COUNTY GOVERNMENT OF MARSABIT CONSOLIDATING AND DEEPENING THE GAINS OF DEVOLUTION FOR SUSTAINED ECONOMIC TRANSFORMATION MARSABIT COUNTY FISCAL STRATEGY PAPER NOVEMBER 2016 1
o dmraf t Foreword In this County Fiscal Strategy Paper (CFSP) we outline broad strategic priorities and policy goals of Marsabit County Government for implementation in financial year 2017/2018 and the Medium Term in order to build on the gains made since FY 2013/14. The expenditure policy framework in the medium term aims at ensuring efficiency and effectiveness in the implementation of our development policies. As outlined in the previous CFSP 2016, this paper is part of efforts by County Treasury to link policy with planning and budgeting by embracing reforms in the expenditure and financial management and containing growth of nonpriority expenditures in order to create fiscal space for financing priority policy areas such as the healthcare, agriculture and physical infrastructure, which are key to sustainable economic growth and ultimate development. As a result, significant progress will be realized in terms of linking policies, planning and budgeting and shifting budgetary resources to priority areas, though the process continues to face some challenges. The County Government will continue to address emerging issues, which including strengthening links between recurrent and development expenditures and increasing funding to MinusiZer decentralized and lower units, with a view to results. proving the linkage between expenditure and In line with the need to continue with our development agenda, the County Fiscal Strategy Paper 2017/2018 draws priorities from the Governor s manifesto, the revised CIDP, MTP II of Vision 2030 and departmental strategic plans. The fiscal framework included in this CFSP outlines an affordable and sustainable path of public spending aimed at achieving Government s medium-term development priorities. I would like to thank H.E the Governor and the Deputy Governor for the effective leadership in putting together this document. MR. GURACHA A. BIDU County Executive Committee Member Finance & Economic Planning 2
Acknowledgement The 2017 Fiscal Strategy Paper (CFSP) embraces the principles of prudent financial management outlined in the Public Finance Management Act, 2012. It outlines the broad strategic macroeconomic issues affecting the county and fiscal framework to guide spending plans, as a basis of 2017/18 budget and the medium- term. We expect the document to improve the public understanding of County s public finances and guide public debate on economic and development matters. As usual, the preparation of this CFSP continues to be a collaborative effort. Much of the information in this report was obtained from the county departmental reports and other National Government policy documents. We are grateful for their inputs. The preparation of the 2017/18 CFSP was achieved through consultation and co-operation between county treasury and all county departments. We are grateful for the input from the County Executive Committee Members,County chief officers, County directors, county sector working groups, the general public, County Budget & Economic Forum (CBEF), Commission on Revenue Allocation (CRA), The National Treasury and other stakeholders. Minus Ze r o d raf t We are grateful to H.E the Governor and the Deputy Governor for providing guidance and leadership during preparation of this document. We also wish to thank the Speaker and the entire members of the County Assembly, for their collaboration and oversight role in preparing this paper. Further, I wish to thank the entire staff of Marsabit County Treasury led by County Executive Committee Member in charge of Finance and Economic Planning for their tireless effort in ensuring that this document was produced in time and of high quality. HUSSEIN A. IBRAHIM Chief Officer Finance & Economic Planning 3
Abbreviations and Acronyms BPS CBR CFSP CRA CIDP ELUD Budget Policy Statement Central Bank Rate County Fiscal Strategy Paper Commission on Revenue Allocation County Integrated Development Plan Energy, Lands & Urban Development FY Financial Year GDP Gross Domestic Product IFMIS Intergrated Financial Management Information System IMF International Monetary Fund IPPD Integrated Payroll and Personnel Data MTEF Medium Term Expenditure Framework MTP Medium Term Plan PFM Public financial Management Act 2Minus SME Small &Medium Enterprises Zer o 0d raf t 12 4
Table of Contents FOREWORD... 2 ACKNOWLEDGEMENT... 3 ABBREVIATIONS AND ACRONYMS... 4 LIST OF TABLES... 6 LEGAL BASIS FOR PREPARATION OF CFSP... 7 COUNTY GOVERNMENT FISCAL RESPONSIBILITY PRINCIPLES... 8 CHAPTER ONE: INTRODUCTION... 9 CHAPTER ONE: CONSOLIDATING AND DEEPENING GAINS OF DEVOLUTION FOR SUSTAINED ECONOMIC TRANSFORMATION....11 1.1 OVERVIEW... 11 PILLAR 1: AGRICUTURAL TRANSFORMATION FOR ENHANCED FOOD SECURITY... 11 PILLAR 2: INFRASTRUCTURE DEVELOPMENT... 12 PILLAR 3: ECONOMIC DEVELOPMENT... 13 PILLAR 4: SOCIAL DEVELOPMENT PROGRAMMES... 14 CHAPTER TWO: OVERVIEW OF RECENT ECONOMIC PERFORMANCE...16 2.1 STATE OF GLOBAL ECONOMY... 16 2.2 NATIONAL ECONOMIC UPDATE... 16 2.3 COUNTY ECONOMIC UPDATE... 17...M iṅu s Zė r o d rȧf t 3.1 FISCAL PERFORMANCE IN FY 2016/17 AND EMERGING CHALLENGES... 18 COUNTY REVENUE... 18 COUNTY EXPENDITURE... 19 CONTRACT AGREEMENT.... 19 2016/17 REVISED ESTIMATES... 20 PROJECTS... 20 CHAPTER THREE: FISCAL POLICIES AND BUDGET FRAMEWORK...21 3.1 OVERVIEW... 21 CONTINUING WITH PRUDENT FISCAL POLICY... 21 OBSERVING FISCAL RESPONSIBILITY PRINCIPLES... 22 ASSEMBLY REGULATIONS.... 22 FISCAL STRATEGY PAPER S OBLIGATION TO OBSERVE FISCAL RESPONSIBILITY PRINCIPLES... 22 FISCAL AND STRUCTURAL REFORMS... 23 BUDGET FRAMEWORK... 24 REVENUE PROJECTIONS... 24 EXPENDITURE FORECASTS... 25 RECURRENT EXPENDITURE FORECASTS... 25 DEVELOPMENT... 25 SUMMARY... 26 CHAPTER FOUR: MEDIUM TERM EXPENDITURE FRAMEWORK...27 RESOURCE ENVELOPE... 27 REVENUE PROJECTIONS... 27 SPENDING PRIORITIES... 28 5
Minus Ze r o d raf t FINALIZATION OF SPENDING PLANS... 29 DETAILS OF SECTOR PRIORITIES... 29 COUNTY ASSEMBLY... 29 COUNTY EXECUTIVE... 30 FINANCE AND ECONOMIC PLANNING... 30 DEPARTMENT OF AGRICULTURE, LIVESTOCK, VETERINARY & FISHERIES... 31 DEPARTMENT OF WATER, ENVIRONMENT AND NATURAL RESOURCES... 32 DEPARTMENT OF EDUCATION, SKILLS DEVELOPMENT YOUTH AND SPORTS... 33 DEPARTMENT OF HEALTH SERVICES... 34 DEPARTMENT OF ENERGY, LANDS AND URBAN DEVELOPMENT... 34 DEPARTMENT OF PUBLIC WORKS, ROADS & HOUSING... 34 PRIORITIES... 35 DEPARTMENT OF TRADE, INDUSTRY & ENTERPRISE DEVELOPMENT AND COOPERATIVES... 35 DEPARTMENT OF TOURISM, CULTURE AND SOCIAL SERVICES... 36 ADMINISTRATION, COORDINATION & ICT... 36 CHAPTER FIVE CONCLUSION...37 ANNEXES...38 ANNEX 1: COMPARISON OF BUDGET ESTIMATES AND ACTUAL EXPENDITURE AS OF 30TH SEPTEMBER 2016... 38 MEDIUM-TERM EXPENDITURE ESTIMATES ANNEX 2:MTEF SECTOR CEILINGS 2016/2017 2018/2019 WITH INDICATIVE PROJECTIONS... 39 List of Tables TABLE 1: RECURRENT EXCHEQUER ISSUES... 18 TABLE 2: DEVELOPMENT EXCHEQUER ISSUES... 19 TABLE 3: FIRST QUARTER FY 2016/17 BUDGET PERFORMANCE BY DEPARTMENT... 20 TABLE 4: PROJECTED REVENUE FOR FY 2017/18... 25 TABLE 5: RESOURCE ENVELOPE... 27 TABLE 6: RESOURCE DISTRIBUTION BETWEEN RECURRENT AND DEVELOPMENT EXPENDITURE... 29 6
M inu s Ze r o d r af t LEGAL BASIS FOR PREPARATION OF CFSP Legal Basis for the Publication of the County Fiscal Strategy Paper The county fiscal strategy paper is prepared in accordance with Section 117 of the PFM Act. The law states that: The County Treasury shall prepare and submit to the County Executive Committee the CFSP for approval and the County Treasury shall submit the approved CFSP to the County Assembly, by the 28th February of each year. (2) The County Treasury shall align its CFSP with the national objectives in the BPS. (3) In preparing the CFSP, the County Treasury shall specify the broad strategic priorities and policy goals that will guide the county government in preparing its budget for the coming financial year and over the medium term. (4) The County Treasury shall include in its CFSP 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 CFSP, the County Treasury shall seek and take into account the views of (a) the CRA; (b) the public; (c) any interested persons or groups; and (d) any other forum that is established by legislation. (6) Not later than fourteen days after submitting the CFSP 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 2017/18. (8) The County Treasury shall publish and publicize the CFSP within seven days after it has been submitted to the county assembly. 7
Ze r o d raf t rescribed COUNTY GOVERNMENT FISCAL RESPONSIBILITY PRINCIPLES Fiscal Responsibility Principles in the PFM Law In line with the Constitution, the PFM, sets out the fiscal responsibility principles to ensure prudency and transparency in the management of public resources. The PFM law (Section 107) states that: (a) The county government s recurrent expenditure shall not exceed the county government s total revenue; (b) Over the medium term a minimum of thirty percent of the county government s budget shall be allocated to the development expenditure; (c) 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 by the County pminus Executive member for finance in regulations and approved by the County Assembly; (d) Over the medium term, the government s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure; (e) The county debt shall be maintained at a sustainable level as approved by county assembly; (f) The fiscal risks shall be managed prudently; and (g) 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. 8
CHAPTER ONE: INTRODUCTION The 2017/18 fiscal strategy paper helps in deepening gains of the devolution made by the County Government of Marsabit in different spheres of the County economy over the 2013/14-2015/16 Medium Term Expenditure Framework period. In its bid to ensure inclusive growth and development, the county government continues to put emphasis on development projects and programmes that have the highest impact on the lives of the people of Marsabit. This policy paper is informed by the revised Marsabit County CIDP that was launched in 15 th October 2016, Kenya s Vision 2030, the governor's manifesto, feedback from members of the public, and National Government policies as outlined in the 2017 BPS. The paper sets out the broad strategic priorities and policy goals that will guide the county government in preparing its budgets both for the following financial year and over the medium term. The 2017/18 County Budget Theme is: Consolidating and deepening the gains of the devolution for sustained economic transformation Section 117(2) of the PFM Act requires the County Treasury to align its County Fiscal Strategy Paper with the national objectives in the Budget Policy Statement. The theme is in line with the transformative pillars of the 2017 BPS which is Consolidating Economic Gains in an Environment of Subdued Global Demand. This strategy Minus Ze r o d raf t paper is critical to the county budget process in that it will broadly guide on the expected revenues over the medium term, outline the medium term expenditure frame work and project financing. The County Government is committed to ensuring strict fiscal discipline to sustain growth. This calls for support of the productive, private sector investment and wealth generating sectors of the economy while at the same time strengthening investment in physical infrastructure for sustainable long term growth. The completion of the Great North Road is expected to greatly improve trade and investment in the region and indeed put Marsabit on the national and international maps. The key policy for the county in implementing the 2017/18 budget will focus on investing in key sectors that will lead to further economic growth in the County, improve local revenue and employment creation. The county will therefore, continue focusing on strategic physical infrastructure, agricultural transformation, social and economic sectors to facilitate and stimulate investment, expand and promote trade. The paper is divided into different sections as follows: Section I highlights devolution gains made with respect to the four thematic areas driving the county s transformative agenda, Section II 9
Minus Ze r o d raf t outlines the economic context in which the 2017/18 MTEF budget is prepared. It provides an overview of the recent economic developments and the macroeconomic outlook covering the global and domestic scenes. Section III outlines the fiscal framework that is supportive of growth over the medium-term, while continuing to provide adequate resources to facilitate the policy priorities of the county Government. Section IV presents the resource envelope and spending priorities for the proposed 2017/18 MTEF Budget and the Medium Term. Sector achievements and priorities are also reviewed for the 2016/17 MTEF period. Section V Conclusions 10
Minu s Z e r o d raf t CHAPTER ONE: CONSOLIDATING AND DEEPENING GAINS OF DEVOLUTION FOR SUSTAINED ECONOMIC TRANSFORMATION. 1.1 Overview The three years that devolution has been in existence, despite its many challenges, shows that it s one of the greatest successes of our new constitutional architecture. The decentralization has led to distribution of resources to all corners of our country and spread development to smaller units like villages. Further, it has devolved leadership and decision making, reducing political and social risks that come with system where leadership is centralized. Devolution has provided Kenya with an opportunity to accelerate development and work towards achieving vision 2030 Kenya s development blueprint. Most parts of the country that were hitherto marginalized both politically and economically continue to reap the fruits of devolution, challenges notwithstanding. The economic gains made should not be taken for granted and Marsabit County having benefitted immensely under the new constitutional dispensation like other counties will continue to build on the gains made and ensure sustained economic growth and development. This paper therefore, builds on the commitments made by the government in the last CFSP of implementing programs to raise productivity and economy-wide efficiency, thereby sustaining high and inclusive growth in line with aspirations of Vision 2030. To advance the counties transformative agenda, the priority areas will, as the case was with the 2016 CFSP include investment in agriculture, roads and water infrastructure, as well as social-economic sectors such as health, and education. This will be implemented within the available resource envelope. The implementation of programs under the four pillars, as expounded in 2016 CFSP, is expected to raise economic efficiency, productivity and in turn, make Marsabit County competitive, thus creating vast opportunities and securing livelihoods. The progress made under each transformative pillar is as follows: Pillar 1: Agricultural Transformation for enhanced Food Security The agriculture and livestock sub-sector plays an important role in the county s development agenda contributing approximately 60 per cent to the economy and employing 70 per cent of the rural population. The county government is aware that to reduce poverty and uplift the standards of living of the people, there is need to invest substantively in this sector. The sector received Kshs.317.28 million in FY 2013/14, Kshs.324.53 million in FY 2015/16 and has been allocated Kshs.314.8 million in FY 2016/17 for recurrent and development activities. The development allocation increased from Kshs.137 million in FY 2013/14 to Kshs.150.78 million in FY 2016/17 representing a budget increase of 10 per cent in three years. 11
f t The county has made significant progress in improving agriculture through provision of farm implements to farmers across the County, improved extension services and provision of certified seeds. Since the sector is prone to the vagaries of weather and with the expected farm output during the next harvest projected to be little due to limited rainfall, the county will continue to support the sector and scale up social protection programmes. The department has already undertaken several projects including construction of modern abattoir which is ongoing, procurement and distribution of fishing gears, construction of fish cold storage facilities, provision of agricultural and livestock extension services, purchase and distribution of agricultural chemicals and support fodder production among others. The department intends to initiate several programmes in FY 2016/17 and FY 2017/18 to improve agricultural productivity. The potential of livestock, dairy and poultry farming, including value addition of their by-products remains untapped as a catalyst for economic transformation and the completion of the modern abbattoir is expected to greately improve livestock production. The potential for fish farming especially in Loiyangalani is huge and the department will continue to support farmers through extension and capcaity building on better fish farming methods, access to Minus Z er o d ra modern storage and handling facilities and these p FY 2017/18. rogrammes will continue to be implemented in Pillar 2: Infrastructure development In order to support a rapidly-growing economy as envisaged in the Kenya Vision 2030, the County Government has continued to sustain and expand the on-going public investments in road and water supplies. Great strides have already been made in the road construction and rehabilitation which include construction of new roads, rehabilitation and maintenance of existing roads. Prior to the inception of the county government, there were serious road connectivity challenges where some parts of the county simply unreachable. The situation had adversely affected trade and investment. The County lacked basic infrastructure, which is considered a prerequisite for economic growth and development. The County government has made tremendous progress since FY 2013/14 in opening up of several towns through improvement of rural access roads and gravelling and grading of major roads in the County. Substantial amount of funds were allocated to the sector in FY 2014/15, FY 2015/16 and 12
2016/17 and the same will be maintained to improve the road network in the county. Upgrading of Merrille-Marsabit-Moyale road to bitumen standard is nearing completion. This major road project will indeed put Marsabit on the global map and open up the area to trade and investment and ease movement of goods and labour. In the year 2016/2017, the Department was allocated a total of Kshs 547,655,580 comprising of Kshs. 191,854,889 for Recurrent and Kshs. 355,800,691 for Development expenditures. The county government intends to use the money to open up at least 1500Kms of new roads, rehabilitate 550Kms of existing roads and build 14 new bridges. The county government also plans to design and upgrade to bitumen standards 4Kms of roads within Marsabit town. This is one of the flagship projects and an important deliverable for the department of roads, public works and housing. Marsabit County lies in the semi-arid area of Kenya as such most parts of the county experience acute shortage of water. Over 60 per cent of the households rely on boreholes. It has been noted that scarcity of water is one of the sources of conflict in the pastoral areas. It is against this background that the County Government has ensured that there is substantial funding to the sector. In FY 2015/16 for example, Kshs.605,251,906 was allocated to the sector for implementation of different water projects. The department has bminus which is almost a quarter of the total county development budget. Zer o deraf t en allocated Kshs.735,338,278 in FY 2016/17 The department has realized tremendous achievements since FY 2013/14. Already there is significant improvement in access to clean and safe drinking water county wide. The department also carried out hydro geological surveys on 20 sites across the county in pursuit of ground water exploration. Several boreholes were successfully drilled fully equipped. Water trucking was also carried out in several areas across the county. Pillar 3: Economic Development The county government is fully aware that in order to improve the lives of its residents, there is need to enhance provision of economic development services that will in turn increase economic activities as well as attract investments and provide employment opportunities to the youth. The County government recognizes that it is important to empower youth, women and persons with disabilities and remove all obstacles to ensure their full participation in social economic development of the county. 13
The department of Trade, Industry and Enterprise Development has made significant strides in promoting economic development through entrepreneurship development of SMEs by conducting youth trainings, organizing investor conference, business infrastructure development through construction of new markets in both urban and rural towns as well as Marsabit modern market which is nearing completion. Other achievements include establishment of county enterprise fund, private sector development through the revival of the Marsabit Chamber of Commerce and Industry among others. The county government will continue to invest more in the key areas of intervention including promotion of agri-business, youth and women empowerment, enhanced trade, tourism, industrial development, microenterprises and cooperative development. On youth and Women empowerment, the department of Trade, Industry and Enterprise Development will build on on-going youth and women support programmes to tap the creativity and knowledge of the young people so as to encourage entrepreneurship and innovation. Priority will also be given to skills development and access to credit to enable this group to be the dynamic drivers of growth and employment creation. Pillar 4: Social Development Programmes The social sector is one of the key pillars of Vision 2030 which aims at ensuring a just and cohesive Minus Ze r o d raf t society enjoying equitable social development in a clean and secure environment. Under this pillar, the county government has continued to invest in Education and training, health, water and sanitation and gender youth sports & culture. Development projects under the Social Development Programme will involve developing and implementing a medium term program for health care infrastructure upgrade, equipment modernization, development of systems to support and expand health care services, sanitation at the community level, developing and equipping ECD Centres and encourage growth of youth talents and nurture them as catalyst for economic transformation. The department of education has successfully implemented several projects including construction of ECDE classrooms across the county, recruitment and deployment of over 120 ECDE teachers and sub-county ECDE officers, construction of twin workshops and capacity building of youth polytechnic instructors among others. The health department has also undertaken several projects e.g. construction of health facilities, the launch of The County Health Sector Strategic and Investment Plan 2013/14 2017/18 provides a common framework meant to guide health sector investment and development for the next five years. The County Government will continue to build resilience and promote affirmative action for 14
Minus Ze r o d raf t addressing challenges facing vulnerable groups. The social protection fund has been allocated Kshs. 30 million to help the vulnerable groups within the county. 15
CHAPTER TWO: OVERVIEW OF RECENT ECONOMIC PERFORMANCE 2.1 State of Global Economy The outlook of the global economy for 2016 remains subdued though it is expected to recover gradually in 2017 and beyond. The new shocks to the outlook include: Britain s referendum result in favor of leaving the European Union; ongoing realignments among emerging and developing economies, such as adjustment of commodity exporters to a protracted decline in the terms of trade; slow-moving trends, such as demographics and the evolution of productivity growth; as well as noneconomic factors, such as geopolitical and political uncertainty. The victory of Donald Trump in the recently concluded US elections had also sent economic shock waves across the world and Africa in general and Kenya in particular is waiting to see how his policies would affect trade with the US. Global growth is estimated at 2.9 percent in the first half of 2016, slightly weaker than in the second half of 2015. The forecast for 2016 and 2017 is 3.1 percent and 3.4 percent, respectively. Growth in Sub-Saharan Africa is expected to wmeinus Zer o dar af t ken from 3.4 percent in 2015 to 1.4 percent in 2016, occasioned by the repercussions of declining commodity prices, particularly those for oil, as well as lower demand from China, the largest single trading partner of sub-saharan Africa, and the tightening of global financial conditions for the region s frontier market economies. 2.2 National Economic Update Kenya s macroeconomic performance remains broadly stable despite the global economic slowdown. The economy s growth momentum has been strong supported by significant investment in infrastructure, construction and mining sectors, strong recovery in tourism lower energy prices and improved agricultural production following improved weather conditions. Inflation is within the target band due to prudent monetary policy management while interest rates are low and stable despite global financial pressures following the enactment of the Banking (Amendment) Act, 2015. Improved export earnings from tea and horticulture, reduced import bill of petroleum products due to lower oil prices, resilient diaspora remittances and improved tourism performance led to a narrower current account deficit. The narrowing of the current account deficit together with strong 16
Minus Ze r o d raf t capital inflows led to a stabilization of the shilling in the foreign exchange market, and also allowed the accumulation of international reserves. Going forward, the economy is projected to expand further by 6.0 percent in 2016 and above 6.5 percent in the medium term supported by strong output in agriculture with a stable weather outlook, continued recovery of tourism and completion of key public projects in roads, rail and energy generation. In addition, strong consumer demand and private sector investment as well as stable macroeconomic environment will help reinforce this growth. 2.3 County Economic Update The economic outlook for Marsabit County remains bright and stable despite risks associated with the national economy including occurrence of adverse weather conditions, public expenditure pressures especially recurrent expenditures pose a fiscal risk and inefficiency in spending government resources that may lower impact of development expenditure. Further, potential uncertainties associated with the run-up to 2017 elections that could lead to a wait-and-see attitude by investors, thereby dampening short-term growth prospects. The local economy will be bolstered by the completion of several key projects which include: Flagship projects The county has undertaken several flagship projects that when completed will improve the local economy in one way or the other. Some of the flagship projects that are nearing completion include modern abbatoir which is expected to improve livestock value chain, modern market expected to stimulate investment in retail and wholesale trade, the completion of ultr-modern Marsabit referral hopsital will improve access to health services, the Bongole resort hotel is expected improve tourists arrival. Road network Road infrastructure is a critical component of economic growth and development of a region and Kenya s Vision 2030 is anchored on it. For a long time Marsabit residents have had to endure long journeys on rough and bandit-prone highway between Marsabit and Isiolo. The business people would transfer extra costs incurred to the consumers. However, with the completion of the great North road section between Merille and Marsabit through to the border town of Moyale, much is expected to change as far as movement of goods and labour is concerned. The completed sections form part of the strategic transport corridor linking Mombasa Port to Addis Ababa, Ethiopia. The 17
Minus Ze r o d raf t road will significantly impact on regional integration and boost trade and investment. Increased traffic along the corridor will open the area trade and champion development in the County. 3.1 Fiscal Performance in FY 2016/17 and Emerging Challenges The Implementation of the budget for FY 2016/17 has progressed well despite challenges especially in implementation of development projects due to the huge pending bill from FY 2015/16 which had to be paid. The County treasury through proper financial planning and forecasting will ensure that implementation of major projects is not adversely affected. County revenue During the first quarter of 2016/17, the County received Kshs.985.39 million as equitable share of the revenue raised nationally, Kshs.25.81 million as total conditional allocations, raised Kshs.24.1 million from local sources, and had a cash balance of Kshs.916 million brought forward from FY 2015/16. The Controller of Budget (COB) authorised withdrawal of Kshs.1.42 billion from the CRF account in quarter I, which was 21.5 per cent of the Approved Budget. This amount consisted of Kshs.739.73 million (51.9 per cent) for recurrent expenditure and Kshs.684.65 million (48.1 per cent) for development activities. Table 1: Recurrent Exchequer Issues VOTE Approved Est. Exchequer Issued In Q1, 2016/17 Budget Balance % cumulative release to the Approved Budget County assembly 505,000,000 91,274,584 413,725,416 18.07% County Executive 474,036,910 91,687,274 382,349,636 19.34% Finance & Economic planning 455,685,682 95,644,009 360,041,673 20.99% Agriculture, Livestock, Veterinary & Fisheries 164,041,770 31,658,335 132,383,435 19.30% Water, Environment & Natural Resources 152,400,500 34,425,270 117,975,230 22.59% Education, Youth Affairs & Sports 133,203,760 28,067,293 105,136,467 21.07% County Health Services 906,195,900 214,390,467 691,805,433 23.66% Lands, Physical Planning and Urban Development 116,563,521 22,968,920 93,594,601 19.71% County Transport, Public Works and Roads 191,854,889 34,592,606 157,262,283 18.03% Trade, Tourism, Cooperatives and Enterprise Development 83,639,544 15,444,257 68,195,287 18.47% Culture, Social Services and Gender 47,140,493 9,235,746 37,904,747 19.59% Administration, Coordination & ICT 323,622,118 70,339,823 253,282,295 21.74% TOTALS 3,553,385,087 739,728,584 2,813,656,503 20.82% 18
Minus Ze r o d raf t Table 2: development Exchequer Issues VOTE Approved Est. Total Exchequer Release as of 30th September 2016 Budget Balance % cumulative release County assembly 30,000,000-30,000,000 0.00% County Executive 162,948,805 19,099,704 143,849,101 11.70% Finance & Economic planning 189,064,249 25,420,671 163,643,578 13.40% Agriculture, Livestock, Veterinary & Fisheries 150,789,752 83,456,889 67,332,863 55.30% Water, Environment & Natural Resources 735,338,278 114,745,572 620,592,706 15.60% Education, Youth Affairs & Sports 331,799,388 94,077,810 237,721,578 28.40% County Health Services 480,910,643 80,271,389 400,639,254 16.70% Lands, Physical Planning and Urban Development 262,373,310 73,833,917 188,539,393 28.10% County Transport, Public Works and Roads 355,800,691 98,838,776 256,961,915 27.80% Trade, Tourism, Cooperatives and Enterprise Development 174,653,831 40,100,747 134,553,084 23.00% Culture, Social Services and Gender 137,721,889 25,871,394 111,850,495 18.80% Administration, Coordination & ICT 45,121,336 28,935,199 16,186,137 64.10% TOTALS 3,056,522,172 684,652,068 2,371,870,104 22.40% County Expenditure As shown in Table 3, the County spent Kshs.851.5 million in Quarter one of FY 2016/17, which was 59.9 per cent of the total funds released for operations. This was an increase from Kshs.432.86 million spent in a similar period in FY 2015/16. A total of Kshs.812.64 million was spent on recurrent activities, while Kshs.38.87 million was spent on development activities. The recurrent expenditure was 109.8 per cent of the funds released for recurrent activities while development expenditure accounted for 5.6 per cent of the funds released for development activities. Development expenditure incurred during the first half of FY 2015/16 relates to previous financial year project which were rolled over to the current financial year. Personnel emoluments and operations & maintenance expenditure are expected to remain relatively the same. This requires the departments to be more cautious on spending and cut on unnecessary cost while at the same time fast tracking implementation of projects to ensure that they are completed within the time frame set in contract agreement. 19
Minus Ze r o d raf t Table 3: First Quarter FY 2016/17 Budget Performance by Department Details Budget Allocation (Kshs. Million) 1st Quarter FY 2016/17 Exchequer Issues (Kshs. Million) 1st Quarter FY 2016/17 Expenditure (Kshs. Million) 1st Quarter FY 2016/17 Expenditure to Exchequer Issues (%) 1st Quarter FY 2016/17 Absorption Rates (%) REC DEV REC DEV REC DEV REC DEV REC DEV County assembly 505.00 30.00 91.27-74.79 0 81.9 0.0 14.8 0.0 Office of the Governor & CPSB 474.04 162.95 91.69 19.10 158.99 0 173.4 0.0 33.5 0.0 Finance & Economic planning 455.69 189.06 95.64 25.42 119.40 7.93 124.8 31.2 26.2 4.2 Agriculture, Livestock, Veterinary & Fisheries 164.04 150.79 31.66 83.46 29.22 0 92.3 0.0 17.8 0.00 Water, Environment & Natural Resources 152.40 735.34 34.43 114.75 41.57 7.27 120.8 6.3 27.3 0.9 Education, Youth Affairs & Sports 133.20 331.80 28.07 94.08 25.04 3.30 89.2 3.5 18.8 1 County Health Services 906.20 480.91 214.39 80.27 214.60 0 100.1 0.0 23.7 0.00 Lands, Physical Planning and Urban Development 116.56 262.37 22.97 73.83 22.45 8.96 97.8 12.1 19.3 3.4 County Transport, Public Works and Roads 191.85 355.80 34.59 98.84 55.80 5.42 161.3 5.5 29.1 1.5 Trade, Tourism, Cooperatives and Enterprise Development 83.64 174.65 15.44 40.10 15.12 5.69 97.9 14.2 18.1 3.3 Culture, Social Services and Gender 47.14 137.72 9.24 25.87 14.61 0 158.2 0.0 30.9 0.0 Administration, Coordination & ICT 323.62 45.12 70.34 28.94 41.02 0.3 58.3 1.04 12.7 0.7 TOTAL 3,553.39 3,056.52 739.73 684.65 812.63 38.87 109.7 5.7 22.9 1.3 2016/17 Revised estimates The fiscal assumption underlying the 2016/17 budget was improved revenue collection and continued support by the national government through timely release of exchequer issues. Many incomplete projects from financial year 2015/16 were rolled over to FY 2016/17 and more focus was on ensuring the completion of these projects. This delayed the implementation of new projects and absorption of development expenditure as various departments concentrated on existing projects and clearing the pending bills. The County Treasury however, does not expect significant shift in revenue base. The county will rationalize its expenditure and institute measures to curb nonpriority expenditures and to free resources for more productive purposes as well as expenditures cuts on slow and delayed projects. 20
CHAPTER THREE: FISCAL POLICIES AND BUDGET FRAMEWORK 3.1 Overview Fiscal responsibility is of utmost importance since the Constitution requires the County 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 revenue yield through efficient collection and widening of revenue bases. Review of salaries and benefits for the public sector workers will continue to be guided by Salaries and Remunerations Commission (SRC) in accordance with Article 230 of the Constitution. The PFMA regultions stipulate that personnel cost should be less than 35% of the total expenditure. With the passing of Public Finance Management Regulations by parliament this year, borrowing guidelines will be adhered to as set out in those guidelines when need arises. Nevertheless, as a prudent fiscal policy over the medium term, the County Government s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure.the County Government also takes into account the fiscal risks arising from failure to actualize local revenue targets and potential changes to national tminu s rzer o drafat nsfers and allocations. Continuing With Prudent Fiscal Policy The County Government Act, 2012, stipulates that county government shall plan for the county and no public funds shall be appropriated outside a planning framework developed by the County Executive Committee and approved by the County Assembly. This Act along with the PFM, therefore calls for preparation of a CIDP which must be aligned to the National Development Plans. As such the CIDP provides the essential linkages between planning and implementation of programmes in the County. Fiscal policy will continue to support economic activity within a context of sustainable public financing. The County Government of Marsabit will continue to reorient expenditure towards priority programmes in education, health, agriculture & livestock and infrastructure under the medium-term expenditure framework (MTEF) 21
Minus Ze r o d raf t Observing Fiscal Responsibility Principles In line with the Constitution, the Public Finance Management (PFM) Act, 2012, and in keeping with prudent and transparent management of public resources, the Government has adhered to the fiscal responsibility principles as set out in the PFM Act. The County Government recognizes that the fiscal stance it takes today will have implications in the future. As a County Government we shall ensure adherence to the ratio of development to recurrent of at least 30:70 over the medium term, as set out in the law. The PFM regulations cap the wage levels at 35% of the expenditure. Expenditure management on items such as office goods and their pricing should as much as possible reflect actual market prices. Timelines on paying goods will be minimized to enable the county government get competitive prices in the market. County borrowing will also be guided by the PFM and County Assembly regulations. Fiscal Strategy Paper s obligation to observe Fiscal Responsibility Principles In line with Public Finance Management (PFM) Act, 2012, and in keeping with the prudence and transparent management of public resources, the Government has adhered to the fiscal responsibility principles as set out in the statutes as follows: a) Balanced Budget: The County Government s expenditure will not exceed its total revenue. b) Over the medium term, a minimum of 30% of the County Budget shall be allocated to development expenditure. The County Government s development budget allocation over the medium term is above 30 percent, the minimum set out in law. In FY 2016/17 the County Government allocated Kshs.3.06 billion to development expenditure representing 46.3 per cent of the total budget. c) Limit county wage bill to thirty five percent of the government s total revenue: The County expenditure on wages and benefits for its public officers in 2015/16 was Kshs.1.22 billion representing 19.5 per cent of the total budget and was less than 35% of the County Government s total as prescribed in the regulations. In FY 2016/17, Kshs.1.59 billion has been budgeted for personnel emoluments representing 24.2 per cent of the total revenue. d) Over the medium term, the County Government s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure. It is a prudent fiscal policy for a government to procure external financing only for development projects. Although the County Government envisages maintaining a balanced budget, it will 22
Minus Ze r o d raf t seek to adhere to borrowing guidelines as will be set out in the PFM regulations, if need arises. e) Public debt and obligations shall be maintained at a sustainable level as approved by National Assembly (NA) and County Assembly (CA). The sustainability of debt is guided by PFM Act section 107 (2) (e) and section 107 (4). As per section 107 (2) (e) the county debt shall be maintained at sustainable level as approved by county assembly. Section 107 (4) further states that every county government shall ensure that its level of debt at any particular time does not exceed a percentage of its annual revenue specified in respect of each financial year by resolution of the county assembly. Over the medium term the Marsabit County Government will continue to maintain a balanced budget where total revenue equal total expenditure. Nevertheless, if need arises, the County will adhere to laid down laws by the County Assembly, using guidelines passed by the Parliament. f) Fiscal risks shall be managed prudently. The County Government also takes into account the fiscal risks arising from contingent liabilities, liquidity risk arising from failure to actualize local revenue targets. The County government continues to put measures in place to enhance revenue collection, majorly through widening of revenue base. g) Predictable taxes: A reasonable degree of predictability to the level of tax rates and tax bases is maintained and there are no major changes in our finance acts over the years. The same stability is expected in the future. Fiscal and Structural Reforms The County Government will continue pursuing its policy objectives within the financial context established by fiscal responsibility principles. The progress made in the context of strategic priorities will continue to be regularly reviewed to establish the parameters for the budget, with a continued focus on the level of expenditure on County development. The 2017/18 budget will operate under tight fiscal conditions, with any new policies needing to be offset by savings in other areas. The fiscal policy will be geared towards: 1) Enhancing revenue administration and efficiency in collection, by formulating revenue administration regulations and reviewing tax legislations in order to simplify and modernize them. This is expected to increase revenue collection in the medium term. 2) Reforming the budget process in the County to guarantee fundamental, long term objective of efficiency and effectiveness in public spending. In this regard, the County Government will continue to entrench Programme/Performance Based Budgeting (PBB) in its budget 23
Minus Z er o draf t process. The desired goal is to have a PBB system which is fully operational by the financial year 2017/2018. 3) The development of performance management framework as per section 47 of County Government act 2012 to enhance accountability while ensuring that county government attain it overall objectives. 4) Expenditure efficiency and effective implementation of budget programs through enforcement of cost benchmarks for all projects and consumables. There will further be enforcement of a project implementation performance benchmark of at least 90 percent; expenditure tracking and value for money audits to ensure efficiency and effectiveness in use of resources in the County Government and engagement on public private partnership will be strengthened. On the revenue front, the County Treasury is expected to institute corrective measures to reverse the loss of revenue from local sources. Options could include enhanced compliance audit of outstanding tax payments, leaking revenue sources, and continued implementation of collection of other sources of taxes especially parking fees. The County Government will continue with rationa lization of expenditure to improve efficiency and reduce wastage. Expenditure management will be strengthened with full adoption of IFMIS and a Human Resource Management system. The County Government will continue its prudent approach to budgeting through expenditure rationalization and optimal resource allocation as a measure of realizing quicker socio-economic growth. Budget Framework The 2017/18 budget framework is informed by the Marsabit County revised CIDP, the Vision 2030, the governor's manifesto, feedback from members of the public, and National Government policies as outlined in the 2017 BPS. Revenue projections The allocations from the National Government to the County Government are projected to increase. The County Treasury projects to collect Kshs.130 million in FY 2017/2018. In FY 2015/16, the County realized Kshs.111.94 million but it is believed that if proper revenue measures are put in place the target of 130 million is realistic and well within reach. The total proposed allocation for FY 2017/18 in the draft BPS is shown in table 4. 24
Minus Ze r o d raf t Table 4: Projected revenue for FY 2017/18 Source Amount Own Local Revenue 130,000,000 Equitable share 6,583,600,000 Conditional Allocations User fees foregone 6,643,714 Free maternal care - Fuel Levy Fund 221,107,010 Other Loans & Grants 136,081,018 TOTAL 7,629,333,214 Expenditure Forecasts In FY 2017/18, overall expenditures are projected to increase from the FY 2016/17 budget owing to inflation and additional allocation funding. The 2017/18 Budget will operate under tight fiscal conditions, with any new policies needed will be offset by savings in other areas. The wage bill is expected to stabilize in the FY2016/17. Transfers to County assembly will be based of ceiling set out in the yet to be enacted CARA, 2017 Expenditure ceilings on goods and services for departments are based on funding allocation in the FY 2016/17 budget as the starting point. The ceilings are then reduced to take into account one-off expenditures in FY 2016/17 and then an adjustment factor is applied to take into account the general increase in prices. Recurrent expenditure forecasts The 2017/18 CFSP projected recurrent budget will be Kshs. 4,079,391,621, an increase from Kshs 3,488,803,319 for FY 2016/17. Development The CFSP development budget for FY 2017/18 is anticipated to be Kshs. 3,549,941,592 compared to 2,391,000,000 in 2016/17. In terms of percentage of the total expenditure its 47% which is in line with fiscal responsibility principle. 25
Summary Fiscal policy outlined in this Fiscal strategy paper aims at improving revenue efforts as well as containing total expenditures. This will be achieved through administrative and legislative reforms aimed at enhancing resource mobilization, improving efficiency in county government expenditure and reducing wastage. The fiscal space created will avail resources to scale up investments in human capital, including health and education, and physical infrastructure, while at the same time providing sufficient resources to sustain the progress made. 26
CHAPTER FOUR: MEDIUM TERM EXPENDITURE FRAMEWORK Resource Envelope The resource envelope available for allocation among the county s departments is based on the County Government s final resource projections contained in the medium term fiscal framework as outlined in the Fiscal Policy and Budget Framework section of this paper. The analysis thus paints a clear picture of the county s resource base and sets the scene for the spending plan and the inevitable necessity for expenditure ceilings. The county resource envelop is the resource basket available for supporting county budget execution. The main sources are: a) Allocation from National Government b) County own Revenue c) Donor Funds e.g. Danida and World Bank grants d) Conditional Allocations e.g. Road Maintenance Levy Fund, Free maternal and compensation for user fees foregone. Revenue Projections The national government allocation for the FY 2017/18 is expected to be Kshs.6.58 billion up from Kshs.5.59 billion expected in FY 2016/17 representing an increase of 17.7 per cent. Table 1 shows the county s total resource envelope. Table 5: Resource Envelope Source Amount Own Local Revenue 130,000,000 Equitable share 6,583,600,000 Conditional Allocations User fees foregone 6,643,714 Free maternal care - Fuel Levy Fund 221,107,010 Other Loans & Grants 136,081,018 TOTAL 7,629,333,214 The above resource envelope does not include leasing of Medical Equipment of Kshs.95,744, 681 as provided for in the draft BPS 2017. According to sec.5 (4) of the CARA 2016, leasing of medical equipment should be included in the budget estimates of the National Government. We do not anticipate any drastic change in CARA 2017 as far as this item is concerned. The county has a 27
Minus Ze r o d raf t potential to generate more funds internally and the county treasury will continue to mobilize resources to fund development projects. Spending Priorities The County Key focus in the FY 2016/17 Medium Term Budget will be guided by the County s medium term, strategic plan and the Annual sectoral reports as prepared by the Sector Working Groups (SWG). Respective sector reports have been prepared with keen inputs from the Public participation. As the County deepens the adoption of PBB the focus will be on revision of the Departmental programmes to align them with core County mandate. This is expected to eliminate non-core expenditures and eliminate overlap and or duplication across sectors. In adherence with the Provisions of Constitution and the PFM Act on enhancing openness and accountability in public finances, the County Government will facilitate full participation of the people in the budget making process as well as observe rationality in allocation of scarce resource. Expenditure ceilings for sectors are determined by the funding allocation for goods and services in the previous year budget as the starting point. The ceilings are then reduced to take into account one-off expenditures and then an adjustment factor is applied to take into account the general increase in prices. The County Treasury after considering the current wage bill which includes salaries for all staffs under the devolved function and the current pending recruitments with the County Public Service Board and the development activities mentioned in the County Integrated Development Plan developed the following ratio for resource distribution between Recurrent and Development Expenditure. 28