Government of Kenya and Ministry of Foreign Affairs of Denmark
Kenya Governance Support Programme
2010-2015
Component 2
Public Financial Management
Final draft,
27 October 2010
J. nr. 104.Kenya.141-14
Table of Contents
Table of Contents .................................................................................................. 1
Abbreviations ....................................................................................................... 2
Cover Page............................................................................................................ 3
1
National Sector Context ................................................................................. 5
2
Objectives ................................................................................................... 13
3
Strategy and outputs ................................................................................... 15
3.1
3.2
Expected outputs and activities ............................................................................................... 15
Cross-cutting issues ...................................................................................................................... 16
4
Budget ........................................................................................................ 17
5
Management and Organization ................................................................... 18
6
Financial Management and procurement ..................................................... 20
7
Monitoring and Reporting ........................................................................... 21
8
Key Assumptions and Risks .......................................................................... 22
Annex 1: Sector Budget Support Assessment ....................................................... 24
1
Abbreviations
EoD
GoK
IFMIS
KGSP
MFA
MoU
MTEF
MTP
PFM
PFMR
PSR
RDE
SC
Sida
TA
Embassy of Denmark
Government of Kenya
Integrated Financial Management Information System
Kenya Governance Support Programme
Ministry of Foreign Affairs
Memorandum of Understanding
Medium-Term Expenditure Framework
Medium-Term Plan
Public Financial Management
Public Financial Management Reform
Public Sector Reform
Royal Danish Embassy
Steering Committee
Swedish Agency for International Development
Technical Assistance
2
Cover Page
Country:
Component title:
National partners:
Starting date:
Duration:
Overall budget:
Kenya
Public Financial Management
Government of Kenya – Ministry of
Finance
2011
5 years
DKK 40 million
This component document describes Danish support for the Government of
Kenya’s Public Financial Management Reforms over the period 2011-2015. The
support contributes towards one (Public Financial Management) of the three
core areas of focus within the Danida Strategy for Effective and Accountable
Public Sector Management. The budget amounts to DKK 40 million over a fiveyear period.
The component is part of the larger Danish support in the area of governance –
the Kenya Governance Support Programme (KGSP) – with another two
components. These will support selected ‘drivers’ for accountability to enhance
the commitment to reform, combat impunity of those who abuse power as well
as “drivers” which are seen to be able to implement key reforms; and, support to
the promotion of peace and security as the basis for democratic development at
the coastal areas of Kenya respectively.
The component falls under KGSP’s immediate objective II which is the same as
the Government of Kenya’s Medium Term Plan goals to which PFM reforms
contribute; that is
Maintaining macro-economic stability and accelerating growth; and, developing
transparent, accountable, ethical and results-oriented Government institutions1.
Under the component, support will be provided in harmonisation with other
development partners to the Ministry of Finance through the PFM Reform
Secretariat. This will be a continuation of previous support by Denmark through
a PFMR basket/pooled fund which will be subject to a local
appraisal/assessment in conjunction with other donors after June 2011 when
the current PFM strategy expires.
Danish support will be used to implement the Governments’ “Strategy to
Revitalise Public Finance Management” and its successor strategy to be
developed for the GoK FY 2011 – 2016.
1
GoK, Vision 2030 Medium Term Plan, 2008-2012
3
The support includes DKK 5 million for technical assistance to be provided on
demand for particular components, to enhance the capacity of the PFM
secretariat to manage the reforms, and for overall risk management measures
e.g. annual external audits.
4
1 National Sector Context
Background
Kenya’s Vision 2030 defines public expenditure and financial management reforms
as one of the priority structural reforms. The goal as defined in the Vision is to
“accelerate reforms in public financial management in order to improve efficiency,
enhance transparency and accountability under a coordinated strategy to revitalise
public finance management (PFM)2”. The Medium Term Plan of the Vision (20082012) describes two key goals to which PFMR contributes. They are described
under macro-economic framework on maintaining macro-economic stability
and accelerating growth3 and under the political pillar on transparent,
accountable, ethical and results-oriented Government institutions4.
Reforming public financial management is clearly at the heart of Kenya’s
aspirations to alleviate poverty and sustain economic growth as indicated in the
country’s national plans. For many years weak PFM systems have contributed to
facilitating significant wastage of public resources through corruption and
inefficient expenditure.
GoK Policies and Reforms
The “Strategy to Revitalise Public Finance Management – 2006-2011” is Kenya’s
current PFM strategy. The strategy comprises 6 pillars and 15 components as
described in the table below.
Table 1.1 PFM strategy pillars
Pillars
Component
Financial Sustainability and Macro-fiscal framework
Budgeting
Budget formulation and preparation
External resources
Debt and guarantee
Resource Mobilisation
Taxes, customs and excise
Budget Execution
Budget execution
Accounting and reporting
Payroll and pensions
Procurement
Procurement
Oversight and Evaluation
Parliament oversight
External audit
Internal audit
Cross-cutting Issues
Electronic service delivery and IFMIS
PFM legal framework
Capacity building and service conditions
Vision 2030, Medium Term Plan, p. 144
Ibid, p. 198
4 Draft PFMR Monitoring & Evaluation Framework, May 2010 p 3
2
3
5
The strategy is implemented through annual workplans that take account of the
prevailing context and emerging priorities within each component. The Secretariat
is currently implementing the final workplan for 12 months for FY 2010/11 (July
2010-June 2011) that will mark the end of the current PFMR basket fund
arrangement, which provides the bulk of financing for the PFMR programme. The
workplans have been used to determine Governments priorities during this period
for purposes of defining Danida support.
In addition work has advanced to develop a monitoring and evaluation framework
for PFM reforms. The framework which is yet to be validated captures outcome and
output level indicators drawn from a combination of PEFA, WB PAD5 and GoK and
incorporates quarterly output level reporting from each component and an
aggregate quarterly output level report from the PFMR Secretariat. Outcome level
reporting will be compiled semi-annually by the secretariat and will be an
important input to the semi-annual joint donor and GoK reviews of PFMR. The
Secretariat aims to roll out the framework by July 2010, so it will have been tested
for one annual cycle before the end of the current strategy.
It is anticipated that GoK will develop a new 5 year PFMR strategy in 2011 to cover
the period from July 2011 to June 2016. However given the limited progress made
on the current strategy and the standard requirements of a robust PFM system, the
strategy is not likely to change immensely in substance. Nevertheless, it is expected
to take account of recommendations from various reviews which include better
sequencing, providing a sharper focus on fewer components at a time, instituting
monitoring and evaluation and assuring the working of sound steering, coordination and operational management arrangements. The period of transition to
a new strategy also provides a significant opportunity for GoK to re-ignite “sectorwide” ownership and co-ordination of the PFM reform agenda through a widely
consultative strategy development process. It also provides development partners
an opportunity to review options for enhancing the efficiency of their support
primarily through stronger alignment to GoK systems.
Challenges and Lessons Learnt
The PEFA assessment concluded in March 2009 provides a snapshot of the status
of PFM in Kenya. In addition, progress in implementing the PFM reform strategy is
relatively well documented in the aide memoires of biannual Joint Reviews since
2006 including the most recent mid-term review of September 2009, and in
Governments first annual report on PFM reforms covering FY 2008/09.
Overall Kenya’s PEFA ratings are higher than many countries in sub-saharan
Africa and comparable to some middle income countries. The table below shows
indicators on which Kenya scores highest.
Table 1.2: Highest PEFA Indicators
Indicator
Original
Revised Score
The World Bank Project Appraisal Document (PAD) for PFMR and the PFMR Basket Funding
arrangement provides indicators aligned to the PFMR strategy.
5
6
PI-2
PI-3
PI-4
PI-6
PI-8
PI-10
PI-13
PI-16
PI-17
PI-19
Composition of expenditure out-turn
compared to original approved budget
Aggregate revenue outturn compared to
original approved budget
Stock and monitoring of expenditure
payment arrears
Comprehensiveness of information
included in budget documentation
Transparency of intergovernmental fiscal
relations
Public access to key fiscal information
Transparency of taxpayer obligations and
liabilities
Predictability in the availability of funds
for commitment of expenditures
Recording and management of cash
balances, debt and guarantees
Competition, value for money and
controls in procurement
Score
2006
A
Score
2006
A
2008
C
C
A
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B+
B+
B+
B+
B
B
B
B
B
B
B
Based on these ratings, areas where progress has been made include external
audit and payroll and in timeliness and regularity of accounts reconciliation,
amongst others. However, there has been little or no progress in cores areas of
the PFMR programme and the scores are average or below. These include
quality and timeliness of in-year budget reports and annual financial statements,
legislative scrutiny of the annual budget law, follow-up on external audit reports,
as well as the effectiveness of internal controls for non-salary expenditures. At
the same time, some areas appear to have back-slid including orderliness and
participation in the annual budget process, extent of unreported government
operations, and availability of information on received by service delivery units.
(PFMR Kenya, Joint Review Aide Memoire, September 2009).
Table 1.3: Main areas of concern – PEFA rating “D”
Indicator
PI-7
PI15
PI23
PI25
PI-
Extent
of
unreported
government
operations
Effectiveness in collection of tax payments
Availability of information on resources
received by service delivery units
Quality and timeliness of annual financial
statements
Legislative scrutiny of the annual budget
Original
Score
2006
C
Revised Score
Score
2008
2006
D+
D
D+
D+
D+
B
B
D
D+
D+
D+
D+
D+
D+
7
Indicator
Original
Score
2006
27
PI28
D-1
D-2
D-3
law
Legislative scrutiny of external audit
reports
Predictability of Direct Budget Support
Financial information provided by donors
for budgeting and reporting on project and
program aid
Proportion of aid that is managed by use of
national procedures
Revised Score
Score
2008
2006
D+
D+
D+
D
D
D
D
D
D+
D
D
D
The last joint Medium Term Review of the PFM reform programme in September
2009 identified several key issues that needed to be addressed to enhance
progress. They are as follows:
1. Refocusing of PFMR: while keeping the scope of the strategy unchanged,
there was an agreement during the MTR that prioritisation is necessary to speed
up progress of the core reform challenges.
2. Results Focus: the PFMR monitoring has been is too input focused with an
insufficient emphasis on results. The need for a results oriented monitoring and
evaluation framework was noted as an urgent priority.
3. Use of basket resources: utilisation of basket funds had been consistently
low and uneven across components. And even what was used was largely
directed towards financing procurement of equipment, routine printing, vehicles
and short term training and overseas trips, and not as a channel for supporting
PFM Reforms. The review noted that an agreement was needed with GoK on
exactly which activities were to be funded from the basket (and ideally for all
donor support to PFM reforms) and work plans for the coming period needed to
be adjusted so as to ensure that objectives of the programs were reached and
utilisation of basket funds optimised
4. Improved dialogue with development partners: including constituting the
Joint Working Group (JWG) as per the MOU for the PFMR and to hold regular
meetings of this JWG, at least on a quarterly basis.
5. Improved dialogue between Components, Secretariat and MOF political
leadership.
Significant progress has been made towards addressing these issues. There are
strong signs of renewed political commitment to the reforms, the Steering
Committee is convening on a quarterly basis as planned, a PFM coordinator has
been recruited, a M&E Specialist has been recruited and is engaged on work to
develop a monitoring and evaluation framework for PFMR which is at an
advanced stage. Other vacancies within the secretariat are being filled and a new
8
Directorate for IFMIS has been established within the ministry to drive IFMIS
implementation. The Joint (donor and GoK) Working Group has begun to
convene regularly quarterly. The latest component plans are more output and
outcome focused and an implementation guide is being developed to standardise
management processes of the reform programme. In addition the PFM donors
are considering ways of making their support more effective including
establishing a division of labour for closer technical support to the PFMR
components.
The PFMR basket fund which is the main donor financing mechanism runs until
June 2011 when the current PFM strategy draws to a close. The basket funds are
channelled to a GoK designated/special account in Treasury (Ministry of Finance),
which enables separate accounting, reporting and auditing based on a combination
of GoK and WB procedures. Procurement on the programme is subject to “no
objection” from the WB Task Team Leader (TTL) based in Washington and periodic
independent external audits are used to provide further fiduciary assurance. The
PFMR Secretariat was expected to provide quarterly reports to all contributing
donors, but this has not worked very well in practice. However, the joint annual
reviews envisaged within the Joint Financing Agreements have been conducted as
planned and have provided a platform for strategic dialogue amongst the donors
and between the donors and Government.
Denmark is an active participant in ongoing discussions to promote the efficiency
of the basket funding arrangement including strongly endorsing WB plans to
recruit a locally based Task Team Leader.
For support to the new PFM strategy, Denmark in collaboration with other like
minded development partners and Government of Kenya will explore options for
further enhancing alignment, while maintaining, and improving where possible, the
harmonisation achieved so far. Future support will be based on the following
principles:







Alignment to an overarching prioritised PFM strategy and monitoring and
evaluation framework
Alignment to Government of Kenya systems with appropriate (limited
intrusion) fiduciary safeguards
Harmonisation with other development partners
Annual disbursements against comprehensive progress reports (of the
previous year) and costed workplans – showing all sources of finance
Quarterly output monitoring reports from the Secretariat
Biannual outcome level monitoring reports from the Secretariat
Annual joint reviews
These principles should provide the basis for the options review, design and
subsequent appraisal of the second phase of support of the PFMR Strategy,
including implementation modalities.
Further, within the emerging framework of a division of labour for technical
support to the various components within PFMR, the new implementation
9
framework should also explore options for availing the kind of short term technical
assistance that has been difficult to mobilise in the past. This could be in the form of
a pooled fund or coordination of bilaterally procured technical assistance.
In addition to a move towards greater alignment and reinvigorating the JWG for
technical cooperation, future dialogue between donors and Government should be
aimed at promoting the emerging outcome focussed monitoring and evaluation
framework fostering the leadership and coordination required to achieve sector
outcomes including the wider PFM framework led by other entities such as the
Ministry of Local Government and providing a forum for citizen/civil society
participation in the reform agenda.
Table 1.4 below summarises the main features of the PFMR basket fund
arrangement utilised for current Danish support and the potential for further
alignment harmonisation and focus on results.
Table 1.4: The PFMR Basket Fund arrangement
Feature
Description - present status
Foundation in
national
plans/strategy
Monitoring
system
The PFMR basket fund directly
supports Government's reform
programme for the sector, it
funds workplans drawn from
the Strategy to revitalise Public
Finance Management, which is
mentioned in the National
Medium Term Plan and Vision
2030. However the workplans
have tended to highlight only
those activities funded by the
PFMR basket fund.
The annual (and current 6
month) workplans are used as
the monitoring framework and
are reviewed jointly by GoK and
donors on a biannual basis.
Result based
indicators
Monitoring of the present PFM
strategy has so far focused on
inputs and activities.
Management and
coordination setup
The PFM Steering Committee
has the role of strategic
guidance, oversight and crossgovernment co-ordination
Scope
for
improved
effectiveness
By including all the PFMR
related activities funded by
Government and other
development partners within
one integrated workplan.
By developing a
comprehensive monitoring
and evaluation framework
which includes inputs /
activities, outputs and
outcomes
By shifting the emphasis of
the monitoring, reporting and
dialogue towards results and
outcomes
By complete establishment
and operations of the PFMR
management and coordination set up
The PFM secretariat has the
main role in the operational
coordination and budget
10
Feature
Description - present status
Scope
for
effectiveness
improved
allocation of PFMR funds within
the sector.
The coordination focuses on
activities under the PFMR
strategy but has tended to
concentrate mainly on the
activities funded by the WB
managed PFMR basket fund
On-budget
On-parliament
On-treasury
On-accounting
On-audit
Reporting
A Joint (donor and GoK)
Working Group is supposed to
support technical co-ordination
but is yet to convene
The PFMR basket fund is onbudget and included in the
budget framework paper
PFMR basket funds are onbudget. However annual
workplans and budgets could
be better aligned with the
budgeting cycle to ensure
accurate reflection.
The PFMR basket fund is
PFMR basket funds are
included in the budget
included in the budget
framework paper presented to
framework paper and hence
parliament
presented and approved by
Parliament.
The PFMR basket funds are
By integrating future support
disbursed to a separate subdirectly into the Ministry of
account of the Ministry of
Finance consolidated account,
Finance
stronger ownership could be
achieved which could also
induce greater consideration
of the coherence between
development and recurrent
requirements to increase the
sustainability of reforms
The PFMR basket fund is By
using
Government
accounted for separately
accounting classifications and
procedures
The PFMR basket fund is by the By using the Auditor General
Auditor General
and by audit reports (however in the
independent external auditors
short term independent
external auditors would be
required to provide the
necessary fiduciary
safeguards - and could be
phased out over time)
Separate reporting and auditing By using the reporting
11
Feature
Description - present status
of PFMR funds
Procurement
Harmonised
donor positions
and support
Procurement follows a
combination of GoK and WB
procedures for national
procurement and WB
procedures for international
tendering
Five key donors have been
harmonised within the WB
PFMR basket fund arrangement,
but this has been traded off with
greater alignment. Other donors
adopt different bilateral
approaches.
Scope
for
improved
effectiveness
systems established within
the PFMR management
structure – particularly the
quarterly reporting to the
Steering Committee
By using GoK procurement
procedures only for national
procurement
Enhanced harmonization
could be achieved by
promoting greater alignment
from the partners providing
bilateral support, whilst
discouraging the proliferation
of different approaches.
A more effective donor
response could be achieved by
harmonizing donor
approaches to disbursement
based on performance against
robust indicators within a
comprehensive M&E
framework.
Overall the PFMR basket fund modality, despite being relatively aligned to GoK
systems, suffers considerable delays to the procurement process. Consequently
funds have been very poorly absorbed, and programme implementation hampered.
Whereas steps have been taken to enhance expenditure efficiency, there is still
scope for further improvement which should be taken into account in the design of
the implementation and funding framework for support to the next PFMR strategy.
12
2 Objectives
Support for Public Financial Management Reform (PFMR) is one of the three
components of the broader Kenya Governance Support Programme (KGSP). It
falls under KGSP’s second immediate objective drawn from the goals in the
Medium Term Plan to which the PFMR contributes. That is to:
Maintain macro-economic stability and accelerate growth and develop
transparent, accountable, ethical and results-oriented Government institutions.
The primary aim of the component is to support Government's achievement of
the priority objectives for PFMR Reform. A key element of the component will be
follow up and dialogue by the Danish Embassy in collaboration with other
development partners with the Ministry of Finance and other PFM stakeholders
on sector policy issues, co-ordination, prioritisation and sequencing and
implementation progress (including the development of a new strategy for 20112016) based on agreed desired results. In addition technical capacity will be
availed on request to the PFM Secretariat to enhance their capacity to coordinate the reforms and to enhance their internal management; and for overall
risk management measures e.g. annual external audits.
Support will be provided to the PFMR programme whose objective is: to
strengthen PFM systems to enhance transparency, accountability and
responsiveness to policy priorities.
A comprehensive monitoring framework including a matrix of outcome
indicators incorporating the PEFA is being developed by the PFM secretariat and
is at an advanced stage. Key indicators for the component are provided in Table
2.1 below:
Table 2.1 Key indicators for Component II
Objective
Maintaining macroeconomic stability and
accelerating growth,
and developing
transparent,
accountable, ethical
and results-oriented
government
institutions.
Strengthened PFM
systems that enhance
transparency,
accountability and
responsiveness to public
Indicator
Annual growth rate
of GDP
GDP per capita in
US$ (disaggregated
by gender,
ethnicity, region
etc)
Annual increase in
revenue collection
on account of
improved
compliance
Source
National
Reporting
Framework for
Vision 2030, p6;
Economic Survey
National
Reporting
Framework for
Vision 2030, p6;
Economic Survey
PFM M&E
Framework
(draft)
Notes
Stated baseline of 7.1
for 2007; stated targets
for the next 5 years;
Stated baseline of US$
792 for 2007; stated
targets for the next 5
years;
Stated target of KShs
15 billion per annum
13
expenditure policy
priorities
Quality and
timeliness of public
financial statements
index
Legislative scrutiny
of external audit
reports index
PEFA Reports &
PFM M&E
Framework
(draft)
PEFA Reports &
PFM M&E
Framework
(draft)
Stated baseline of D+
for 2008/09;
Stated baseline of D+
for 2008; stated target
of B for 2015.
PFM contributes to creating an enabling environment for private sector investment
and to ensuring Government has the resources and capacity to implement its
political, economic and social programmes. Strong PFM is therefore pivotal to
Kenya’s economic growth and capacity to alleviate poverty and deliver on the
millennium development goals
14
3 Strategy and outputs
The component builds on previous support for PFMR. The main differentiating
consideration for this next phase of Danish support is a stronger emphasis on
outcomes through a closer focus on strengthening technical and management
capacity for the reforms, including the provision of technical assistance on request
to enhance the capacity of the PFM secretariat to deliver.
The Danish strategy behind the component will consist of the following elements:
Financial support to Ministry of Finance – PFM Secretariat. Provided in
conjunction with other development partners to the Ministry of Finance Budget for
the PFMR strategy. Denmark will contribute DKK 40 million over a five-year period
subject to the development of a new PFM strategy by July 2011, with DKK 5million
earmarked for Technical assistance.
Policy dialogue on key sector issues. As a member of the PFM donor group,
Denmark will play a proactive role in engaging with government on the key policy
issues that confront PFMR and on the development and use of a robust monitoring
and evaluation framework for PFMR strategy implementation. Denmark will
promote priority setting by GoK, a division of labour within the donor group based
on the PFMR components in the current and new strategy and the various
institutions within the sector, and movement towards greater alignment by all
donors.
Promotion of maximum ownership, alignment and harmonisation. To
maximise ownership and effectiveness of the support, Denmark in conjunction
with other development partners will actively promote further alignment of PFM
support to the national systems and procedures.
Technical Assistance in strategic areas. In addition to the funds provided for
PFMR strategy implementation and policy dialogue, Denmark will provide
technical assistance and training as required for strategic functions within the PFM
Secretariat and within the components of focus by Denmark. These are likely to
include strategic planning and co-ordination, financial management and
monitoring and evaluation for the PFM secretariat
3.1 Expected outputs and activities
The draft monitoring and evaluation framework for PFMR identifies over 60
output indicators. The draft outcome level indicators are as follows:
1. National Budget is aligned with explicitly stated government priorities in the
Vision 2030 and MTP (previously the IP and ERS)
2. Budget allocation and actual expenditure disparities reduced
3. Predictability of annual/mid-term cash allocation flows to line ministries
improved by Treasury
4. Timely capturing of accurate and verifiable data of budget execution for
improved financial reporting
15
5. Improved payroll management, reliability and control
6. Effective procurement system by reducing time spent and ensuring that there
is value for money on procurement
7. External audit reports prepared and published in a timely fashion in
accordance with the Public Audit Act 2003
8. Adoption of a Risk Based Internal Audit approach and establishment of
effective Ministerial Audit Committees
9. Skilled Oversight Committees of Parliament in undertaking their statutory
functions, submitting reports on an annual basis and eliminate backlog
10. Skilled Budget Committee in undertaking its statutory functions complies
with the budget cycle
11. Accountability and capacity of public servants enhanced for the delivery of
public service
The outcome level indicators contribute directly to achieving one of the three
core areas of focus in the Danish Strategy for Effective and Accountable Public
Sector Management which is defined broadly as Public Financial Management.
They also contribute to the other two areas within the strategy which are: fight
against corruption, and local service delivery and governance.
The indicators are yet to be validated and will be later revised to align with the
new PFMR strategy from July 2011 to June 2016.
3.2 Cross-cutting issues
The PFM support will address cross-cutting issues and priority themes related to
the PFM as feasible.
Gender is mainstreamed in the current PFMR by supporting more transparent
and equitable public sector management to enable equal opportunities for men
and women. A less corrupt and more accountable public sector is furthermore
expected to deliver equitable services to men and women.
The component is aimed at making the Executive more transparent and
accountable for the delivery of services to the citizens, and at limiting the misuse
of public funds. An accountable and transparent public service and government
is seen as a precondition for enabling citizens to hold the government to account.
The programme will not have specific interventions targeting HIV/AIDS, but the
emphasis on ensuring accountable and transparent public sector will also benefit
the service delivery in the health sector.
There are no specific interventions targeting the environment. Having said this, a
more accountable government that shows respect for the rule of law will in the
long run improve the environment in Kenya.
16
4 Budget
The budget allocation of DKK 40 million (see table 4.1) is based on: (a) the
projected needs (b) the need to make a sufficient contribution to make a
difference, and (c) not overloading GoK with funds that they are unable to
absorb.
DKK 5 million (about 10% of the budget) will be earmarked for technical
assistance to be provided on demand to enhance the capacity of the PFM
secretariat and for overall risk management measures e.g. external audits.
Table 4.1 Budget for Danish contribution to PFMR
Denmark
Commitment in million DKK
Grant
35.0
Technical assistance
5.0
Total
40.0
The total resource envelope for the current 5 year PFM strategy 2006-2010 is USD
114 million, making it one of the largest PFM programmes in the world. The
programme utilised approximately USD 7 million from 2006 to 2009. The six
month workplan (Jan2010 – Jun 2010) developed by the PFM Secretariat in
collaboration with the component managers, has a budget of KShs. 902.40 million
or about USD 12M. Of this approximately USD 1M is already available and USD 10 is
expected to come from development partners the bulk of which would be from the
PFMR basket fund, and approximately USD 1 million plus recurrent costs from the
GoK6.
The overall budget and allocations within the programme would be affected by
significant changes in the political environment. They are likely to be affected by
an affirmative outcome in the constitution referendum (expected to conclude by
September 2010). The new constitution includes significant changes to the
public finance framework including devolution, which would shift significant
resources to new region and county level entities. The new PFMR strategy would
therefore need to be reviewed significantly in the event of an affirmative
referendum outcome with changes instituted to establish the mechanisms to
facilitate the operationalisation of the new financing arrangements in
collaboration with other key players such as the Ministry of Local Government.
The other significant event which is likely to impact fund absorption in the
programme is the next general elections planned for 2012. Historically
absorption rates decline during the immediate pre and post election periods.
Denmark in collaboration with other development partners will monitor the
political environment and ensure that any significant issues are well analysed
and considered in the emerging new strategy, and consequently in the design of
future support and allocation of resources.
However due to the fragmented or dispersed nature of the PFM “sector” , these figures cannot
be taken to represent the total envelope available for PFM across the entire Government.
6
17
5 Management and Organization
Kenya’s planning and budgeting framework does not identify PFM as a sector;
however the strategy described above is defined as a SWAP and includes all the
supply side institutions with a role to play on PFM, as follows:









Ministry of Finance
Ministry of Planning
Ministry of Public Service
Line Ministries
Local Authorities
Kenya Revenue Authority
Public Procurement Oversight Authority
Auditor General
Parliament
The Ministry of Finance has the policy lead for PFM and co-ordinates
implementation of the PFM strategy. Therefore, the Government budget for the
core reform programme including cross-cutting issues is allocated to the Ministry
of Finance.
A separate PFM programme exists within the Ministry of Local Government to
support PFM reform within Local Authorities including the development of Local
Authority Integrated Financial Operations Management Systems (LAIFMOS). And
other significant reform programmes target public procurement and the oversight
role of Parliament.
Other Government entities including Line Ministries are expected to plan and
budget for their specific PFM requirements and some such as the Ministries of
Education and Health have made significant efforts to improve their systems, with
some direct support from the PFM programme
Demand side institutions are not formally included in the arrangements for the
PFM strategy implementation. However they engage on an adhoc issue basis with
Parliament in support of the oversight role7.
This institutionalised fragmentation complicates co-ordination of PFMR.
The management arrangements for the PFMR strategy include:
A PFM Reform Steering Committee; chaired by the PS in the Ministry of Finance
and comprising PS in the Ministry of Planning, the Secretary PSTD, Component
Managers, Directorate of Personnel Management and 3 representatives from line
ministries (Education, Health and Local Government) and providing strategic
guidance and co-ordination
7
Support for PFM demand (civil society) is included in the Drivers of Accountability Programme.
18
A PFM Secretariat; providing operational co-ordination of strategy
implementation
Component managers; providing technical leadership on component
implementation
Technical Groups; providing cross-government technical leadership on crosscutting PFMR issues
Working Groups in each line ministry; providing user feedback and
implementation support
In addition, under a joint Memorandum of Understanding, there is a Joint Working
Group bringing together development partners supporting PFM and Government
including all component managers who meet on a quarterly basis to further
enhance co-ordination and monitor implementation of the strategy
The development partners supporting the PFMR strategy are: Sweden, Denmark,
Norway, Germany (GTZ), Canada, European Union and World Bank through the
PFMR basket fund. GTZ, USAID, JICA, AfDB and IMF also provide bilateral support
directly to the Government of Kenya.
Since the last joint mid term review of September 2009, the weaknesses identified
in the management arrangements have been significantly improved upon and are
now working more effectively. Work is in progress to develop an implementation
guide for the programme will provide a framework for standard management
practices which should further enhance efficiency.
Plans are also underway to strengthen linkages between PFMR and other related
initiatives through stronger participation in the wider Government of Kenya and
development partners’ coordination architecture. PFMR will be incorporated in the
emerging public sector working group of the Medium Term Plan, which is aligned
to the MTEF sector of Public Administration. Development partners will also align
their support to this emerging MTP sector framework. With respect to donor
harmonisation, the donor PFM Group is part of the umbrella Democracy and
Government Donor Group. Participation in these wider forums will promote coordination and efficiency in realising the benefits expected from PFMR.
The follow-up programme to be supported post-2011 will be formulated by GoK
and be subject to a joint local appraisal. Denmark will participate in this appraisal
locally through the Embassy. The appraisal will assess the viability of the
programme in accordance with the Danida Guidelines for Programme
Management.
19
6 Financial Management and procurement
The Danish support until June 2011 will continue to be contributed to the PFMR
basket fund and managed through a combination of GoK and WB procedures.
The WB will be responsible for providing fiduciary oversight and safeguards.
Support from July 2011, is subject to the detailed design work to be undertaken
by GoK in collaboration with development partners. It is anticipated that the
support will be managed more closely in line with Government procedures for
financial management and procurement. This includes the Government
Financial Management Act (2004) and related guidelines (including treasury
circular updates) and the Kenya Procurement and Disposal Act (2005) and
related guidelines (2006). Due to a gap in Kenya’s procurement regulations,
international tendering would continue to be undertaken in line with WB
procedures. In addition, where necessary, fiduciary safeguards may be enhanced.
This would include procurement audits which should cover: a procurement
capacity and risk assessment and a thorough evaluation and documentation of
the procurement cycle for sample contracts8. The audits would be used in
conjunction with the annual external audits by KENAO to assess any fiduciary
risks and to facilitate mitigating action.
This guidance on procurement audits is drawn from a Study of Kenya’s Procurement System
completed for SIDA in August 2008.
8
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7 Monitoring and Reporting
The PFM Secretariat has recruited a full time M&E officer and is at an advanced
stage in developing a monitoring and evaluation (M&E) framework for PFMR.
The framework will include input, output, outcome and impact indicators drawn
from the strategy and be aligned as far as possible to the PEFA indicators.
The Danish Embassy in conjunction with other donors will be consulted on the
emerging M&E framework as it is the intention that both GoK and donors would
use the same platform for monitoring and evaluation of the reforms. The Danish
Embassy will draw primarily on this emerging M&E framework for monitoring
progress and the effectiveness of Danish support. In addition they will use the
quarterly reports prepared by the PFM secretariat for the PFM Steering
Committee and the joint GoK and donor reviews currently conducted biannually
with leadership from the WB. Subject to developments with the PFMR basket
fund, the biannual reviews may be managed differently in future but are likely to
remain a feature of the programme. Further adhoc joint reviews will be
undertaken for example shortly after the completion of the new PFMR strategy
and in the event of an affirmative outcome in the referendum. . A major mid-term
review will be conducted by independent consultants in 2013 and a final
evaluation at the end of the support period in 2016.
In summary monitoring will be based on:






Political and other context related information - provided at various forums
Quarterly reports from the PFM Secretariat to the PS/PFM Steering
Committee
Annual joint reviews
Annual Audit report from an independent auditor
Annual Auditor General report
Mid and end-term reviews / evaluation reports
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8 Key Assumptions and Risks
The overall risk of the Danish support to PFM is medium. This is primarily
because the support is planned over a 5 year period when two significant
political events are planned to take place; the constitution referendum planned
for August 2010 and General Elections planned for 2012. The support is also
building on a history of underperformance of PFM reform. However these high
level risks are partly mitigated by the evidence of renewed impetus for PFMR led
by the Deputy Prime Minister and Minister for Finance, including stronger
commitment from the steering committee and a more fully established and
operational PFM reform secretariat.
Table 8.1 Risks and mitigating factors
9
Strategy Risks9
A lack of sustained
commitment and
political will to
continue to drive
what is a complex
and long term
effort
Lack of capacity to
implement a
comprehensive
reform
programme of this
nature
Likelihood
Medium
Impact
High
Medium
Medium
Poor or slow
procurement
procedures
Medium
Medium
Implementing an
unsuitable
programme
management
structure
Low
High
Mitigation
Sustained high level dialogue
between donors and GoK. In
particular to ensure that the PFMR
steering committee remains
engaged and provides the
necessary leadership for the
reforms
Joint GoK and donor monitoring of
component 15 of the strategy on
“capacity building and service
conditions. Promotion of greater
prioritisation and sequencing in the
subsequent strategy (2011-2016)
aligned with capacity building.
Promotion of stronger coordination within the “sector”
Promotion of alignment with GoK
procedures for national
procurement and WB procedures
for international procurement.
Promotion and monitoring of proactive procurement planning and
adoption of best practice by the
PFM secretariat and component
managers
(The defined programme structure
is suitable, but to date it has not
operated as conceived). Joint donor
engagement with GoK on
establishing or reinvigorating the
activities and relationships of the
management arrangements for
PFMR
Drawn from the PFMR strategy.
22
Strategy Risks9
Not implementing
a monitoring and
evaluation
framework
Delays in
formulating new
PFMR strategy
(2011-2016)
Likelihood
High
Impact
Medium
Mitigation
Joint donor engagement with GoK
on current plans to complete and
systematically utilise an M&E
framework
Joint donor engagement with GoK
to encourage early planning for
follow on strategy. Danish / donor
provision of technical assistance on
request to support new strategy
formulation
Mitigation
Engagement with other PFM
donors and plan for design work to
commence by Sep 2010 and coordinate with timelines for new
strategy
Medium
Medium
Modality Risks
Delay in designing
and activating the
funding
framework for the
new PFMR
strategy 20112016
Inadequate
financial
management
capacity within
the PFM
secretariat
Poor procurement
practice
Likelihood
Medium
Impact
High
Medium
High
Engagement with the PFM Coordinator and FM Specialist and
provision of short term TA on
request to enhance capacity for
financial management
Low
High
Promotion of pro-active
procurement planning by PFM
secretariat and Component
Managers and monitoring of best
practice by the Procurement
Specialist within the PFM
Secretariat
23
Annex 1: Sector Budget Support Assessment
Governance
1. Good governance, encompassing a minimum respect for human rights, a
free press, pluralistic democracy and rule of law, including independence
for the judiciary.
The latest 2007 elections were determined by the Kriegler Commissions to have
been flawed, and the outcome of the Presidential election could not be verified.
The post-election violence agreement of the formation of a Grand Coalition
Government has rendered Kenya without an official parliamentary opposition.
Kenya has a fairly free and vocal press, which serves as an important watchdog in
society. Accountability of the state is however weak and the powers of the
executive are extensive coupled with a lack of a clearly independent judiciary.
Kenya has ratified all major treaties but human rights abuses are extensive (latest
documented by the UN report on extra-judicial killings by the Kenyan Police) and
impunity strife. A draft constitution which would significantly enhance the
governance landscape in Kenya will be subjected to a referendum in 2010..
2. Anti-corruption with implementation of prevention and control measures,
as well as follow-up with a view to improving the country’s standing in the
international corruption league table.
Kenya ranks 147 in Transparency International’s Corruption Perception Index
together with Bangladesh. The civil service is perceived as corrupt and inefficient,
with top officials accused of ethnic favouritism. In the last year alone, the Kenyan
newspapers have exposed mismanagement and possible misuse of GoK funds by
ministers and GoK officials related to food aid, education aid and fuel. Kenya has
an anti-corruption commission (KACC), which Denmark has supported in the
past, but which has not been effective. No prosecutions have been achieved for
grand corruption scandals despite significant evidence being adduced in public
hearings. The high degree of corruption is one of the main reasons for the
relatively low level of Foreign Direct Investments to Kenya. (see DFID Kenya
Governance Assessment 2008 and ODI Power and Change analysis for Kenya
2008).
Poverty reduction policies
3. Solid poverty reduction strategy and the will to implement it.
Kenya has introduced a vision for the development of the country till 2030 called
Vision 2030. Vision 2030 is supported by five years Medium Term Plans (MTP).
The 2008-2012 MTP has comprehensive analysis of the development needs and
prioritised support. However the monitoring and evaluation framework is weak.
24
The MTP is supported by sector wide strategic plans, most of which have been
formulated. However commitment to implementing key governance reforms
within the current MTP are lagging behind, in particular in areas such as justice
and police reform.
4. Positive experiences with development cooperation generally and budget
support specifically, as well as ongoing documentation of concrete
development results.
Denmark has a long development experience with Kenya. In the last five years
emphasis has been on supporting the governance sector through GJLOS and
public sector management basket funds. While there has been some progress
within PSR and PFM, reforms under GJLOS have come to a stalemate. There is
no previous Danish experience with the provision of budget support or SBS to
Kenya. Other donors, including the World Bank, have so far refrained from the
provision of direct budget support. An alignment study has been commissioned
by Denmark.
Public finance management
5. The Finance Act process, with publication of budget and accounts, as well
as parliamentary consideration.
The 2009 PEFA report assess that the budget has become a more ‘credible’
instrument in terms of budget allocation, revenue collection and distribution of
resources. However the report also finds a need for improving allocative
efficiency. Furthermore functional reporting does not take place. Parliament is
involved in the budgeting process, albeit at a very late stage but in accordance with
the constitution.
Overall Kenya has improved its performance in the budget process since 2006,
most significantly in the budget credibility (scoring: A) with some setbacks related
to the extent of unreported government operations (scoring: D).
6. Rules for public procurement broadly in accordance with international
standards.
A new public procurement regulation was gazetted in 2005 and operationalised in
2007. The regulation makes it mandatory to use open tenders for procurement
with clear separation of duties of accounting officers, tender committee,
evaluation committee as so forth. The PEFA 2008 found that efforts were being
made to comply with the regulations but that there are ‘non-compliance
challenges’. There are still cases of state employees acting behind front companies
and leaking of qualified information.
25
7. Presence of an independent National Audit Office or similar functioning
inspection body.
Kenya has a National Audit Office (KENAO) with a mandate of authorization of
issues from exchequer account and audit of all Government accounts, Courts,
commissions and bodies (see below)
8. Expert appraisal of quality and capacity in public finance management.
The PEFA 2008 report also found that the Internal Control system, including
commitment control, has not been very effective and found evidence of the
occurrence of many deficiencies. Furthermore, the report highlights poor status of
annual financial statements reflecting mismanagement and poor control.
Furthermore poorly functioning Parliamentary oversight as a consequence of a
weak constitution will need to be addressed as part of the constitutional review.
Progress has however occurred in PFM, including the initiation of the rollout of
IFMIS after the successful rollout of IPPD. Outdated legislation has or is in the
process of being revised, such as the Government Financial Management Act and
the Public Procurement Act.
Partnership
9. Mutual observance of agreed obligations.
In the PFM sector there has in the past been good cooperation though the World
Bank implemented PFMR programme. However, utilisation of the funds has not
been optimal and opportunities for enhanced alignment and harmonisation
through alignment should be explored in the future.
10. Consensus among all budget support donors regarding approach (incl.
rules for transfer and monitoring) and conditions for general budget
support.
No budget support has been provided by like-minded donors so far.
26