. Activities of Accommodation and Restaurants sector contracted by 2.3 per cent during the third quarter of This was, however, a slower decline compared to that of 20.5 per cent during the same quarter of The suppressed performance of the sector was attributed to both internal and external factors among them the lagged effects of insecurity and negative travel advisories by some key tourist source countries. Bed occupancy, which is a key performance indicator of the sector, remained on a downward trend though at decelerated rate. Construction 19. The sector is estimated to have expanded by 14.1 per cent during the review period compared to a growth of 8.8 per cent in the same period of The accelerated growth was mirrored in the increased credit advanced to the sector and cement consumption. Credit advanced to the sector by commercial banks increased from Kshs 78,804 million in the third quarter of 2014 to Ksh 100,827 million in Cement consumption increased by 10.7 per cent from 1,304,257 metric tonnes in the third quarter of 2014 to 1,443,544 metric tonnes in the same period of Electricity Supply 20. The sector recorded an accelerated growth of 11.0 per cent during the period under review compared to a growth of 7.2 per cent in same quarter of The sector s growth was mainly attributed to increased share of both geothermal and hydro-electric power generations coupled with a significant reduction in generation of the more expensive thermal electric power. The enhanced production was due to improved long rains that led to the increased hydro-electric power generation and additional geothermal capacity of 280 megawatts in the fourth quarter of During the third quarter of 2015, production of geothermal electricity posted the highest expansion of 40.4 per cent followed by hydro-electric power generation which expanded by 12.7 per cent compared to the same quarter of On the other hand, production of thermal electricity

14 contracted by 44.7 per cent from MWh in third quarter of 2014 to MWh during the review quarter. Information and Communication 22. The sector recorded a slowed growth of 8.9 per cent compared to a growth of 16.1 per cent in a similar quarter in The growth was mainly supported by voice traffic and internet services. Local outgoing traffic increased by 35.1 per cent to 10,877 million minutes during the third quarter of 2015 compared to 8,049 million minutes in the same period of Total incoming local voice traffic grew by 33.0 per cent compared to the same quarter in Financial Intermediation 23. The sector recorded an improved growth of 10.1 per cent during the period under review compared to 7.1 per cent growth in the same quarter of Overall domestic credit increased by 23.3 per cent to KSh 2,785.3 billion. As at end of September 2015, credit to private sector stood at KSh 2,206.3 billion representing a growth of 20.9 per cent compared to the same point in The net foreign asset of the banking system declined by 12.8 per cent to KSh billion in the review period compared to a growth of 19.8 per cent over a similar period in Extended broad money supply M3 expanded by 13.5 per cent in September 2015 compared to an expansion of 19.4 per cent in September Average interest rate on 91 day-treasury bill rose significantly from 8.38 per cent in September 2014 to 14.0 per cent in September Commercial banks lending rates remained fairly stable at in September 2015 compared to in similar period in Movements in interest rates and 91 days Treasury bill are depicted in Figure 2. The NSE 20 share index declined from 5,256 points in September 2014 to 4,173 points in September 2015.

15 Figure2: Monthly Movements in Interest Rates and 91 Days Treasury Bill, January 2014 September 2015 Balance of Payments 25. Balance of payments and international merchandise trade statistics are presented in Tables 4 and Table 5, respectively. During the third quarter of 2015, the overall balance of payments position recorded a deficit of KSh 51,356 compare to a deficit of KSh 76,804 million in the third quarter of The current account balance narrowed by 43.5 per cent from a deficit of KSh 198,864 million in the third quarter of 2014 to a deficit of KSh 112,377 million in the third quarter of This was mainly on account of increase in the value of exports against a decline in the import bill. International trade in services registered a surplus of KSh 20,468 million in the quarter under review up from a surplus of KSh 14,964 million recorded in a similar period of Net financial flows excluding reserves decreased by 26.5 per cent from a surplus of KSh 214,464 million in the third quarter of 2014 to a surplus of KSh 157,615 million. 26. International merchandise trade balance reduced by 23.5 per cent from a deficit KSh 319,159 million in the third quarter of 2014 to a deficit of KSh 244,171 million in the same quarter of The value of total exports increased relatively faster by 23.2 per cent compared to the import bill which decreased by 9.7 per cent in the review period. The increase in the value of exports was mainly due to increases in the value of exports of food and live animals; manufactured goods, and crude materials.

16 Table 1: Gross Domestic Product by Activity Table 1: Gross Domestic Product by Activity cont'd

17 Table 2: Gross Domestic Product by Activity Table 2: Gross Domestic Product by Activity cont'd

18 Table 3: GDP Growth Rates Table 3: GDP Growth Rates cont'd

19 11

20 Table 5 Balance of Merchandise Trade h Million Year Domestic Period Re-Exports Total Exports Imports Balance of Volune of Exports Trade Trade Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( Q ( KS Impact to the county 27. It is important to note the importance of interrogating national fiscal performance and national accounts. The performance of different sectors in the economy have both direct and indirect impacts to Turkana County. Price level stability, performance of the Agriculture Sector, Wholesale and Retail trade, Accomodation and Service Industries, Balance of Trade Payments, Transport, Communication, Monetary and Fiscal policies have the biggest effects to the county. (Explain) 12

21 III. COUNTY DEVELOPMENT PRORITIES/POLICIES TO ACHIEVE MEDIUM TERM OUTLOOK a. Introduction 28. Policies set out here will involve the following strategies; f) Investing in agricultural transformation to ensure food security g) Investing in infrastructure in areas such as water, roads and energy h) Investing in quality and accessible health care services and quality education i) Enhancing a conducive business environment for wealth and employment creation j) Effective and efficient service delivery b. Agricultural transformation for food security 29. Agriculture is one of the priority sectors to achieving food security in the county. Majority population of the county are either pastoralists or farmers. A lot of investment is required in this sector if at all food security is to be achieved in the medium term. 30. Some of the policies, strategies or interventions implemented in the sector since FY2013/14 include: establishment of the 300 acre Kakwanyang, Nangitony and 65 acre Napuu drip irrigation schemes; purchased 3 tractors; 16 tonnes of certified maize and sorghum seeds translating to 171,900 bags of maize and sorghum. The government will continue supporting investments in these schemes for them to yield desired results. 31. The government priority interventions include rehabilitation of Kanaodon and Nakwamoru irrigation schemes, farm mechanization, research and extension services,and dryland farming; 32. The government will continue supporting interventions to improve pastoral economy and fisheries through mass livestock treatment, breed improvement, fodder production, poultry particularly the improved kienyeji breed, livestock extension services, establishment of market infrastructure, rehabilitation/revival of the 7 fish storage facilities, and in supply of fishing gear. 13

22 33. The above priority interventions are meant to drastically improve the food security situation in the two main livelihoods of the county population. c. Infrastructure development 34. Infrastructure is a key input to sustainable economic development due to the linkages it provides to all other sectors of the economy. To this end, the Government embarked on massive public investments in road, energy and water supplies. d. Expanding Road Network and public works 35. The county has made great strides in the road sector since FY2013/14 in the implementation of the roads development and maintenance programme. To date the Government has upgraded to bitumen standard 9Kms of Lodwar town roads and done routine maintenance of 3,671Kms of earth roads at the sub-county and rural roads. The Lodwar airport design and preliminary works have also been undertaken. 36. Over the medium term, the strategy is to develop the road transport in order to have an effective, efficient and secure road network, step up road transport safety and regulation that is aimed at developing and implementing road transport policies for an efficient, effective and safe transport system. The Government will continue to enhance road network connectivity across the county with the aim of enhancing trade, commerce, agricultural productivity and regional trade. On Airports, the County Government will work with other agencies to ensure the runways are maintained, rehabilitated and expanded in order to boost local and foreign tourists who when present will consume Turkana Tourism products. 37. The Government therefore has earmarked to continue with maintenance of both urban and rural roads to open up various rural areas and farmlands. Other infrastructure of priority will be to construct link bridges along rivers Turkwel and Kerio at Kalokume, Kospir and Elelea, and operationalization of the county mechanical garage. The garage is meant to reduce county vehicles maintenance cost in the medium term. 14

23 e. Adequate water supply 38. Water is a critical component of any meaningful development in the economy and is a basic human and livestock need. A lot of efforts have been made towards improving water supply and access. 39. Between FY and FY , the government improved access to water for 258,000 people from drilling and constructing 65 boreholes 16 water pans and from rehabilitating 121 water supplies. 15 primary schools were also connected to water supplies thus benefiting 6000 school going children. 40. In the medium term, the governement will prioritize development of the county water policy which shall institutionalize and regulate management of water infrastructure. Other notable areas of focus will be to expand water supply systems especially in urban settlements, adoption of better technologies in water supply. Livestock water infrastructure in focus will be in construction of small and medium earth dams and rock catchments. f. Access to Adequate, Affordable and Reliable Energy Supply 41. The realisation of the development objectives set out in the Government s development transformation blueprint (CIDP) will be feasible if quality energy services are availed in a sustainable, competitive, cost effective and affordable manner to all sectors of the economy. 42. A number of investors are in discussion with the county government on ways to develop both geothermal potential and wind sites in the county. Developments on this front are expected to rapidly boost energy generation in the county thus catalyzing economic growth and development. 43. Considering that the county is endowed with green energy potential, the Government shall continue investing in the green energy promotion through installation of solar PVs in all public institutions. So far the Government has been able to connect solar power to 52 institutions institutions out of a target of 110 institutions by g. Quality Health care and Education 44. In order to ensure sustained economic transformation, reduce the burden of economic shocks on the households and enhance access to services by county residents, the 15

24 Government will continue to invest in quality and accessible healthcare services and quality education. h. Quality and affordable healthcare 45. The County shall continue to implement a comprehensive health strategy anchored on the Kenya Health Policy ( ) and Kenya Health Sector Strategic and Investment Plan ( ) to ensure access to quality health care for all. Some of the deliberate strategies which involve countywide health coverage initiatives like free maternity services and immunizations; increased funding of the sector, eradicating prevalence of neglected tropical diseases, equipping public hospitals with specialized medical equipment; reducing morbidity and mortalities from Malaria, HIV/AIDs, tuberculosis and non-communicable diseases; recruitment of more health workers and strengthening health research for improved quality of health, will continue being implemented in this fiscal year. Equipping all the constructed health facilities in the county will be of higher priority. 46. Key notable achievements in the sector from previous investments include: improved access to healthcare, reduced morbidity and infant mortality rates, improved ante-natal clinic coverage and skilled births; increased successful treatment of notified tuberculosis cases; increased immunization rates and improved ambulance services. i. Quality Education 47. Education in the county is focused on Early childhood development and technical education like the village polytechnics. To this end, strategies employed to support this sector have been the improvement of ECD infrastructure and village polytechnics. In the FY2016/17, the strategy will focus on equipping of all the established infrastructure in both levels of education to make operational the institutions. Investment in sports and extra-curricular activities for the children will also be a priority. 48. Achievements so far made on this front include improved access to early childhood education countywide through construction and completion of 120 ECDs; increasing the number of village polytechnics from 4 to 7 (Kataboi, Lokori and Kaaleng) and establishment 16

25 of a feeding program for ECDs countywide. j. Conducive business environment 49. Sustainable and inclusive economic development requires a stable macroeconomic environment anchored on promotion of investments, trade and industrialization. The County will endeavor to ensure a sustainable and vibrant business and investment environment through: a) Development and implementation of sound economic policies and laws like on taxation, revenue sharing and sustainable resource exploitation and use. b) Promotion of private sector development through enterprise and entrepreneurship development for instance establishment of biashara centers and biashara fund. c) Establishment of fresh produce and general foodstuff markets in every major town. This creates a better environment for both traders and customers. d) Mapping all urban and areas set aside for investment and trade. This boosts investor confidence. 50. The county in the FY2015/16 made achievements in establishing 5 foodstuff markets, enacted and rolled a biashara fund to promote Enterprise development. Spatial planning of 8 towns of Lokichoggio, Lorugum, Lokitaung, Lokori, Lokichar, Kakuma, Kalokol, and Loarengak. k. Effective and Efficient Service delivery 51. To ensure effective and efficient service delivery, the following strategies shall be implemented by the Government: a) Decentralization of services both administration and technical services to ward and village levels. Establishment of village administration offices would greatly bring services closer to the communities b) Capacity building of officers on technical course trainings. c) Implementation of the procurement and disposal act,2015. This would reduce bureaucracies associated with procurement. d) Increased funding on ICT which inturn would create a better platform for implementation of e-procurement and full utilization of IFMIS e) Focusing on effective communication to all stakeholders including the public on 17

26 government policies, interventions and plans f) Enhanced peace efforts within and outside our county borders to culminate in peace accords that would bring lasting peace to the county and its neighbors. IV. 2014/15 BUDGET FRAMEWORK a. County Governments Equitable Share of Revenue for Financial Year 2015/ According to Article 203(2) of the Constitution, in dividing the shareable revenue between the two levels of government each financial year, County Governments must be allocated an equitable share of revenue that is not less than 15% of most recent audited revenue received as approved by the National Assembly. 53. In order to arrive at the County Governments equitable share of revenue for the financial year 2016/17, the adjusted baseline as shared by the CRA and National Treasury proposal are considered. This figure is then revised after public sector hearings Table 6: Equitable Revenue Share Allocation to County Governments, FY 2016/ / /17 Budget Item Millions Millions Baseline (Allocation for FY 2016/17) by CRA proposals 226, ,775 Baseline Adjustments Add: 1. Additional Functions transferred /-National Treasury Adjustments Adjusted Baseline 229, ,775 Additional Revenue Measures Add: 1. Adjustment for Revenue Growth (Agreed Revenue growth factor = 10.41%) 23,902 25,588 Equitable Revenue Share allocation for FY 2015/16 253, ,363 Source: Turkana County Planning Unit b. Additional Conditional Allocations to County Governments 54. Article 202(2) of the Constitution provides for additional allocations to County Governments from the National Government s share of revenue, either conditionally or unconditionally. Pursuant to this Article, the National Government proposes to allocate the following 18

27 additional conditional allocations to support specific national policy objectives to be implemented by County Governments: PROPOSED VERTICAL DIVISION OF REVENUE FOR FY 2015/ In the Financial Year 2015/16, the estimated vertical allocation to National and County Governments is as shown in Table 4.2. HORIZONTAL DIVISION OF REVENUE AMONG COUNTIES 56. Section 190 of the Public Finance Management Act, 2012 requires the Cabinet Secretary for finance to prepare and submit to Parliament a County Allocation of Revenue Bill, setting out the division of County Governments share of revenue among counties. County Governments will also get additional conditional allocations from the loans and grants. 57. Table 4.5 provides estimates of revenue allocation among Counties in the financial year 2015/16. The allocations comprise of the equitable share of Ksh billion, distributed based on the formula for sharing revenue approved by Parliament in accordance with Article 217 of the Constitution. 59. County Governments will be allocated additional conditional allocations of Ksh 9.2 billion from the loans and grants received from development partners and the Government counterpart funding derived from the National Government s share. The conditional allocations from proceeds of loans and grants, however, will not be transferred to County Governments in the financial year 2016/17 subject to the following: i. There exists financing agreements guiding the structures and management framework of all the programmes/projects, the alteration of which would take long and delay implementation of programmes/projects; ii. Loans and grants earmarked for devolved functions are tied to on- going contracts with suppliers, the alteration of which may have legal and cost 19

28 implications; iii. iv. Some of the programmes/projects funded by loans and grants have agreed implementation structures transcending more than one County and therefore it may not be possible to place the responsibility for their management in one County Government; and The financing agreements also specify the funds flow modalities which may not be consistent with what is contemplated under the intergovernmental arrangement. 60. It is therefore expected that the loans and grants under the existing financing agreement will be managed by the National Government but with involvement of County Governments in the Project Steering Committees and Project Implementation Units for each programme/project. In addition, reporting arrangements as well as the conditions attached to the implementation of the programme/project will be clearly spelt out in Project Implementation Frameworks to be agreed with County Governments prior to the release of the funds and implementation of the projects. 20

29 Table 7: Revenue Allocation for Turkana County Government for FY 2015/16 and 2016/17 Budget item 2015/ /17 Baseline (i.e. allocation in the previous FY) 226, , Baseline adjustments: 1. Various baseline adjustments 1 2, Adjusted baseline: 229, , Additional revenue measures 1. Adjustment for revenue growth 2 23, , Other adjustment 3 4, Post-BPS 2015 adjustments agreed in Parliament 1, Equitable revenue share allocation for 2016/17 259, , Notes: 1. Baseline adjustments in 2015/16 included allocations against costs related to: i) livestock development; ii) village polytechnics; and, iii) Agricultural Training Centres / Agricultural Mechanization Stations as per TA Gazette Notice of March In 2015/16, the adjustment for revenue growth was 10.41%. For 2016/17, the adjustment applied is 9.85%. 3. Other adjustments refers to those related to anticipated increases in salaries and allowances awarded by SRC in 2014/15 4. A further adjustment for salaries/allowances to cushion counties against salary awards granted to state officers mid-fy 2014/15. The adjustment was agreed on May 28th 2015, after the BPS 2015 had been finalized, following recommendations by a Mediation Committee appointed by Speakers of both Houses of Parliament to unlock deadlock over the Division of Revenue Bill Source: Turkana County Planning Unit/BPS 2016 SOURCES OF ADDITIONAL RESOURCES FOR TURKANA COUNTY 61. In addition to the resources obtained from the National Government as equitable share or additional conditional or unconditional allocations County Governments can raise additional resources from the following sources: a. Own revenues 62. These will emanate from specific County revenue raising measures through imposition of property taxes, entertainment taxes, as well as any other tax as authorised to impose by an Act of Parliament as well as user fees and charges authorised by county laws. b. Borrowing 63. Provided the National Government guarantee is obtained as well as the approval of the respective 21

30 County Assembly. In readiness for borrowing by County Governments the PFM Regulations The framework provides for among other things: i. Sources/type of debt which is available to County Governments. ii. iii. iv. Purposes for which debt may be contracted; Procedures of borrowing, which includes the process of approval (including issuance of guarantee) and guarantee eligibility criteria; Borrowing limits. It has been proposed that the debt stock of a county government should not exceed 20 percent of that County Government last audited revenue while the debt service costs are to be capped at 15 percent of the County Government last audited revenue; and v. Mechanisms to enforce compliance with law as well as reporting requirements. c. Grants and donations 64. From development partners in accordance with section 138 and 139 of the Public Finance Management Act, In this regard, the county treasury will firm up the Turkana-UN Joint Programme under the Delivery as One (DaO) of the United Nations Development Assistance Framework (UNDAF) in collaboration with the Government. Already, the work plans are to be approved and this will provide additional funds for meeting various sectorial objectives in the County. 65. Further, The DANIDA and World Bank Grants will specifically address the improvement of vital statistics for the health sector FISCAL DISCIPLINE 66. The Turkana County Government will ensure that county resources are used in a prudent and responsible way as required under Article 201(d) of the Constitution. In addition, it will ensure compliance with the fiscal responsibility principals set out in the Public Finance Management Act. The County Treasury will be responsible for ensuring compliance with the set fiscal targets. In this regard, The County Treasury will ensure each County Government s recurrent expenditure does not exceed 22

31 their annual revenue and development budgets do not fall below 30 percent of our total budget over the medium term. Specifically, the target for the Development expenditure has a target of about 55%. Revenue Projections 67. The 2015/16 budget targets local revenue collection totaling to more than Ksh 200,000, However, as outlined in the County macroeconomic framework, the most realizable revenue targets stands at Kshs. 180,000, Expenditure Forecasts 68. The key policy document guiding the County Government s expenditure decisions is the first CIDP ( ), which provides the updated development priorities of the county. In 2014/15, overall expenditures are projected at 100 percent of all the revenue collected. Table 8: Source of revenue by source (estimates) REVENUE SOURCE ALLOCATION PROJECTIONS 2014/ / / /18 Equitable Funds 9,235,031, ,226,249, ,921,080, ,013,188,706.2 Conditional Allocations Level-5 Hospitals - - Conditional Allocation - Free 102,310, ,541, ,796, Maternal Health Care Allocation - Leasing of 79,871, ,858, ,644, Medical Equipment Allocation from Road 133,118, ,430, ,073, Maintenance Fuel Levy Fund Conditional Allocation - loans 29,245, ,170, ,387, and grants Local Revenue Collection 387,022, ,000, ,000, ,000, Donor Funds 252,995, ,000, ,000, ,380, TOTAL REVENUE 9,875,048, ,848,795, ,540,081, ,724,469,

32 Table 9: Source of Revenue as issued by the National Treasury County Turkana Allocation Ratio 4.03% Equitable Share 10,783,601,899 Total Allocations 10,921,080,642 Grant Supporting Compensation Emergency for user fees - Equitable Share Level-5 Hospitals Medical Services foregone 19,939,321 Free Maternal Healthcare 23,220,000 Road Maintenance Levy Fund 173,732,145 Leasing of Medical Equipment 95,744,681 Loans & Grants 73,293,982 Total Allocations 11,307,010,771 Per capita allocation (Kshs) 13,218 Implications 69. As it can be deduced from the above table, there will be significant changes in the sources of revenue as forecasted by the County Treasury and as compared by the estimates issued by the national Treasury. Whereas in the current financial year the NT used projections in Equitable Share of Level-5 Hospitals Medical Services foregone and Free Maternal Healthcare, the next financial year will be based on actuals as captured from health records. This has witnessed a significant reduction from Kshs. 102,310, to Kshs. 23,220, Kshs. 11,307,010,771 remains our County Allocation from the National Treasury and adjusted as below to arrive to our Total Resource Envelope for the FY 2016/17. Parameter Amount in Kshs Total County Allocation 11,307,010,771 Local revenue Sources 180,000,000 Total Resource Envelope 11,487,010, It is also worthy to note that apart from the CRA proposed revenue allocation, in the past the National Treasury has always been conservative in allocating resources to counties. In all the CARA allocations the Senate has always proposed more allocation of funds to counties. To this end, Turkana County has always received 4.03% of Total Shareable revenue. Recurrent Expenditure 72. Recurrent expenditures are expected be maintained at 45% Remuneration and wage pressures are expected to constrain funds for development until such times that employee compensation 24

33 stabilizes as relative to the increase in the county resource envelope. Normally one off expenditures are taken into consideration in a base year and a further adjustment done for extra expenses to be incurred and a correctional error term for price level adjustments/inflation. Development Expenditure 73. Consistent with the objective of allocating adequate resources towards development outlays and the need to ensure completion of critical infrastructure (roads, energy and transport), the minimum for development expenditures including donor funded projects is 55 percent of the total revenue in 2015/1., These outlays are as described by the County Policies and Development Priorities 74. With improvement in procurement planning, the absorption capacity of project funds is expected to increase resulting in a higher investment level in infrastructure activities. This will support the delivery of services and encouragement investment by the private sector. 75. In view of challenges which may arise from natural calamities, an emergency provision of five percent of the total county revenue will be provided in the budget for FY 2014/15. Summary 76. Fiscal policy will support growth within a sustainable path of public spending by maintaining the county expenditures within the budget limits. Therefore, moderation in county expenditures will help assure debt sustainability and intergenerational equity in line with the Constitution and the fiscal responsibility principles in the new PFM Act, Meanwhile, efficiency and economical spending of County Government resources will be enhanced to create room for critical interventions and pro-poor spending. 25

34 V. FISCAL FRAMEWORK, 2016/ /19 Fiscal Implications 77. The County Government recognizes that the fiscal stance it takes today will have implications into the future. Therefore, and in line with the Constitution and the Public Finance Management (PFM) Act of 2012, the principle of sharing the burdens and benefits of the use of resources and public borrowing between the present and future generation implies that we have to make prudent policy decisions today so that we do not impose unwarranted debt burden to our future generations. 78. In this regard, the County Government will observe the fiscal rules set out in the PFM Act, 2012 so as to entrench fiscal discipline. Fiscal Responsibility 79. Fiscal responsibility has become even more important since the Constitution requires the Government to progressively provide for a minimum basic standard of economic and social rights to its citizens within available resources. In order for spending to increase on a sustainable basis to meet these basic needs, we should be prepared to match the increased expenditure demands with a corresponding increase in levy revenue yield through efficient collection, widening of levy bases, and reasonable rates. It is therefore imperative to reform and modernize the levy regimes to ensure stability of revenue effort, while at the same time continuing to restructure expenditure systems to ensure efficiency and create fiscal space required to fund these basic needs expenditures on sustainable basis. External Financing 80. Total donor support is expected to rise steadily from 2.4 percent in 2013/14 to 8 percent of total county revenue by 2016/17. The county government will engage as it has continued to do so by holding stakeholder roundtable meetings and entering into MOUs and bilateral agreements. A huge portion of development funds shall be from the private sector through PPPs. Deficit financing of the budget shall be done with proper stakeholder consultations and all funds will be channeled to development purposes only. 26