©2017 Tana River County Budget Review and Outlook Paper (CBROP) To obtain copies of the document, please contact: Tana River County Treasury Trade House, County Council Rd. P. O. Box 29 -70101 HOLA, KENYA The document is also available on the County website: www.tanariver.go.ke ii iii iv List of Tables and Figures Tables Table 1: Aggregate fiscal Performance 2015/16- 2016/17…………………….……….. 3 Table 2: Revenue Analysis………………………………………………………….…… 5 Table 3: Approved Estimates and Expenditures Analysis for FY 2016/2017………….. 10 Table 4: Medium Term Expenditure Ceilings 2018/19 to 2020/21……………….…….. 19 Figures Fig 1: 2016/2017 revenue analysis………………………………………………………. 9 v ABBREVIATIONS AND ACRONYMS CBEF County Budget and Economic Forum CBEF County Budget and Economic Forum CBR Central Bank Rates CBROP County Budget Review Outlook Paper CECM County Executive Committee Member CFSP County Fiscal Strategy Paper CG County Government CIDP County Integrated Development Plan COSR County Own Source Revenue CPSB County Public Service Board ERC Energy Regulatory Commission EYE Early Years Education FY Financial Year GDP Gross Domestic Product MTEF Medium Term Expenditure Framework MTP Medium Tern Plan OM Operations and Maintenance PE Personnel Emolument PFMA Public Finance Management Act SRC Salaries and Remuneration Commission VTCs Vocational Training Centers vi TABLE OF CONTENTS FOREWORD ............................................................................................ Error! Bookmark not defined. ACKNOWLEDGEMENT ............................................................................. Error! Bookmark not defined. List of Tables and Figures ....................................................................................................................v ABBREVIATIONS AND ACRONYMS.......................................................................................................vi Section I: Introduction ........................................................................................................................1 Objectives of the CBROP .....................................................................................................................1 Section II. Review of Fiscal Performance in Financial Year 2016/2017 ....................................................2 A. Overview ................................................................................................................................2 B. Fiscal Responsibility .................................................................................................................2 C. Fiscal Performance ..................................................................................................................3 a. Conditional allocations .........................................................................................................3 b. Equitable Share of Revenue Raised Nationally .......................................................................4 c. County Own Source Revenue (COSR) ....................................................................................4 Common Causes For Revenue Under Performance ...........................................................................8 County Expenditure Performance ....................................................................................................9 Implication of 2016/2017 Implementation ..................................................................................... 13 Fiscal Performance on the Fiscal Responsibilities and Financial Objectives Contained in the CFSP of 2016` ........................................................................................................................................... 13 Recent Development..................................................................................................................... 13 Recent Economic Developments and its Outlook ............................................................................ 15 Overview...................................................................................................................................... 15 Interest Rates ................................................................................................................................ 16 Economic Risks ............................................................................................................................. 16 a. Macro-economic risks include; ........................................................................................... 16 b. Micro-economic risks include; ............................................................................................ 16 Section IV: Resource Allocation Framework........................................................................................ 17 Adjustment to the 2017/2018 FY budget ........................................................................................ 17 The Medium Term Expenditure Framework ................................................................................... 18 Proposed 2018/2019 Budget Framework ........................................................................................ 26 Revenue Outlook .......................................................................................................................... 26 Expenditure Outlook ..................................................................................................................... 26 Section V: Conclusion and Way Forward ............................................................................................ 26 vii Annex I: Projected. ........................................................................................................................... 28 viii Section I: Introduction 1. The Public Finance Management (PFM) Act, 2012 section 118 requires that among other responsibilities, the “County Treasury to prepare a County Budget Review Outlook Paper”. As such, this paper is prepared in accordance with this section of the PFM Act 2012. The Act requires that every county prepare a CBROP and submit it to the County Executive Committee (CEC) by 30th September of that financial year. 2. The CEC shall in turn: i. Within fourteen days after submission, consider the CBROP with a view to approving it, with or without amendments. ii. Within seven days after the CEC approval of the paper, the county treasury shall arrange for the paper to be laid before the County Assembly and after doing so, publish and publicize the paper. Objectives of the CBROP 3. The objectives of the County Budget Review and Outlook Paper is to provide; i. A review of the fiscal performance of the county in the financial year 2016/2017 in comparison to the appropriation (budgeted amount) of the year under review and its effects on the economic performance in county government of Tana River; ii. An updated economic and financial forecast with sufficient information showing changes from the forecasts in the most recent County Fiscal Strategy Paper; iii. Information on any changes in the forecasts compared with the CFSP; iv. Reasons for any deviation from the financial objectives in the CFSP together with the proposals to address the deviation and an estimation of the time needed to do so. v. CBROP 2017 is organized in the following sections: section II covers a review of the county fiscal performance, section III indicates the recent economic development and outlook, and section IV covers the resource allocation framework. Meanwhile section V covers the conclusions. 1 Section II. Review of Fiscal Performance in Financial Year 2016/2017 A. Overview 4. This section provides an overview of the performance and implementation of the budget for the financial year 2016/2017 and how it affected compliance with the fiscal responsibility during implementation of the CFSP. This makes it useful in providing a basis for setting out broad fiscal parameters for subsequent budgets as well as mapping out a way forward for Tana River County. 5. The FY 2016/2017 Approved budget for Tana River County was Kshs. 4,585,211,854, comprising of 48% recurrent expenditure amounting to Kshs. 2.227 billion and 52% development expenditure totaling to Kshs. 2.357 billion in addition to Ksh 407,623,310 related to the financial year 2015/16 that was not appropriated which was received in the FY 2016/17. 6. In order to finance the budget, the county received Kshs. 4,299,401,838 (93.76%) as equitable share, Kshs. 232,664,130 (5.07%) as conditional allocations, and targeted to raise Kshs. 60,000,000 as local sources. B. Fiscal Responsibility 7. In observing the fiscal responsibility the PFMA section 15 states that; i. Over medium term a minimum of thirty percent of the county government budget shall be allocated to development expenditure ii. The county expenditure own wages and benefits for its public officers shall not exceed a percentage of the county revenue as prescribed by regulations iii. Over medium term the county government borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure iv. Public debts and obligations shall be maintained at a sustainable level as approved by the county assembly v. Fiscal risks shall be managed prudently 2 vi. A reasonable degree of creditability with respect to the level of taxes and tax bases shall be maintained, taking into account any tax reform that may be made in future C. Fiscal Performance 8. The fiscal performance of the FY 2016/17 was below expectation mainly due to a number of challenges which included; i. Delays in disbursement of funds from the national treasury ii. Extreme underperformance in revenue collection iii. Persistent drought and other calamities that led to deviation of resources D. Revenue Sources 9. During the financial year under review the county had three sources of funding namely: conditional allocations; revenue raised nationally and county own revenue. a. Conditional allocations Table 1: Aggregate fiscal Performance 2015/16- 2016/17 Actual Revenue Summary Approved estimates performance 2015/16 2016/17 2016/17 Equitable share 3,984,569,971 4,299,401,838 4,299,401,839 Local revenue 120,000,000 60,000,000 28,333,899 Conditional Grants 189,085,630 225,810,016 225,810,015 Transfer from Ministry of health - - 35,154,000 Balance B/F - 407,623,309 407,623,309 Total Revenue 4,293,655,601 4,992,835,163 4,996,323,062 Personnel Emoluments 1,330,212,199 1,452,269,675 1,289,660,971 Operational and Maintenance 437,284,394 795,286,019 1,386,179,398 Development 2,526,159,008 2,745,279,469 2,131,470,765 Balance B/F - - 26,429,814 Total Expenditure 4,293,655,601 4,992,835,163 4,833,740,948 VARIANCE - - (162,582,114) Source: County Treasury 3 An expenditure report of the conditional grants is yet to be availed by the department concerned. b. Equitable Share of Revenue Raised Nationally 10. During the FY 2016/2017 the exchequer released 100% of the equitable share revenue to the county government of Tana River amounting to 4,585,211,854. Additional Kshs.407,623.310 was not appropriated in the FY 2015/16 but latter appropriate in the supplementary budget of the FY 2016/17. c. County Own Source Revenue (COSR) 11. The revenue collection for the financial year 2016/17 amounted to Kshs 28,333,899 (balance as per the cashbook) which constituted 47.22% of the budget target amounting to Kshs. 60,000,000. However, Kshs 25,852,357 was banked in the financial year 2016/17 while a balance of Kshs 2,481,547 was spent at source contrary to the provisions of the PFM Act. The table below shows the actual revenue collection by the County Department of Revenue during the FY 2016/2017 4 Table 2: Revenue Analysis COLLECTION Revenue Type Actual Estimates Actual % Deviation 2014/15 2014/15 STREAM Performance 2015/16 Performance Performanc 2015/16 &2015/16 &2015/16 2014/15 2015/16 e 2015/16 Estimates Growth Growth CESS % REVENUE Hides &skins 6,900 500,000 9,230 134 490,770 2,330 -3 Charcoal 3,505,915 1,230,000 6,272,170 179 -5,042,170 2,766,256 -8 Fish 53,650 200,000 137,256 256 62,744 83,606 -1 fruits/Mango 1,634,399 2,800,000 2,104,198 129 695,802 469,799 -18 Rice & paddy 0 600,000 0 600,000 0 Ghee & milk 500 200,000 0 0 200,000 -500 -1 Crocodile eggs 220,000 1,800,000 47,400 22 1,752,600 -172,600 -11 Maize 99,255 2,500,000 1,707,753 1,721 792,247 1,608,498 -16 Export 2,273,480 3,800,000 890,840 39 2,909,160 -1,382,640 -24 Miraa 991,000 800,000 151,508 15 648,492 -839,492 -5 Sand 1,073,000 1,074,300 100 -1,074,300 1,300 0 Gypsum 4,926,000 6,200,000 1,465,000 30 4,735,000 -3,461,000 -40 Others 268,840 1,000,000 1,201,830 447 -201,830 932,990 -6 SUB TOTAL 15,052,939 21,630,000 15,061,485 100 6,568,515 8,547 -138 LAND REVENUE Plot rent 480,592 1,500,000 470,580 98 1,029,420 -10,012 -10 plot registration 89,000 300,000 645,460 725 -345,460 556,460 -2 fees plot transfer fees 46,000 500,000 245,700 534 254,300 199,700 -3 land application 48,000 700,000 244,200 509 455,800 196,200 -4 fees land lease fees 0 3,200,000 0 3,200,000 0 Area rates 254,620 334,836 132 -334,836 80,216 0 SUB TOTAL 918,212 6,200,000 1,940,776 211 4,259,224 1,022,564 -40 SINGLE 0 0 5 BUSINESS PERMITS Application fees 11,900 500,000 7,489 63 492,511 -4,411 -3 permit fees 3,308,000 6,000,000 5,488,905 166 511,095 2,180,905 -38 Liqur Licences 89,000 179,000 201 -179,000 90,000 0 Motor Bike 407,600 2,138,100 525 -2,138,100 1,730,500 0 SUB TOTAL 3,816,500 6,500,000 8,462,494 222 -1,962,494 4,645,994 -41 A.I.A (Health 109,455 10,000,000 255,310 233 9,744,690 145,855 -64 facilicies) OTHER FEES 0 0 AND CHARGES Bus park fees 700 700,000 332,025 47,432 367,975 331,325 -4 Toll fees 109,650 438,124 400 -438,124 328,474 0 Grazing fees 223,623 450,000 131,370 59 318,630 -92,253 -3 Market Fees 26,500 1,500,000 9,350 35 1,490,650 -17,150 -10 Slaughter Fees 22,000 1,200,000 24,700 112 1,175,300 2,700 -8 Auction fees 1,911,625 2,500,000 1,101,615 58 1,398,385 -810,010 -16 water 86,800 0 41,590 48 -41,590 -45,210 0 charges/House Rent Daily Advertising 0 20,000 24,000 -4,000 24,000 Fees Conservancy fees 19,600 80,000 10,500 54 69,500 -9,100 -1 Dev appl fee 0 800,000 91,850 708,150 91,850 Plan appv. Fees 7,500 300,000 17,550 234 282,450 10,050 -2 Promotions 18,000 47,500 264 -47,500 29,500 0 Penalty on 0 400,000 5,000 395,000 5,000 Building Plans Physical planning 0 0 0 Renewal / 0 180,000 3,000 177,000 3,000 Extension of Lease Survey Fees 0 50,000 2,000 48,000 2,000 Plot Sub- 0 1,500,000 0 1,500,000 0 letting/Plot Sub- division 6 PPI Forms 0 400,000 1,000 399,000 1,000 Interest from 0 500,000 3,500 496,500 3,500 bank(savings) Inspection Fee 14,100 2,200,000 312,160 2,214 1,887,840 298,060 -14 Consent to mining 251,000 2,890,000 0 0 2,890,000 -251,000 -18 Tender 17,000 -17,000 17,000 SUB TOTAL 2,691,098 15,670,000 2,613,834 97 13,056,166 -77,264 -100 TOTAL 22,588,203 60,000,000 28,333,899 125 31,666,101 5,745,696 -383 7 Common Causes For Revenue Under Performance 12. Poor performance of local revenue during the financial year 2016/17 was attributed to a number of constraints as described below; i. Delay in automation of revenue collection: The administration of revenue collection in the county is done manually. These manual revenue collection mechanisms have created loopholes leading to loss of revenue and adverse inefficiency. ii. Lack of political good will on revenue collections: local political leaders had consistently interfered with revenue collection processes as well as revenue administrative regulations making it difficult for revenue staff to effectively execute their work. iii. Inadequate vehicle for supervision: due to vastness of the county the need for adequate and reliable mobility is paramount in revenue administration. iv. Inadequate and ineffective enforcement on revenue collections: there had been a chronic laxity amongst the officers concerned in ensuring seamless adherent to revenue administration procedures. v. Revenue cartels: there exist illegal groupings in management of resource endowed areas who denies the county access collect to revenue e.g. Meti and Kurawa Marram harvesting quarries, sand mining at Hola and Madogo among others. vi. Inadequate staff capacity: majority of revenue collectors in the county are commission agents whom are paid 15% of daily collection while there are no regular training for staff empowerment. 13. In light of these bottlenecks, the Directorate of Revenue, which is charged with revenue administration, collection and management, has put in place measures to address these issues. The department has planned for recruitment in key posts; it is in the process of automating the revenue collection system that will also include resource mapping that will arrest loopholes in collection streams that are not being captured in the current system; the department will also embark on a citizen sensitization exercise (especially the business community) to enable them understand the importance of paying revenue; and lastly the department will, with the help of the legal department and the county assembly, seek to have legislation passed to govern the collection of revenue and the obligations involved therein. 8 The targeted local revenue collection for the FY 2017/2018 is Kshs. 60,000,000. With the aforementioned recommendations put in place, the target should be achievable by end of the financial year. 14. The graph below shows an analysis of revenue collection for the period under review: Fig 1: 2016/2017 revenue analysis 2016/2017 REVENUE ANALYSIS 5,000 4,000 3,000 2,000 1,000 - Month Source: County Directorate of Revenue 15. As indicated in the above diagram, in the FY 2016/2017, the highest monthly revenue collection occurred in two seasons; the 1st season occurred in December to February probably due to high mango harvest, high transportation of charcoal outside the county and issuing of single business permit that prompted high revenue collection. The 2nd season occurred during months of May and June which is attributed to same factors just like in the first season. The department is working on an analytical survey to determine the factors that affect revenue collection trend within the county throughout the year. County Expenditure Performance 16. The total approved expenditure for the financial year was Kshs. 4,585,211,854, comprising of Kshs. 2.227 billion (48%) recurrent expenditure and Kshs. 2.357 billion development expenditure. As per the data provided by the County Treasury on the final accounts, the total expenditure was Kshs. 4,819,430,804. This represents a 0.051% deficit, met by balance carried forward from FY 2015/2016. 9 Revenue in Thousans Kshs JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN Table 3: Approved Estimates and Expenditures Analysis for FY 2016/2017 Deviation CFSP Final Actual from Department 2016/2017 Aproved Expenditure Deviation approved Absorptio Ceilings Estimates 2016/2017 from CFSP estimates n rate (a) (b) (c) (b-a) (c-b) (c/b*100) County Assembly Sub-Total 540,529,674 689,258,883 486,953,974 148,729,209 (202,304,909) 71 Rec 442,442,874 462,442,874 421,048,146 20,000,000 (41,394,728) 91 Dev 98,086,800 226,816,009 65,905,828 128,729,209 (160,910,181) 29 Office of the Governor Sub-Total 465,489,630 376,777,552 571,908,798 (88,712,078) 195,131,246 152 Rec 369,283,988 369,283,988 476,855,936 - 107,571,948 129 Dev 96,205,642 7,493,564 95,052,862 (88,712,078) 87,559,298 1,268 Finance and Economic Planning Sub-Total 177,553,496 334,075,673 347,630,449 156,522,177 13,554,776 104 Rec 118,000,822 324,245,173 337,799,949 206,244,351 13,554,776 104 Dev 59,552,674 9,830,500 9,830,500 (49,722,174) - 100 Education vocational training & Sub-Total 422,405,651 421,064,425 656,971,041 (1,341,226) 235,906,616 156 Sports Rec 183,951,642 135,993,754 124,561,700 (47,957,888) (11,432,054) 92 Dev 238,454,009 285,070,671 532,409,341 46,616,662 247,338,670 187 Health and Sanitation Sub-Total 920,479,030 1,111,388,346 948,592,794 190,909,316 (162,795,552) 85 Rec 536,738,893 532,773,086 528,979,400 (3,965,807) (3,793,686) 99 Dev 383,740,137 578,615,260 419,613,394 194,875,123 (159,001,866) 73 Water Sub-Total 263,141,642 393,594,232 375,386,749 130,452,590 (18,207,483) 95 Rec 49,343,252 40,002,167 37,550,710 (9,341,085) (2,451,457) 94 Dev 213,798,390 353,592,065 337,836,039 139,793,675 (15,756,026) 96 Lands Sub-Total 62,328,752 36,001,444 9,637,615 (26,327,308) (26,363,829) 27 Rec 27,895,539 15,672,842 9,637,615 (12,222,697) (6,035,227) 61 Dev 34,433,213 20,328,602 0 (14,104,611) (20,328,602) 0 Agriculture Sub-Total 256,098,964 122,856,589 110,501,117 (133,242,375) (12,355,472) 90 Rec 78,019,432 57,687,579 58,264,023 (20,331,853) 576,444 101 Dev 178,079,532 65,169,010 52,237,094 (112,910,522) (12,931,916) 80 Livestock production Sub-Total 60,436,301 25,826,119 19,894,665 (34,610,182) (5,931,454) 77 10 Rec 29,692,769 23,461,643 19,172,091 (6,231,126) (4,289,552) 82 Dev 30,743,532 2,364,476 722,574 (28,379,056) (1,641,902) 31 Veterinary Sub-Total 130,752,212 41,069,492 18,594,160 (89,682,720) (22,475,332) 45 Rec 49,408,619 30,563,028 18,594,160 (18,845,591) (11,968,868) 61 Dev 81,343,593 10,506,464 0 (70,837,129) (10,506,464) 0 Fisheries Sub-Total 30,322,572 10,462,906 6,896,843 (19,859,666) (3,566,063) 66 Rec 13,363,122 9,381,740 6,896,843 (3,981,382) (2,484,897) 74 Dev 16,959,450 1,081,166 0 (15,878,284) (1,081,166) 0 Environment & Natural Sub-Total 58,480,077 59,748,308 42,147,984 1,268,231 (17,600,324) 71 Resources Rec 31,130,075 22,413,068 14,113,136 (8,717,007) (8,299,932) 63 Dev 27,350,002 37,335,240 28,034,848 9,985,238 (9,300,392) 75 Cohesion & Special Programme Sub-Total 151,563,025 440,024,998 550,212,356 288,461,973 110,187,358 125 Rec 49,343,252 48,378,069 38,470,266 (965,183) (9,907,803) 80 Dev 102,219,773 391,646,929 511,742,090 289,427,156 120,095,161 131 Gender, Culture and Social Sub-Total 162,426,256 34,797,992 32,992,573 (127,628,264) (1,805,419) 95 Services Rec 45,544,139 29,012,724 31,262,665 (16,531,415) 2,249,941 108 Dev 116,882,117 5,785,268 1,729,908 (111,096,849) (4,055,360) 30 Trade, Tourism, and industry Sub-Total 301,297,133 167,745,207 123,705,198 (133,551,926) (44,040,009) 74 Rec 71,299,025 36,423,723 31,066,845 (34,875,302) (5,356,878) 85 Dev 229,998,108 131,321,484 92,638,353 (98,676,624) (38,683,131) 71 Roads & Public Works Sub-Total 452,189,935 653,548,627 451,817,155 201,358,692 (201,731,472) 69 Rec 48,992,733 43,010,441 33,730,597 (5,982,292) (9,279,844) 78 Dev 403,197,202 610,538,186 418,086,558 207,340,984 (192,451,628) 68 Urban development Sub-Total 68,623,223 21,837,580 17,937,696 (46,785,643) (3,899,884) 82 Rec 22,011,237 14,053,003 10,357,209 (7,958,234) (3,695,794) 74 Dev 46,611,986 7,784,577 7,580,487 (38,827,409) (204,090) 97 County Public Service Board Sub-Total 61,094,281 52,756,792 41,529,968 (8,337,489) (11,226,824) 79 Rec 61,094,281 52,756,792 41,529,968 (8,337,489) (11,226,824) 79 Dev - - - - - 0 11 Total Rec 2,227,555,694 2,247,555,694 2,239,891,259 20,000,000 (7,664,435) 100 Total Dev 2,357,656,160 2,745,279,471 2,573,419,876 387,623,311 (171,859,595) 94 GRAND TOTAL 4,585,211,854 4,992,835,165 4,813,311,135 407,623,311 (179,524,030) 96 Source: Tana River County Treasury 12 17. From the above tabulation, it is observed that the highest allocation of development funds during the financial year under review were the departments of Roads & Public Works and the Health & Sanitation department amounting to Kshs. 610,538,186 and Kshs. 578,615,260 respectively while the office of the governor, departments of education and special programs had exceeded the approved ceiling on the development estimates with a higher absorption rate of 1,268%, 187% and 131% respectively having spent Ksh 95,052,862, Ksh 532,409,341 and Ksh 511,742,090 in that order. Implication of 2016/2017 Implementation Fiscal Performance on the Fiscal Responsibilities and Financial Objectives Contained in the CFSP of 2016` 18. The performance of the county is dependent on the country’s economic performance as well as formulation and implementation of prudent policies by the county government. Recent Development 19. In the FY 2015/2016 the allocation for major development amounted to Ksh 2,745,279,470. The allocation was distributed amongst various departments to implement major program aimed at sprouting economic activities within the county. 20. The largest amount of the development budget in the FY 2016/2017 was spent on improvement of health services. The department of Health, Water and sanitation committed significant funds into revamping the available health facilities such as Hola Referral Hospital, as well as constructing new health facilities in other areas of the county such as Garsen and Wayu. The department also undertook construction and rehabilitation of staff quarters to cater for the new health officers recruited during the period under review. The department also embarked on a comprehensive strategy to improve the health care system through immunization, child health, screening for communicable conditions, antenatal care among others. Other key achievement include provision of medicine in public hospitals, installation of standby generator and purchase of assorted furniture for health services 21. One of the main development challenges in the county is accessibility to clean water and to address this, the department embarked on a mission to construct water pans, drill boreholes as well as maintaining the existing supply and reservation systems. In addition a strategy to 13 improve water storage was implemented through supplying of water storage tanks to affected areas. 22. The department of roads and public works also played a key role in provision of necessary infrastructure and related services for economic advancement. This included opening up of new roads and 12 bridges; rehabilitation of 45KMs of road; completion of construction of 15KMs new tarmac roads within Hola Township; construction of flood mast; unblocking and constructing storm water drains. Constructions of access roads have greatly improved accessibility to health centers, markets places as well as movement of human capital to all parts of the county. 23. Agriculture being the highest contributor to the county economy, significant efforts was made to boost the sector through purchase and distribution of high valued satisfied seeds, pesticides, fertilizers and tractors. In addition the department also engaged in construction of livestock market. This has led to improved production in the agriculture sector. However strategies to ensure value addition of both agriculture and livestock products need to be put in place. As such strategies can result to agriculture sector creating new sources of revenue and job creation. 24. Security is a key pillar to development, to this regard the county significantly invested in ensuring there is security for all through installation of CCTV cameras and flood lights in major town centers. 25. To improve the retention rate in EYE the department of Education and Vocational Training established a school feeding and bursary programs. In addition the department put in place measures to address the rate of unemployment among the youths through provision of best employable skill training and equipping of vocational training centers with modern tools and equipment. 26. The department of trade, tourism and industry has identified new tourist sites aiming at increased numbers of local tourist which has multiplier effect on the economy. In addition construction/rehabilitation of fresh produce market and several bodaboda shades were executed to promote small business enterprise development. 27. During the FY 2015/16 there were several non-core expenditures which were necessary to ensure effective and efficient execution of administrative services. They included 14 construction and refurbishment of offices, purchase of furniture, computers and other office equipment’s, and purchase of vehicles. 28. Poor performance on collection of county own revenue for the financial year 2016/17 had implications on the resource envelope indicating some of the budgeted expenditure were not implemented and the bases for revenue projected for FY 2017/2018 might be adversely affected. The current revenue trend has been taken into consideration and necessitated the mapping of own revenue sources. 29. The over-spending in both recurrent and development expenditures estimates for the FY 2016/2017 was over Kshs.2billion has implication on the project expenditures in the FY 2017/2018 and the medium term. Corrective revisions will have to be made on the 2017/2018 budget to accommodate the pending bills and the projected expenditure in the CFSP be modified to reflect the revisions. Recent Economic Developments and its Outlook Overview 30. The Kenyan economy remains resilient and registered a growth of 5.8% in 2016, marking an improvement from the previous year when GDP growth stood at 5.7%. This was above average compared with other economies in the Sub Saharan Africa. The maintained growth was as a result of increased output in most sectors due to the on-going public infrastructure spending, favorable weather condition, stable and low inflation during the year due to reduced costs of petroleum products and tight monetary policies; remarkable recovery in tourism industries from improved security and strong consumer demand. 31. The rate of inflation in the financial year under review was relatively high. A higher of at 8% inflation was reported in the month of December 2015 while the least was recorded at 5% in May 2016. The increase was attributed to rise in cost of food and alcoholic drinks and transport cost due to depressed supply. 32. The Kenya shilling exchange rate remained stable against major international currencies. In September 2015 the Kenya shillings compared with the US dollar had really depreciated to an exchange rate of ksh 108 against the dollar. As compared to the regional currencies the Kenya shillings exchange rate remained stable due to resilient receipts from tea and 15 horticultural exports. Additionally, receipts from tourism, coffee export and diaspora remittances remained strong. Interest Rates 33. The central bank rate (CBR) was retained at 10% to anchor inflationary expectations. The interbank rates dropped from 20% on September 2015 to a low of 4% in May 2016 while the 91-day Treasury bill rate dropped from 21% to 7% in June 2016. 34. The rate of inflation took a downward trend from 6.9% in 2014 to 6.6% in 2015 mainly due to lower energy and transport prices as effected by the Energy Regulatory Commission (ERC). The Kenya shilling depreciated against its major trading currencies during the period under review but appreciated against the Euro, South Africa Rand and the Japanese Yen. 35. The County generally operated under a stable macroeconomic environment Economic Risks 36. Despite slow economic growth in Tana River County, the economy of Tana River is prone to both macro-economic and micro-economic risks. a. Macro-economic risks include; i. Sluggish growth in advanced economies that weigh on Kenya’s export activities and the tourism sector. Such an impact will have a ripple effect on the County’s economy seeing as 99% of the County’s revenue comes from the National Government. ii. Continued depreciation of the Kenya shilling against its major exchange partners, especially the US dollar had a negative effect on the Consumer price index inflation leading to increased inflation and increased interest rates. iii. The effects of the 2017 General elections contributed to the sluggish growth of the economy and had a negative trend on revenue collections to fund government expenditures. b. Micro-economic risks include; 37. Agriculture and livestock production in the county has been affected by extreme and unreliable weather. These factors have worsened the food insecurity situation in the county. Our county suffered major loses since pastoralist is a major economic activity and was adversely affected by the prolonged draught. 16 38. Accessibility to key areas of the county has been a challenge due dilapidated road network. The main roads of Garsen – Hola, Hola - Garissa which fall under the jurisdiction of the national government are being reconstructed. The poor roads cause delays in deliveries and increase in transport costs that are in turn transferred to the consumer, with prices varying upward to 20% on some products as compared to recommended retail prices in other areas. 39. The new county government will undertake appropriate measures to put the county economy on the growth path. Section IV: Resource Allocation Framework 40. This section sets out how the county government of Tana River intends to live within its means. It establishes the resource envelop or total revenue it expects, it also allocates this budget resources across government departments and agencies by setting expenditure limits of ceilings for each county department/agency. 41. In order to ensure effective utilization of public finances, resource allocation will be guided by the following; i. PFMA, 2012 ii. Ongoing projects iii. Emerging priorities iv. County Integrated Development Plan (CIDP II) v. Medium term plan III (2018 - 2022) Adjustment to the 2017/2018 FY budget 42. Adjustments to the 2017/2018 budget will be based on the actual performance of the expenditure thus far and the absorption capacity in the remainder of the financial year. Due to the resource constraint, the county will rationalize expenditures by cutting those that are non- core. Resources earmarked for development purposes will however remain as such, and will be utilized only for development projects. 43. The Tana river county treasury will make adjustments to the 2017/2018 FY Budget taking into consideration the changes made as a result of the change of administration which will include reorganizing the budget to comply with the structure announced by his excellency the Governor. The County treasury will also realign the Budget to cater for the priorities of the new administration. 17 44. Given the performance of the FY 2016/2017which was characterized by underperformance in collection of own source revenue (OSR) where 47.22% was collected against a target of 60Million. The county shall role out reforms in the revenue collections and administration that may aim at expanding its revenue base and complemented with improvement in revenue collections through automation. Meanwhile OSR target may be revised downwards considering that the prolonged 2017 electioneering period has subsequently affected revenue collection due to the uncertainties that came with it. 45. The county treasury may appropriate monies to offset the pending bills capture in the assumption of the office committee amounting to approximately Ksh 1.7Billion. This may be accompanied with a special audit to ensure that only venders/contractors who have genuinely rendered their services will be paid. The current wage bill will be reviewed with the aim of checking the authenticity of both contractual and permanent staff, there statutory deductions with a view of filling the gaps in the staff establishment in the subsequent financial years. However, all county departments will be required to optimally use their existing human resources to discharge their respective mandate. The county treasury will endeavor to incorporate the development priorities of the new administration in the remaining part of the implementation of the current financial year’s budget. The Medium Term Expenditure Framework 46. This subsection explains adjustment that will be made to the budget over the immediate and the following two years. The county will continue to implement the medium term expenditure framework (MTEF) through policies, projects, and programs set out in the annual development plans, county fiscal strategy papers anchored in the respective county integrated development plans. 47. The county will continue to invest in infrastructure, quality and affordable universal health care, education, urban planning and development, good governance among others so as to consolidate the gains made for the last four years. The table below provides projected baseline ceilings and the 2017/2018 to 2020/2021 MTEF by sector. 18 Table 4: Medium Term Expenditure Ceilings 2018/19 to 2020/21 % Share of Total Expenditure Final DEPARTMENT Final Approved Approved / SECTOR Estimates Ceilings Projections Estimates Ceilings Projections 2017/18 2018/19 2019/20 2020/21 2017/18 2018/19 2019/20 2020/21 Office Of The Sub-To tal 9.22 Governor and 563,220,935 527,705,436 580,475,980 638,523,578 10.54 9.48 9.69 The Deputy Rec 8.91 Governor 489,687,521 507,705,436 558,475,980 614,323,578 9.16 9.12 9.38 PE. Gross 4.68 258,404,900 236,759,328 260,435,261 286,478,787 4.83 4.25 5.15 OM. Gross 4.23 231,282,621 270,946,108 298,040,719 327,844,791 4.33 4.87 4.23 Dev.Gross 0.31 73,533,414 20,000,000 22,000,000 24,200,000 1.38 0.36 0.31 Special Programs Sub-Total 1 .44 325,903,320 92,319,766 101,551,743 111,706,917 6.10 1.66 1.44 Rec 1 .29 285,532,963 82,319,766 90,551,743 99,606,917 5.34 1.48 1.29 PE. Gross 0 .15 9,681,720 9,875,354 10,862,889 11,949,178 0.18 0.18 0.15 OM. Gross 1 .13 275,851,243 72,444,412 79,688,853 87,657,739 5.16 1.30 1.13 Dev.Gross 0 .16 40,370,357 10,000,000 11,000,000 12,100,000 0.76 0.18 0.16 County Public Sub-Total 1 .01 Service Board 65,195,069 64,861,601 71,347,761 78,482,537 1.22 1.17 1.01 Rec 1 .01 19 65,195,069 64,861,601 71,347,761 78,482,537 1.22 1.17 1.01 PE. Gross 0 .57 35,712,936 36,557,856 40,213,642 44,235,006 0.67 0.66 0.57 OM. Gross 0 .44 29,482,133 28,303,745 31,134,120 34,247,531 0.55 0.51 0.44 Dev.Gross - - - - - - - - Education and Sub-Total 1 0.56 Vocational 610,645,507 676,293,500 743,922,850 818,315,135 11.42 12.15 10.56 Training Rec 5 .20 363,394,594 332,993,500 366,292,850 402,922,135 6.80 5.98 5.20 PE. Gross 2 .07 76,744,192 132,544,000 145,798,400 160,378,240 1.44 2.38 2.07 OM. Gross 3 .13 286,650,402 200,449,500 220,494,450 242,543,895 5.36 3.60 3.13 Dev.Gross 5 .36 247,250,913 343,300,000 377,630,000 415,393,000 4.63 6.17 5.36 Youth, Sports, SUB-TOTAL 4 .55 Gender, Culture 58,360,230 291,649,500 320,814,450 352,895,895 1.09 5.24 4.55 and Social Rec Services 1 .10 24,767,755 70,649,500 77,714,450 85,485,895 0.46 1.27 1.10 PE. Gross 0 .33 5,305,640 21,000,000 23,100,000 25,410,000 0.10 0.38 0.33 OM. Gross 0 .78 19,462,115 49,649,500 54,614,450 60,075,895 0.36 0.89 0.78 20 Dev.Gross 3 .45 33,592,475 221,000,000 243,100,000 267,410,000 0.63 3.97 3.45 Medical Services, Sub-Total 1 9.92 Public Health and 1,030,523,359 1,276,382,684 1,404,020,952 1,544,423,048 23.01 22.94 19.92 Sanitation Rec 18.36 905,100,563 1,176,382,684 1,294,020,952 1,423,423,048 16.93 21.14 18.36 PE. Gross 11.74 746,730,304 752,349,864 827,584,850 910,343,335 13.97 13.52 11.74 OM. Gross 6 .62 158,370,259 424,032,820 466,436,102 513,079,712 2.96 7.62 6.62 Dev.Gross 1 .56 324,954,612 100,000,000 110,000,000 121,000,000 6.08 1.80 1.56 Agriculture, Sub-Total 7 .26 Livestock, 636,760,375 465,111,776 511,622,954 562,785,249 11.91 8.36 7.26 Fisheries, Rec Veterinary 4 .94 294,262,276 316,611,776 348,272,954 383,100,249 5.50 5.69 4.94 PE. Gross 1 .33 85,033,880 85,033,880 93,537,268 102,890,995 1.59 1.53 1.33 OM. Gross 3 .62 209,228,396 231,577,896 254,735,686 280,209,254 3.91 4.16 3.62 Dev.Gross 2 .32 342,498,099 148,500,000 163,350,000 179,685,000 6.41 2.67 2.32 Water, Irrigation Sub-Total 7 .37 Environment and 640,264,849 472,103,746 519,314,121 571,245,533 11.98 8.48 7.37 Natural Rec Resources 2 .69 178,588,130 172,103,746 189,314,121 208,245,533 3.34 3.09 2.69 21 PE. Gross 0 .68 25,641,120 43,475,880 47,823,468 52,605,815 0.48 0.78 0.68 OM. Gross 2 .01 152,947,010 128,627,866 141,490,653 155,639,718 2.86 2.31 2.01 Dev.Gross 4 .68 461,676,719 300,000,000 330,000,000 363,000,000 8.64 5.39 4.68 Roads, Transport, Sub-Total 6 .50 Public Works, 758,641,629 416,609,568 458,270,525 504,097,577 14.19 7.49 6.50 Housing And Rec Urban 1 .28 115,741,986 81,763,825 89,940,208 98,934,228 2.17 1.47 1.28 Development PE. Gross 0 .30 18,966,360 19,345,687 21,280,256 23,408,281 0.35 0.35 0.30 OM. Gross 0 .97 96,775,626 62,418,138 68,659,952 75,525,947 1.81 1.12 0.97 Dev.Gross 5 .23 642,899,643 334,845,743 368,330,317 405,163,349 12.03 6.02 5.23 Public Service, Sub-Total 2 .83 Administration 181,116,988 199,228,687 219,151,555 - 3.25 2.83 and Citizen Rec Participation 1 .66 - 106,116,988 116,728,687 128,401,555 - 1.91 1.66 PE. Gross 0 .97 - 62,167,488 68,384,237 75,222,660 - 1.12 0.97 OM. Gross 0 .69 - 43,949,500 48,344,450 53,178,895 - 0.79 0.69 Dev.Gross 1 .17 - 75,000,000 82,500,000 90,750,000 - 1.35 1.17 22 Finance and Sub-Total 6 .18 Economic 286,239,460 395,649,449 435,214,394 478,735,833 5.35 7.11 6.18 Planning Rec 5 .71 266,239,460 365,649,449 402,214,394 442,435,833 4.98 6.57 5.71 PE. Gross 1 .33 69,710,931 85,442,211 93,986,432 103,385,075 1.30 1.54 1.33 OM. Gross 4 .37 196,528,529 280,207,238 308,227,962 339,050,758 3.68 5.04 4.37 Dev.Gross 0 .47 20,000,000 30,000,000 33,000,000 36,300,000 0.37 0.54 0.47 Trade, Tourism Sub-Total 3 .34 & Wildlife And 207,523,640 214,066,345 235,472,980 259,020,277 3.88 3.85 3.34 Cooperative Rec Development 2 .18 51,523,640 139,466,345 153,412,980 168,754,277 0.96 2.51 2.18 PE. Gross 0 .33 13,902,560 21,102,560 23,212,816 25,534,098 0.26 0.38 0.33 OM. Gross 1 .85 37,621,080 118,363,785 130,200,164 143,220,180 0.70 2.13 1.85 Dev.Gross 1 .16 156,000,000 74,600,000 82,060,000 90,266,000 2.92 1.34 1.16 Lands and Sub-Total 0 .54 Physical Planning 59,260,839 34,790,709 38,269,780 42,096,758 1.11 0.63 0.54 Rec 0 .24 41,712,839 15,487,115 17,035,827 18,739,409 0.78 0.28 0.24 PE. Gross 0 .09 1,222,020 5,749,860 6,324,846 6,957,331 0.02 0.10 0.09 23 OM. Gross 0 .15 40,490,819 9,737,255 10,710,981 11,782,079 0.76 0.17 0.15 Dev.Gross 0 .30 17,548,000 19,303,594 21,233,953 23,357,349 0.33 0.35 0.30 County Sub-Total 7 .90 Assembly 552,495,177 506,000,000 556,600,000 612,260,000 1.83 9.09 7.90 Rec 7 .12 - 456,000,000 501,600,000 551,760,000 - 8.19 7.12 PE. Gross - - - - - - - OM. Gross 7 .12 456,000,000 501,600,000 551,760,000 - 8.19 7.12 Dev.Gross 0 .78 98,000,000 50,000,000 55,000,000 60,500,000 1.83 0.90 0.78 Bal Bf d. - - Bal Bf r. - Conditional Sub-Total Grant 389,634,389 918,365,832 County Sub-Total Assembly 556,000,000 TOTAL OM.Gross 44.89 1,734,690,233 2,376,707,763 3,163,398,033 3,479,737,836 32.45 42.71 44.89 Dev.Gross 31.67 2,360,324,232 1,676,549,337 2,231,487,168 2,454,635,884 44.16 30.13 31.67 24 PE. Gross 23.44 1,347,056,563 1,511,403,968 1,651,681,475 1,816,849,623 25.20 27.16 23.44 GRAND 5,345,400,000 7 6.56 TOTAL 5,564,661,068 7,046,566,676 7,751,223,343 57.65 69.87 76.56 5,795,034,389 6,483,026,900 25 Proposed 2018/2019 Budget Framework 48. The 2018/2019 budget framework is guided by the updated medium term macro-fiscal framework outlined in the table above. Revenue Outlook 49. The resource envelop will comprise of a total of Ksh6.4 Billion which comprises of Equitable share of revenue raised nationally of Ksh5.5 Billion, conditional grants amounting to Ksh868 Million. Meanwhile the county treasury is projecting to collect Ksh60 Million as OSR. However, these estimates shall be firmed up by the Budget Policy Statement (BPS), County Allocation of Revenue Act 2018 and approved policies by the County Executive Committee. Expenditure Outlook 50. The total expenditure is estimated at Ksh6.4 Billion comprising of recurrent expenditure which is estimated at 70percent and development estimated at 30 percent. The county wage bill shall be managed prudently so as to remain below 35 percent as stipulated in the fiscal responsibility principles of the Public Finance Management Act, 2012. 51. Over the medium term the county intends to live within its means and therefore shall endeavor to operate a balanced budget. Section V: Conclusion and Way Forward 52. The County is yet to make progress in addressing some of the challenges previously identified as affecting budget implementation; so far, the county government of Tana River is yet to fully implement the procurement plan and spending within the budget appropriation. The county has not also appointed members of the Audit committee as provided in the PFM Act. 53. Despite the dismal progress made, the following challenges continue to hamper effective budget implementation; i. Delay in submission of budget implementation/performance and expenditure reports by departments to the County Treasury. ii. In most cases, submitted reports are not in the desired prescribed formats. 26 iii. Low collection of Own Source Revenue for the last 3 years has led to budget deficits. iv. The County is yet to operationalize the County Budget and Economic Forum as required under Section 137 of the PFM Act, 2012. v. Off-budget, off-plan expenditures. vi. Non Appointment of the receiver of revenue as per the provisions of the PFM Act Sec. 157 by the CEC finance and planning. 54. The County should implement the following recommendations in order to improve budget execution; i. The county Government (departments) should adhere to Section 166 of the PFMA. 2012 in submission of quarterly reports in the desired format. ii. The County Government should devise strategies to enhance local revenue collection. iii. The county should spend within its means and avoid any leakages. iv. The County Government should operationalize the CBEF as required by Section 137 of the PFMA, 2012. 27 Annex I: Projected. CATEGORY FY 2016/2017 FY 2017/2018 FY 17/18 Hides &skins 2,400,000 2,640,000 500,000 Charcoal 1,060,000 1,166,000 1,230,000 Fish 798,523 878,375 200,000 Fruits 2,850,000 3,135,000 2,800,000 Rice & paddy 2,600,000 2,860,000 600,000 Ghee & milk 500,000 550,000 200,000 Crocodile eggs 2,550,000 2,805,000 1,800,000 Maize 2,400,000 2,640,000 2,500,000 Export 2,824,930 3,107,423 3,800,000 Miraa 2,220,000 2,442,000 800,000 Gypsum 5,810,000 6,391,000 6,200,000 Others 800,000 880,000 1,000,000 Plot rent 2,970,000 3,267,000 1,500,000 plot registration fees 2,400,000 2,640,000 300,000 plot transfer fees 2,536,500 2,790,150 500,000 land application fees 2,321,220 2,553,342 700,000 land lease fees 2,800,000 3,080,000 3,200,000 Area rates 20,376,430 22,414,073 - Application fees 2,820,000 3,102,000 500,000 permit fees 5,455,000 6,000,500 6,000,000 A.I.A (Health facilities) 20,000,000 22,000,000 10,000,000 Bus park fees 2,815,000 3,096,500 700,000 Grazing fees 3,355,016 3,690,518 450,000 Market Fees 300,000 330,000 1,500,000 Slaughter Fees 2,600,000 2,860,000 1,200,000 Auction fees 2,550,000 2,805,000 2,500,000 water charges 1,400,000 1,540,000 - Daily Advertising Fees 300,000 330,000 20,000 Conservancy fees 920,000 1,012,000 80,000 Dev application fee 1,100,000 1,210,000 800,000 Plan application. Fees 1,200,000 1,320,000 300,000 Penalty on Building Plans 1,500,000 1,650,000 400,000 Renewal / Extension of Lease 200,000 220,000 180,000 Survey Fees 2,367,381 2,604,119 50,000 Plot Sub-letting/Plot Sub-division 2,600,000 2,860,000 1,500,000 PPI Forms 600,000 660,000 400,000 28 Interest from bank(savings) 500,000 550,000 500,000 Inspection Fee 3,200,000 3,520,000 2,200,000 Consent to mining 4,000,000 4,400,000 2,890,000 TOTAL 120,000,000 132,000,000 60,000,000 29