COUNTY FISCAL STRATEGY PAPER FEBRUARY 2015 Send your

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MACHAKOS COUNTY GOVERNMENT
MEDIUM TERM
COUNTY FISCAL STRATEGY
PAPER
“DEVELOPING A SUSTAINABLE SOCIAL ECONOMIC GROWTH FOR
PROSPERITY IN MACHAKOS COUNTY”.
FEBRUARY 2015
Machakos County Fiscal Strategy Paper, 2015
Page 1
TABLE OF CONTENTS
TABLE OF CONTENTS ............................................................................................................. ii
Legal Basis for the Preparation of the County Fiscal Strategy Paper (CFSP) ....................... iv
Outline of the 2015 County Fiscal Strategy Paper ..................................................................... 6
I.
Developing a Socio Economic Growth for Prosperity ........................................................ 7
Overview .............................................................................................................7
II. Strategic Objectives and Policy Priorities ........................................................................... 8
III. Recent Economic Developments and Outlook ...................................................................15
County Economic Environment ........................................................................16
IV. FY 2014/2015 Budget Execution .........................................................................................17
V. Fiscal Framework and Budget Framework for FY 2015/16 .............................................22
Budget Framework FY 2015/16 .......................................................................22
Revenues…………………………………………………………………22
Expenditures……………………………………………………………..23
Recurrent Expenditure ...................................................................................... 24
Development Expenditures ...............................................................................24
Risks to the 2015/2016 Budget Framework...................................................... 25
VI. CONCLUSION ....................................................................................................................27
Page ii
Page iii
Legal Basis for the Preparation of the County Fiscal Strategy Paper (CFSP)
The Public Finance Management Act 2012, requires the county treasury to prepare a Fiscal
Strategy Paper , setting out broad strategic priorities and policy goals necessary in achieving
county development agenda. The strategies and the goals should be aligned to the national
objectives as spelt out in the budget policy statement.
The Act 2012 further requires to include in the paper, the outlook with respect to county
expenditures, revenues and borrowing over the medium term and which together with the
priorities should be submitted to the County Executive Committee for approval and further
submit the same to the County Assembly for adoption.
The paper has taken into account the views of the County Budget and economic Forum. In
finalizing the fiscal paper, the County Treasury shall seek and take into account the views of
the public and those of the Commission on Revenue Allocation and other interested groups or
persons.
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The Fiscal Strategy Paper and the Fiscal Responsibility Principles
Inorder to ensure prudency and transparency in management of resources, the County Treasury shall
be guided by the fiscal re4sponsiblities as spelt outi the PFM Act 2012.
Specifically;
i.
Over the medium term, a minimum of 30 percent of the County budget shall be
allocated to development expenditure
ii.
The County Government’s expenditure on wages and benefits for county public
officers shall not exceed thirty five(35) percentage of the County revenue.
iii.
Upon approval of the borrowing framework by Parliament ,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.Short term borrowing
shall be for purposes of cash management.
iv.
Public debt and obligations shall be maintained at a sustainable level as approved by
the county assembly
v.
Fiscal risks shall be managed prudently
vi.
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.
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Outline of the 2015 County Fiscal Strategy Paper
The report is structured into three sections as follows;
1. Section I which outlines the county strategic objectives and gives the
information on various programmes that the County is implementing to
achieve her objectives.
2. Section II outlines the economic context in which the 205/16 Medium Term
Expenditure Framework (MTEF) Budget is prepared. It also provides an
overview of recent economic development and macro-economic outlook
covering the national and county levels.
3. Section III outlines the fiscal framework that supports growth over medium
term while improving revenue sources as well as containing total
expenditure. It also provides the resource envelope and proposed spending
priorities for the FY 2015/16 MTEF budget and medium term.
Page 1
I.
Developing a Socio Economic Growth for Prosperity
Overview
4. The 2015 CFSP County is the second to be prepared by the County
Government in the advent of devolution ushered by the Constitution of
Kenya 2010. The CFSP articulates various policies and strategies the
county is implementing to address the socio economic and development
challenges affecting the County.
5. The policies proposed herein are informed by challenges identified through
various public participation forums and include;
i. Poverty reduction
ii. Unemployment
iii. Access to quality health services
iv. Access to clean water
v. Youth and women empowerment
vi. Improved infrastructure
among others
6.
The proposed policies and strategic priorities seek to address these
challenges and include;
i.
Provision of clean accessible water to all households by
2017
ii.
Provision of accessible and quality health care services
iii.
Creating a conducive business environment for income
generation, employment and wealth creation
iv.
Ensuring food security
v.
Transport and infrastructure development
vi.
Provision of accessible and affordable energy
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7. The programmes and projects that will be funded in the Budget for FY
2015/16 and the medium term and outlined in this CFSP in the above stated
areas rides on the priorities outlined in the CIDP and the Second Medium
Term Plan of Vision of 2030. The implementation of theses priority
programmes and projects is expected increase efficiency and productivity in
the economy and in turn sustain and accelerate the economic gains achieved
in the county.
II.
Strategic Objectives and Policy Priorities
8. The CFSP 2015 outlines the priority economic policies as well as specific
expenditure programmes to be implemented under medium term in order to
achieve County development goal. These policies target the following
areas;
I. Provision of accessible and quality Health services
9. The County shall continue to implement a comprehensive health strategy to
ensure access to quality health care for all through provision of quality,
efficient and affordable health care services. A number of strategies have
been initiated in 2014/15 and will continue in 2015/16. These strategies are
aimed at reducing health inequalities and reverse the downward trend in
health related outcome
10. Some of the strategies initiated in FY 2014/15 include; provision of an
ambulance in every location , well equipped and placed at strategic places
as per emergency response system and construction of Community
Hospitals which is ongoing in all wards. The objective is to ensure the
County meets WHO standards of a hospital in every 5 kilometres.
11. In FY 2015/16, the county will implement the following programmes
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i. Equipping all the community hospitals with x-ray
equipments, mini theatre , maternity and inpatient
admission wards.
ii. Provision of more health facilities by expanding Matuu
Level 4 hospital and construction of a Level 4 hospital in
AthiRiver
iii. Automating and installing CCTV at Level 5 hospital
inorder to improve service delivery.
12. The County will also provide incentive to health works to ensure they offer
quality services to the patients through
i. Provision of free housing by constructing doctors and
nurses quarters
ii. Free transport to the place of work
iii. International exchange program
II. Investing in transport and infrastructure development
13.
Developed infrastructure is a key pre-requisite to sustained economic
development due to the linkages it provides to all other sectors in the
economy. The county shall therefore continue to invest in the expansion of
raod network with the objective of of creating a conducive environment and
provide a link to ther sectors notably the Health, Tourism and trade sectors.
14. The county road network has improved in the last one and half years
through the rehabilitation of existing roads and construction of new ones.
The Government will continue to invest in expansion of road network to
open up rural areas that will lead to ease movement of goods and human
capital. This will be done through provision and maintenance of quality
infrastructure, transport and other public works so as to promote socio
economic development.
Page 9
15. In FY 2015/16 and over the medium term, the county will implement the
following projets;
i. Construction an maintenance of quality roads. A total of
17(seventeen ) major county roads will be tarmacked
across the county
ii. Developing and maintaining government buildings and
other public works
iii. Facilitation and provision of adequate , efficient and
affordable transport system
iv. Maintenance of all county vehicles, plant and equipment
and fleet management.
III. Creating a conducive business environment
16. Investment and trade are key drivers of economic growth given their
potential for wealth and employment creation as well as poverty reduction.
17. The County will endevour to ensure a sustainable and vibrant business and
investment environment and create an enabling environment for investment.
This will be achieved through provision of infrastructure to the Machakos
city. The Part Development Plan (PCP) for the construction of the new city
has been approved and gazetted. It is estimated that a minimum of 100
factories will be developed, 200 construction sites and over 1000 new
economic activities will be generated in Machakos County in 2015/16,
resulting in immense employment opportunities for the |County’s
unemployed youth.
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18. Construction of market shades and toilets is ongoing and will be continued
in FY 2015/16. This will ensure better working environment for traders and
customers. In order to further support growth of business, starting 2015/16
the County will tarmac roads and pave sidewalks in the major urban,peri
urban and also small towns.
19. The County will also ensure security for her people and provide a
conducive environment for investment. This will be achieved through the
ongoing comprehensive security program. In 2013/14 through 2014/15 the
County initiated a number of programs including provision of patrol
security vehicles and installation of CCTV. In 2015/16 the County will, in
collaboration with the National Government provide housing units and
stations to the police.
20. The County will also operationalize the County Law Office for legal
advisory services for effective implementation of the devolved function.
IV. Ensuring Food Security
21. Agriculture is the main economic stay in the county, however over years the
sector has faced low productivity due to over reliance on rain fed
agriculture, use of inappropriate technology, inaccessible farm inputs and
weak extension services. Majority of the population in Machakos County
especially those in the rural areas are still food insecure and live in absolute
poverty. Investing in this sector will lead to increased productivity,
increased food supply, reduce food related prices and bring down cost of
living, create employment and create overall rural development.
22. The County will continue investing in this sector through subsidy system,
increase cultivated land, provision of tractors, free seed,subsidized fertilizer
and construction of silos.
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23. Further the government will put structures in place to tap the potential of
livestock, dairy and poultry farming. This will be through upgrading the
local breeds and commercialization of the by-products in this sector.
24. Other initiative in this sector include extension services, soil concervation,
disease control, farm inputs subsidies and mechanisms to mve away from
rain fed agriculture.
V. Investing in accessible and affordable energy
25. To sustain economic growth in the county there is need to expand
investment in accessible and affordable energy supply. Over the medium
term the County Government has expanded rural electrification program in
all wards, market centers, primary and secondary schools, boreholes, coffee
factories, hospitals and other government institutions.
VI. Ensure efficient service delivery to the public
26. In order to ensure efficient service delivery, the County will undertake a
number of reforms. These will include:
1. Customer management through customer management system
2. Implementation of a Human Resource Information Management
system
3. Capacity building
4. Improve staff productivity through incentives such as
a. provision of mortgage and car loans to the County Staff
b. Provision of voluntary early retirement package with an
objective of cutting down the wage bill
5. Provision of Integrated Communication system
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6. Implementation of pension and gratuity schemes
27. Other initiatives include:
i.
Manage solid/liquid waste and sanitation
ii.
Decentralize devolved functions by construction of Sub county
and ward offices
iii.
Control and co-ordinate urban development and planning and
provision of fire fighting and disaster management services
iv.
Professionalize the County inspectorate services through intensive
training by Kenya Police Services
v.
Designing a professional command structure
vi.
Provision of uniforms, communication and other equipment
VII. Ensure Provision of quality social services
28.
The objective of the County is to provide quality services in early
childhood development and education, village polytechnic, youth training
and development and social support.
29. This will be achieved through the following initiatives:
1. Development of ECD infrastructure
2. Development and equipping of youth clinics
3. Collaboration with the National Government on performance
improvement program in primary and secondary levels
4. Construction of 10 modern youth polytechnics
5. Promotion of talent by establishing recording studios
6. Set up Machakos Innovation Centre
Page 13
VIII. Promotion of Domestic Tourism Sports and Culture
30.
The County shall ensure competitiveness and attraction of both domestic
and international visitors through
i.
creating recreational facilities like parks
ii. marketing
of
domestic
tourism,
tourism
product
diversification and standardization,
iii. improve tourism infrastructure, cultural development,
sports
development,
infrastructure
development
for
production of film, art and music.
31.
Improvement in sports will be through County tournament and sports and
construction of 2 new stadia at the sub counties.
32. These initiatives will ensure the County promoted sustainable tourism,
culture and sports for development and prosperity of the County.
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III.
Recent Economic Developments and Outlook
33. This section highlights the recent economic developments at the global,
national and county level and the impact that this occurrences have had on
the county economic development.
34. The county has established basic foundation for economic growth and it is
considered the number one County with a bright economic prospects.
However, the county economy remains vulnerable to external shocks
especially the unfavorable weather conditions that have affected agricultural
productivity due to over reliance in rain fed agriculture.
35. The uneven and sluggish global recovery affecting the national economy
will have a spillover effect on the County economy. World economic
output is expected to strengthen gradually from 3.3 percent growth in 2014
to 3.8 percent in 2015, driven mainly by growth in advanced economies.
Despite deceleration in 2014, growth in emerging markets and developing
economies is projected to increase modestly in 2015, supported by stronger
domestic demand and some recovery in global demand.
36. The national economy growth prospects remain strong, inflation has been
contained at single digit with interest rates trending downwards, exchange
rates are broadly stable and public debt remains sustainable. This has been
as a result of sound macroeconomic management that will help sustain
economic development at the County level.
37. Machakos County is not isolated from the effect of global and national
economic issues that do arise since its performance depends highly on the
country’s economic performance and have either a negative or positive
impact.
Page 15
County Economic Environment
38. Although the county economic environment was slightly stable , growth
in the first half of 2014 was slower than expected which was contributed to
a number of factors;
i.
Erratic weather patterns that resulted in depressed agricultural
output both at the National and County level. This is largely
because the agricultural sector is the main driver of the county’s
economy and with 2015 painting a picture of looming drought, the
county is likely to record poor economic performance and
depressed livelihood.
ii.
Insecurity concerns, in the recent time the country has been
experiencing major cases of insecurity which led to a deteriorated
tourism sector, the second earner for the country and deceleration in
the hotel industry leading to low investment.
39. Low revenue inflow has a negative correlation to the economic activities at
the county resulting to slow economic growth.
40. In the first quarter of the 2014/2015 financial year, the Kenya Shillings
registered slight fluctuations against the US dollar, the Euro as well as the
Sterling Pound and this could be attributed to the appreciative effect of the
proceeds of the Eurobond as well as the depreciative effect of the declining
earnings from tourism.
41. Despite the above misgivings, a report by the KNBS shows that the
economy remained resilient especially toward the end of 2014. This was
mainly attributed to a strong expansion of the finance and insurance sector
that grew by 9.9 percent up from a revised growth of 8.3 percent in a
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similar period of 2013. The performance of the finance and insurance sector
continued to be driven by financial innovations, strong performance of the
construction, retail and information and communication.
42. Going forward, there is need to restore and safeguard county economic
stability which will support growth and eventually reduce unemployment
and poverty.
43. The County will therefore put in place legislation and mechanism that will
enhance revenue collection, minimize or eradicate wastage expenditures
and manage the wage bill.
IV.
FY 2014/2015 Budget Execution
44. This section provides an overview of the performance of the budget for the
Financial Year 2014/2015 as well as emerging challenges.
Approved Budget FY 2014/15
45. The budget approved by the County Assembly amounts to Kshs. 8.9 Billion
out of which Kshs. 4.9 Billion relates to recurrent expenditures and Kshs.
3.98 Billion for development expenditures. This translates to 55 per cent
and 45 per cent of the total budget respectively.
46. Out of the recurrent expenditure of Kshs 4.9 Billion, Ksh. 2.5 Billion is to
cater for wages and salaries, equivalent to 28.3% of the total budget and
Kshs. 2.4 Billion for operations and maintenance. This is illustrated in
table 1 below;
Page 17
Table 1 : Summary of approved budget 2014/15 (amount in Ksh)
Description
Approved Budget
Expenditures
Development
3,988,032,155
Recurrent of which;
Salaries and wages
2,515,203,185
Other recurrent
2,395,943,652
Total Recurrent
Total Expenditures
4,911,146,837
8,899,178,992
Revenue
Allocation from National Government
6,200,000,000
County Own Revenue
2,700,000,000
Total Revenue
8,900,000,000
Performance of the FY 2014/15 Budget
Expenditures
47. As at end of December 2014, which is the 1st half of the budget
implementation cycle, total expenditures including commitments amounts
to Kshs 4.9 Billion which translates to 55 percent of the total
expenditures.(excluding commitments, actual expenditures amount to kshs.
3.5 billion) Out of this, Kshs 2.8 Billion relates to recurrent expenditures
and Kshs 2.3 Billion development expenditures. This translates to 58 per
cent of total recurrent expenditures and 54 percent of total development
expenditures as summarized in table two below.
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Table 2 : Expenditure as at December, 2014 (amount in Kshs).
Approved
Description
Budget
Actual Expenditure
Expenditures
Development
3,988,032,155
2,300,295,936
Salaries and wages
2,515,203,185
2,061,642,705
Other recurrent
2,395,943,652
695,615,547
Total Recurrent
4,911,146,837
8,899,178,992
2,757,258,252
Recurrent :
Total
3,460,554,188
Revenues
48. The total expenditures amounting to Kshs. 8.9 Billion were to be financed
from two sources of Revenue namely ;
i.
Allocation from National Government equitable share –
Kshs. 6.2 Billion
ii.
County own revenue – Kshs. 2.7 Billion
49. To date the County has received a total of Ksh.3.4 Billion comprising of
Kshs. 2.8 Billion from the National Government and Kshs. 0.6 Billion
from the County own revenue. This translates to 90 percent and 46 percent
of the first half revenue projection for National Government and County
Government respectively. This is illustrated in Table 3 below.
Page 19
Budget Execution
50. In the cause of executing the FY 2013/14 budget, a number of challenges
were experienced. Notably was the decision by the National Government to
have the County Government pay for the devolved staff midstream the
execution of the budget. This expenditure was not budgeted for during the
budget preparation process. The result was additional expenditures of over
Kshs. 1 Billion with health workers taking over Kshs. 800 Million. The
impact was worsened with the National Government’s further decision to
withhold the funds paid on behalf of the County to pay the devolved
workers amounting to over Kshs. 500 Million. Further an amount of over
Kshs. 400 Million budget for donor projected was never availed to the
County.
51. The above decisions by the National Government and in addition to the
underperformance of County Revenue created a financing gap of over
Kshs. 1.2 Billion. This gap translated to pending bills since the same had
been budgeted and implementation of the projects was underway when the
decisions were communicated. The effect of this was accumulation of
arrears in FY 2014/15 amounting to 2.3 Billion.
Revenue
52. Total Revenue approved for FY 2014/15 amount to Ksh. 6.2 Billion which
comprise of Ksh. 5.8 Billion non conditional allocation and Ksh. 0.4
Billion conditional allocation. The conditional allocation comprise of Ksh
157 million to fund level 5 hospital expenditures and Ksh. 243 million
Page 20
donor financing to be channeled through National government ministries
except Ksh. 24 million Danida funding for health facility improvement.
53. As at the end of December 2014, Ksh. 109 Million had been disbursed for
funding health sector. No funds have been received through the national
government line ministries and therefore, the certainty of their release may
not be confirmed.
54. It is projected that the National Government funding will be released as per
approved County Allocation of Revenue Act, 2014.
55. The performance for first half of the financial year indicates an
underperformance of ksh 600 million. All effort will be applied to recover
this shortfall and ensure the projected revenue for the remainder of
the FY is achieved.
Page 21
V.
Fiscal Framework and Budget Framework for FY 2015/16
56. This section will highlight the projections for the County revenue, recurrent
and development expenditure. It will also look at the underlying risks,
structural measures and strategic interventions.
57. The County government is committed to fiscal consolidation while ensuring
that resources are availed for development in order to positively impact on
productive sector growth and overall economic growth. In this regard, the
county government is committed to reducing the recurrent expenditures to
devote more funds to development. Reforms in the expenditure
management and revenue administration will be implemented to reduce
wastages and increase revenues collection and hence create fiscal space for
spending on development programmes within the budget.
Budget Framework FY 2015/16
58. The 2015/16 budget framework is set against background of the medium
term fiscal policy of the national and the county government, the strategic
plan as outlined in the 2015 BPS and County Government broad policies as
domesticated in the County through the CIDP and departmental strategies
and programmes.
Revenues
59. The County government has two sources of revenue; the equitable share
from the national government in accordance with Article 203 (2) of the
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Constitution. The county may also receive conditional or unconditional
grants from national government and development partners as it contained
in Article 202 (2) of the Constitution.
60. The County is also allowed to raise its own revenues through imposition of
various taxes as well as user fees and charges authorized and approved by
the County Assembly. This will be the internal sources of revenue.
61. During the FY year 2015/16 the county own revenue is projected at Ksh 2.3
Billion and equitable share from the national government of Ksh 6.5 Billion
62. As measure of increasing its revenue base from internal sources, the county
government will pursue the following strategies
i.
complete automation of revenue collection by fully operationasing the
revenue management system.
ii.
Increase the revenue base by ensuring that all taxes and fees approved
for collection are brought to the revenue base.
iii.
Allocate sufficient financial and human resource for tax collection to
ensure all areas within the counties are well covered.
iv.
Crack down all revenue cartels in the County.
v.
Capacity building of revenue collectors and enforcement officers.
vi.
Research on revenue potential.
Expenditures
63. Due to the tight fiscal framework involved in budget preparation, ministries
/departments will be tasked with rationalizing and prioritizing their
expenditures and programmes for the Financial Year 2015/2016 to focus on
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the strategic interventions as captured in the CIDP, BPS as well as the
CFSP. To this regard therefore, the expenditures will have to be geared
towards promotion of service delivery that supports development, economic
growth as well as transformation of the County.
Recurrent Expenditure
64. The recurrent expenditures for the Financial Year 2015/2016 are projected
to be Ksh 4.5 billion down from Ksh 4.9 Billion in 2014/2015, with
Personnel Emoluments estimated at Ksh 3.0 billion. The recurrent
expendtires will be scaled downwards to provide savings to support
development. The reduction will be achieved through various austerity
measures on low priority expenditures. The recurrent expenditures will be
utilised to fund public service reforms; capacity building, early retirement
and provision of benefits such as medical scheme, public participation and
operationalization of the County law office.
Development Expenditures
65. To achieve the county strategic objectives Ksh. 4.3 billion is projected to be
spent towards implementation of development programs for the Financial
Year 2015/2016 up from Ksh 3.98 Billion in the Financial Year 2014/2015.
66. Increased allocation will towards priority programmes;
i. Provision of piped water to every household
ii. Improve access to quality health care
Page 24
iii. Urban development
iv. Improved transport and county infrastructure
v. Public Adminstration
vi. Provision of quality Early Childhood education
vii. Youth empowerment
viii. Tourism promotion
ix. Revenue enhancement
x. Human resource management and
xi. Security
Risks to the 2015/2016 Budget Framework
67. The realization of development goals for the County will not be without
risks and challenges. This section highlights the possible risks and
challenges and respective recommendations
68. The high wage bill will be a major challenge in the implementation of the
budget. The county therefore will put in place measures aimed at staff
rationalization to achieve a lean and sustainable wage bill.
69. Revenue performance may also pose a potential risk. The county will
continually put up solid structures geared towards sealing loop holes and
expanding revenue base. Automation of revenue collection though in place
should be will also be strengthened.
Page 25
70. Untimely release of funds by the national government will be another
challenge. This could lead to programmes for the year falling behind
schedule, hence compromising on service delivery.
71. The County’s performance may also be slowed down by unreliable weather
conditions. This will affect agriculture which is the main economic driver of
the County. Resources therefore need to be set aside to mitigate the
situation.
72. The following shall form the criteria for allocating resources
i. Ongoing projects
ii. Programmes prioritized by the County Integrated plan.
iii. Budget ceilings allocated by Commission of Revenue Allocation
iv. Equitable share of revenue allocation of the national government.
v. Degree to which the programme address the strategic objectives of
the county.
vi. Degree to which the programme is addressing the core functions
and responsibilities of the ministry
vii. Cost effectiveness and sustainability of the programme.
73. The County Assembly, County Executive and other County entities will
implement various programmes to achieve the county strategic objectives
Page 26
VI.
CONCLUSION
74. This County Fiscal Strategy Paper sets out priority programs derived from
the County Integrated Development Plan for not only economic
transformation but also on building a shared prosperity to be implemented
in the Medium Term Expenditure Framework for 2015/16-2016/17. The
implementation of these programs which is expected to sustain economic
growth and improve on the livelihoods of the residents of Machakos County
will require prudent financial management.
Page 27

COUNTY FISCAL STRATEGY PAPER FEBRUARY 2015 Send your

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