©2023 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 County.Treasury@tanariver.go.ke The document is also available on the County website: www.tanariver.go.ke County Budget Review and Outlook Paper 2023 [i] Contents FOREWORD ............................................................................................................................. ii ACKNOWLEDGEMENT ....................................................................................................... iii ABBREVIATIONS AND ACRONYMS ................................................................................. vi PREAMBLE ............................................................................................................................ vii Legal Basis for Preparation of the County Budget Review and Outlook Paper .................. vii Fiscal Responsibility Principles in the Public Financial Management Law ...................... viii 1. INTRODUCTION ............................................................................................................. 1 1.1. Objective of CBROP....................................................................................................... 1 1.2. Significance of CBROP .................................................................................................. 2 1.3. Structure of the Paper...................................................................................................... 2 2. REVIEW OF COUNTY FISCAL PERFORMANCE IN THE FY 2022/23 ..................... 3 2.1. Overview ......................................................................................................................... 3 2.2. Fiscal Performance.......................................................................................................... 4 2.2.1. Performance in Revenues ............................................................................................ 4 2.2.1.1. Equitable Share of Revenue Raised Nationally ....................................................... 5 2.2.1.2. Conditional Grants ................................................................................................... 5 2.2.1.3. County Own Source Revenue.................................................................................. 7 2.2.2. Expenditure Performance .......................................................................................... 10 2.2.2.1. Budget absorption and comparison between CFSP 2022 Ceilings and FY 2022/23 Budget 11 2.2.2.2. Recurrent and Development Expenditure .............................................................. 14 2.2.2.3. Expenditure per Economic Classification ............................................................. 15 3. RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK ..................................... 17 3.1. Overview ....................................................................................................................... 17 3.2. Recent Economic Developments .................................................................................. 18 3.3. County Economic Outlook and Policies ....................................................................... 24 3.4. Risks to the Outlook...................................................................................................... 25 4. RESOURCE ALLOCATION FRAMEWORK ............................................................... 27 4.1. Overview ....................................................................................................................... 27 4.2. Adjustment to the FY 2022/2023 Budget ..................................................................... 27 4.3. The Medium-Term Expenditure Framework ................................................................ 28 4.3.1. Proposed 2022/2023 Budget Framework .................................................................. 31 4.3.1.1. Revenue Outlook ................................................................................................... 32 4.3.1.2. Expenditure Outlook.............................................................................................. 32 5. CONCLUSION ................................................................................................................ 33 ANNEX: CALENDAR FOR FY 2024/25 BUDGET PROCESS ........................................... 34 County Budget Review and Outlook Paper 2023 [iv] LIST OF TABLES AND FIGURES TABLES Table 1: Summary of the Fiscal Performance of the County in FY 2022/23 ............................ 4 Table 2: Analysis of Conditional Grants Received in the FY 2022/23 ..................................... 6 Table 3: Analysis of OSR Collection Per Revenue Stream ....................................................... 7 Table 4: Quarterly County Own Source Revenue Performance Over a period of Three Fiscal Years .......................................................................................................................................... 9 Table 5: Budget Absorption and Comparison between CFSP 2022 Ceilings and FY 2022/23 Budget ...................................................................................................................................... 11 Table 6: County Government Fiscal Projections in the Medium Term ................................... 16 Table 7:Summary of Expenditure Projections for FY 2021/22 and MTEF............................. 32 FIGURES Figure 1: Source of Financing for the FY 2022/23 Budget ....................................................... 3 Figure 2: Month-on-Month OSR Performance .......................................................................... 9 Figure 3: Revenue Performance Over a period of three Fiscal Years ..................................... 10 Figure 4: Expenditure by Economic Classification in the FY 2021/22 and the FY 2022/23 .. 15 County Budget Review and Outlook Paper 2023 [v] ABBREVIATIONS AND ACRONYMS A-in-A Appropriations in Aid ASDSP Agriculture Sector Development Support Project BETA Bottom – Up Economic Tranformation Agenda CARA County Allocation of Revenue Act CBK Central Bank of Kenya CRA Commission of Revenue Allocation CBROP County Budget Review and Outlook Paper CFSP County Fiscal Strategy Paper CGAAA County Governments Additional Allocations Act eCIMES Electronic County Integrated Monitoring and Evaluation System FLLoCA Financing Locally-Led Climate Action GDP Gross Domestic Product IBEC Inter-Governmental Budget and Economic Council ICT Information and Communication Technology IDEAS Instrument for Devolution Advise and Support IFMIS Integrated Financial Management Information System KCSAP Kenya Climate Smart Agriculture Project KNBS Kenya National Bureau of Statistics MoH Ministry of Health MTEF Medium Term Expenditure Framework MTP Medium-Term Plan NAVCDP National Agricultural Value Chain Development Project OAG Office of the Auditor-General OSR Own Source Revenue PE Personnel Emoluments PFM Public Finance Management PWD People with Disabilities SRC Salaries and Remuneration Commission SWG Sector Working Group County Budget Review and Outlook Paper 2023 [vi] PREAMBLE Legal Basis for Preparation of the County Budget Review and Outlook Paper The Budget Review and Outlook Paper (CBROP) is prepared in accordance with Section 118 of the Public Finance Management (PFM) Act 2012. The law stipulates that: 1. A county Treasury shall; a. Prepare a CBROP in respect of the County for each year; and b. Submit the paper to the County Executive Committee (CEC) by 30th September of that year. 2. In preparing its CBROP, the County Treasury shall specify; a. The details of the actual fiscal performance in the previous year compared to the budget appropriation for that year b. The updated economic and financial forecasts with sufficient information to show changes from the forecasts in the most recent County Fiscal Strategy Paper (CFSP) c. Information on: i. Any changes in the forecasts compared with the CFSP; or ii. How actual financial performance for the previous financial year may have affected compliance with the fiscal responsibility principles, or financial objectives in the CFSP for that financial year; and d. Reasons for any deviation from the financial objectives in the CFSP together with proposals to address the deviation and the time estimated for doing so. 3. The CEC shall consider the CBROP with a view to approving it, with or without amendments, within fourteen days after its submission. 4. Not later than seven days after the CBROP is approved by the CEC, the County Treasury shall: a. Arrange for the paper to be laid before the County Assembly; and b. As soon as practicable after having done so, publish and publicize the paper. County Budget Review and Outlook Paper 2023 [vii] Fiscal Responsibility Principles in the Public Financial Management Law In line with the Constitution of Kenya 2010, the PFM Act, 2012 sets out the fiscal responsibility principles to ensure prudency and transparency in the management of public resources. Section 107 of the PFM Act, 2012 states that: 1. The County Government’s recurrent expenditure shall not exceed the County Government’s total revenue; 2. Over the medium term, a minimum of thirty (30) per cent of the County Government’s budget shall be allocated to the development expenditure; 3. The county Government’s expenditure on wages shall not exceed a percentage of the County Government’s total revenue as prescribed by the County Executive Member for Finance in regulations and approved by the County Assembly; 4. Over the medium term, the Government’s borrowing shall be used only for purpose of financing development expenditure and not for recurrent expenditure; 5. The County debt shall be maintained at a sustainable level as approved by County Assembly; 6. The fiscal risks shall be managed prudently; and 7. A reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future. County Budget Review and Outlook Paper 2023 [viii] 1. 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 County Executive Committee shall in turn: a. within fourteen days after submission, consider the CBROP with a view to approving it, with or without amendments. b. 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. 1.1. Objective of CBROP 3. The objective of CBROP is to provide a review of the previous fiscal performance and how this impacts the financial objectives and fiscal responsibility principles to be set out in the CFSP. This together with macroeconomic outlook provides a basis for revision of the current budget in the context of the broad fiscal parameters pertaining to the next budget and the medium term. Details of the fiscal framework and the medium-term policy priorities will be firmed up in the CFSP. Specifically, the CBROP provides:  Updated economic and financial forecasts in relation to the changes from the forecasts in the most recent County Fiscal Strategy Paper (CFSP);  Details of the actual fiscal performance in the previous year compared to the budget appropriation for that particular year;  Any changes in the forecasts compared with the CFSP;  Indication on how actual financial performance for the previous financial year may have affected compliance with the fiscal responsibility principles, or the financial objectives in the CFSP for that financial year; and  Reasons for any deviation from the financial objectives in the CFSP together with proposed measures to address the deviation and the time estimated for doing so. County Budget Review and Outlook Paper 2023 [1] 1.2. Significance of CBROP 4. The paper is a policy document and links planning with budget preparation and implementation. Within the Medium-Term Expenditure Framework (MTEF), it reviews previous fiscal performance for the year and identifies any deviations from the budget with the aim of providing realistic forecasts for the coming year. It further assesses how fiscal responsibility principles were adhered to as provided for in section 107 of the PFM Act 2012. In addition, the updated macroeconomic and financial outlook provides a basis for any budget revision and sets out broad fiscal parameters for the next budget. Further, the paper is expected to provide indicative sector ceilings for the FY 2024/2025 budget and in the medium term to guide Sector Workings groups (SWGs) before being affirmed in the 2024 CFSP. 1.3. Structure of the Paper 5. This paper has four sections. Section Two reviews the county’s fiscal performance for the previous year. It is divided into three sub-sections, namely; The Overview, Fiscal Performance and Implications of Fiscal Performance. Section three reviews recent economic developments and has four subsections of Recent Economic Developments, Economic Outlook & Policies, Medium Term Fiscal Framework and Risks to the Outlook. Section four sets out how the county government intends to operate within its means in pursuit of managing and implementing a balanced budget in the medium term. It establishes the resources envelope (total revenues) it expects then allocates these across departments by setting expenditure ceilings for each department. In addition, it has four sub-sections: adjustment to the proposed budget; the medium-term expenditure framework; proposed budget framework; and projected fiscal balance and likely financing. And lastly, section five gives a conclusion of the entire paper. County Budget Review and Outlook Paper 2023 [2] 2. REVIEW OF COUNTY FISCAL PERFORMANCE IN THE FY 2022/23 2.1. Overview 6. This section provides an overview of the performance and implementation of the budget for the Financial Year 2022/2023 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. 7. The County’s FY 2022/2023 Approved Supplementary Budget was Kshs. 7.98 billion, comprising of Kshs. 5.47 billion (69 percent) and KShs. 2.511 billion (31 percent) allocation for recurrent and development expenditure respectively. 8. In order to finance the budget, the county was to receive Kshs. 6.528 billion (81.8 percent) as equitable share, Kshs. 283.53 million (3.5 percent) as conditional allocations, targeted to raise Kshs. 87.85 million as own local revenues which translates to 1.1 percent of the total budget and had a balance from the other financial year (2021/22) of Kshs.1.080 billion which translated to 13.5 percent of the total budget. The expected sources of budget financing are shown in Figure 1. Figure 1: Source of Financing for the FY 2022/23 Budget Source of Financing for the FY 2022/23 Budget 13% 1% 4% Equitable Share Conditional Grants Own Source Revenue Balance b/f 82% Source: Tana River County Treasury, 2023 County Budget Review and Outlook Paper 2023 [3] 2.2. Fiscal Performance 2.2.1. Performance in Revenues 9. During the financial year under review, the county had four sources of funding namely: conditional allocations (from both national government and from development partners); equitable share from the revenue raised nationally; county own source revenue; and a balance from last financial year. There was a slight growth in the Total Revenue and Grants as shown in Table 1 below. Table 1: Summary of the Fiscal Performance of the County in FY 2022/23 FY 2021/22 FY 2022/23 % Actual Approved Actual Deviation Growth % ( ) ( ) ( ) ( ) (a) (b) (c) ( ) ( ) Revenue (Total) 8,426,332,066 7,980,017,206 7,839,198,210 -2% -7% Unspent Bal from 1,504,916,022 1,080,241,526 507,115,875 -53% -66% Previous FY Total Revenue and 6,921,416,044 6,899,775,680 7,332,082,335 6% 6% Grants Equitable Share 6,503,832,312 6,528,408,765 7,050,681,467 8% 8% Local Revenue 72,260,813 87,846,000 59,173,171 -33% -18% Grants (Total) 345,322,919 283,520,915 222,227,697 -22% -36% Total Expenditure 6,295,874,044 7,980,017,206 4,966,095,531 -38% -21% Recurrent 3,893,837,000 5,468,742,765 3,960,892,142 -28% 2% Development 2,402,037,044 2,511,274,441 1,005,203,389 -60% -58% Unspent Bal 0 0 Current FY Source – Tana River County Treasury 10. The following challenges contributed the fiscal performance of the FY 2022/2023 being below expectation: a. Delay in Approval of the FY 2022/23 Budget Estimates: The FY 2022/23 Budget Estimates were approved in mid-October, 2023. This means that most of the activities that were to be implemented in the first quarter were not done, resulting in no or minimal expenditures. b. Delay in Approval of FY 2022/23 Supplementary Budget Estimates: The FY 2022/23 supplementary estimates were approved in May, with subsequent requisite processes including keying in of the estimates to the hyperion module, preparation of supplementary consolidated procurement plan and eventual County Budget Review and Outlook Paper 2023 [4] budget upload to IFMIS for implementation taking up to mid June 2023 to complete. This provided a very short window within which to implement and absorb the supplementary budget. The County Treasury will ensure early preparation of the supplementary budget in FY 2023/24 to mitigate such delays. c. Delays in disbursement of funds from the National Treasury: Disbursements from the Exchequer of the equitable share allocation lagged behind the monthly disbursement schedule agreed upon at the beginning of the FY 2022/23 by upto three months. The delay in disbursements also extended to the conditional grants. This resulted in the delay in the implementation of scheduled activities and thereby less expenditure than projected. 2.2.1.1. Equitable Share of Revenue Raised Nationally 11. During the FY 2022/2023, the exchequer release of the equitable share revenue to the County government of Tana River amounted to Kshs. 7.050 billion. This translated to 108% percent of the allocation. The surplus (balance of the allocation) was occasioned by balances from the previous FY being received after the closure of the FY (after 30th June 2022). 2.2.1.2. Conditional Grants 12. Analysis of the conditional grants released during the period under review reveals that the County received 78% allocation for conditional grants. The grants include those from the NAVCDP, KCSAP, Primary health Care in Devolved in Devolved Context ASDSP II), IDEAS and FLLoCA. The Table below shows an analysis of conditional grants received in the FY 2022/2023. County Budget Review and Outlook Paper 2023 [5] Table 2: Analysis of Conditional Grants Received in the FY 2022/23 BALANCE B/F FY 2022/23 Grants Annual Actual Annual Annual Actual Actual CGAAA Annual Budget Receipts CGAAA Budget Receipts in Receipts Annual Budget Allocation (in in FY 2022 Allocation FY 2022/23 as % of Allocation Allocation KShs) 2022/23 Allocation (in KShs) (in KShs) Annual (%) (%) (in KShs) (in KShs) Allocation A Conditional Allocations from National Government Revenue 1 Supplement for Construction of County HQts 0 - 42,000,000 42,000,000 - 0.00 % 16.85% 14.81% 3 VTCSG 2,535,447 2,535,447 - - - 0.00% 0.00% 4 Road Maintenance Fuel Levy (RMFL) 232,356 232,356 - - - 0.00 % 0.00 % 5 Transforming Health System for Universal Care 18,706,508.85 - - - - Project (THSUCP) 6 Primary Health Care Support program 28,959.00 - - - - 7 Livestock Support Program 1,104,095 - - - - B Conditional Allocations from Development partners 8 Word Bank-NAVCDP-State Department of Crop - - 70,000,000 70,000,000 67,192,729 95.99% 28.09% 24.69% Development 9 Kenya Climate Smart Agriculture Project (KCSAP) 0 - 82,386,194 82,386,194 82,386,194 100.00% 33.06% 29.06% 10 DANIDA (Universal Healthcare in Devolved System 0 - 18,835,313 18,835,313 18,733,152 99.46% 7.56% 6.64% Program) 11 Instrument for Devolution Advice and Support - 19,563,267 - 34,290,638 19,563,267 57.05% 0.00% 12.09% (IDEAS) 12 FLLoCA 0 - 22,000,000 22,000,000 22,000,000 100.00% 8.83% 7.76% 13 Agricultural Sector Development Support Programme 0.00 - 11,668,855 11,668,855 10,012,439 85.80% 4.68% 4.12% (ASDSP) II 14 Kenya Urban Support Project (KUSP) - Urban 0 - 2,339,915 2,339,915 2,339,915 100.00% 0.94% 0.83% Development Grant (UDG) 15 Kenya Urban Support Project (KUSP) - Urban 0 - - - 0.00% Institutional Grant (UIG) Grand Total 22,607,366 22,331,070 249,230,277 283,520,915 222,227,696 78.38% 100.00% 100% Source – County Treasury, 2023 County Budget Review and Outlook Paper 2023 [6] 2.2.1.3. County Own Source Revenue 13. The total amount of county own source revenue collected in the FY 2022/23 amounted to KShs. 65.27 million. This represented an underperformance of 25.53 percent on the annual own source revenue target of KShs 87.75 million. The collected amount represents an overall decrease in revenue collection of about 9 per cent as compared to the FY 2021/22. 14. An analysis of the actual revenue collected in the FY 2021/22 and FY 2022/23 reveals that there are some significant variations in collection among the various revenue streams in the two FYs. Significant reduction in revenue collected was in cesses (Kshs. 15.47m), A-in-A from Health facilities transferred to the Exchequer (Kshs. 10.7m) and slaughter houses administration. On the other hand, increases in revenue collected was registered in business permits (Kshs. 9.1m). 15. The analysis also reveals that there are revenue streams that recorded nil revenue in the FY 2022/23. These include sale of tender documents, administrative services fees in the Department of Lands and Physical Planning, housing, and environment and conservancy administration. The County Treasury needs to step up efforts in coordinating with the respective County departments to strengthen the collections from these revenye streams. 16. The table below shows an analysis of revenue collection for the period under review: Table 3: Analysis of OSR Collection Per Revenue Stream Source of Revenue Variance of Variance of FY FY FY 2022/23 2022/2023 2021/22 2022/23 2022/23 from from Actual Target Actual 2021/22 Estimates (a) (b) (c) (c) - (a) (c) – (b) Receipts from sale of incidental goods - 1,693,032 - - - 1,693,032 Sale of Tender Documents - 1,693,032 - - - 1,693,032 Receipts not classified elsewhere 3,609,784 14,108,600 3,385,020 - 224,764 -10,723,580 A.I.A (Health facilities) transferred to - Exchequer 3,609,784 14,108,600 - 224,764 3,385,020 10,723,580 Land rates 3,776,748 4,514,752 5,573,330 1,796,582 1,058,578 Land rates / leases 3,776,748 4,514,752 5,573,330 1,796,582 1,058,578 Business Permit 16,934,242 9,170,590 18,270,870 1,336,628 9,100,280 Permit fees 16,934,242 9,170,590 18,270,870 1,336,628 9,100,280 Cesses 23,211,033 28,067,862 12,596,670 -10,614,363 -15,471,192 Rice & paddy - 3,600,000 - - - 3,600,000 Maize - 3,500,000 - - - 3,500,000 Fruits & vegetables/Produce cess 23,211,033 6,737,862 12,596,670 - 10,614,363 5,858,808 Charcoal - 3,230,000 - - - 3,230,000 Livestock & fish - 7,000,000 - - - 7,000,000 County Budget Review and Outlook Paper 2023 [7] Others - 4,000,000 - - - 4,000,000 Plot rents 1,013,225 2,116,290 1,585,000 571,775 - 531,290 Plot rent 1,013,225 2,116,290 1,585,000 571,775 - 531,290 Administrative services fees 912,494 2,539,548 - - 912,494 - 2,539,548 plot application fees 859,294 1,000,000 - - 859,294 - 1,000,000 plot transfer fees 53,200 769,774 - - 53,200 - 769,774 Plot Sub-letting/Plot Sub-division - 769,774 - - - 769,774 County's natural resources exploitation 15,820,800 12,824,717 13,625,000 - 2,195,800 800,283 Sand, gravel & ballast extraction fees 3,514,400 4,000,000 - - 3,514,400 - 4,000,000 Quarry extraction fees (Consent to mining) - 4,211,000 - - - 4,211,000 Gypsum extraction fees 12,306,400 4,613,717 13,625,000 1,318,600 9,011,283 Market / Trade centre fees 1,638,365 2,116,290 2,427,566 789,201 311,276 Market entrance Fees 1,638,365 2,116,290 2,427,566 789,201 311,276 Vehicle parking fees 3,057,358 987,602 1,490,000 - 1,567,358 502,398 Bus park fees - 570,802 390,000 390,000 - 180,802 Toll fees 3,057,358 416,800 1,100,000 - 1,957,358 683,200 Housing - 352,715 - - - 352,715 water charges/House Rent - 352,715 - - - 352,715 Environment & conservancy 838,700 818,299 - 804,230 - 667,330 administration Conservancy fees 838,700 818,299 - - 838,700 - 818,299 Slaughter houses administration 2,121,840 2,398,462 - - 2,121,840 - 2,398,462 Slaughter Fees 2,121,840 1,598,462 - - 2,121,840 - 1,598,462 Hides &skins - 800,000 - - - 800,000 Technical services 665,904 6,137,241 6,312,073 5,646,169 174,832 beacon search pointing fees - 600,000 - - - 600,000 Survey Fees - 437,241 - - - 437,241 building plan preparation fee (PPI Forms) - 600,000 - - - 600,000 Building Plan appv. Fees - 500,000 6,312,073 6,312,073 5,812,073 building plan approval fee 665,904 580,000 - - 665,904 - 580,000 Building Inspection Fee - 2,400,000 - - - 2,400,000 wayleave fees - 700,000 - - - 700,000 sign boards & advertisements fee - 320,000 - - - 320,000 GRAND TOTAL 73,600,493 87,846,000 65,265,529 - 6,692,034 -22,429,502 PERCENTAGE - 9.09 - 25.53 Source – Directorate of Revenue County Budget Review and Outlook Paper 2023 [8] Figure 2: Month-on-Month OSR Performance OSR Performance Across the Months in the FY 10,000,000.00 9,000,000.00 8,000,000.00 7,000,000.00 6,000,000.00 5,000,000.00 4,000,000.00 3,000,000.00 2,000,000.00 1,000,000.00 - (Source – Directorate of Revenue) 17. As indicated in the above diagram, in the FY 2022/2023, revenue collection was spread out throughout the financial year but was highest in the third and fourth quarters. Revenue collection was highest in March, 2023 followed by June, 2023 and lowest in August, 2022. The low collection between July, 2022 and December, 2022 is due to the activities around the General Elections. In a bid to plug leaks in OSR, collection in areas such as cess collection has been moved to mobile money transfer platform by way of M-pesa till numbers to reduce cash payments and reduce the risk involved and loopholes experienced in the administration of the same. 18. The total revenue for the years FYs 2020/21, 2021/22 and 2022/23 was approximately KShs. 158.1 million. The respective revenue for each year is provided in Table 5. The data shows that, on average, more revenue was collected during the 3rd and 4th quarters over the years. However, in each FY, in a different quarter is revenue collected the highest (Quarter 1 in FY 2020/21, Quarter 3 in FY 2021/22 and Quarter 4 in FY 2022/23). Table 4: Quarterly County Own Source Revenue Performance Over a period of Three Fiscal Years Financial Year Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual Total FY 2020/21 24,186,948 20,870,074 22,763,569 16,702,004 84,522,595 FY 2021/22 12,783,115 17,713,035 24,554,988 18,549,356 73,600,493 FY 2022/23 7,601,348 11,923,731 21,416,467 24,323,983 65,265,529 Total Collection 41,197,353 38,380,046 67,251,997 67,730,325 158,123,088 Source: County Directorate of Revenue County Budget Review and Outlook Paper 2023 [9] Figure 3: Revenue Performance Over a period of three Fiscal Years Comparison of Revenue Performance Per Quarter Across Three FYs 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 - Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2020/21 FY 2021/22 FY 2022/23 Source: County Directorate of Revenue 2.2.2. Expenditure Performance 19. The total approved expenditure for the financial year was Kshs. 7.980 billion, comprising of Kshs. 5.47 billion (69%) recurrent expenditure and Kshs. 2.51 billion (31%) development expenditure. During the FY 2022/23, the County received Kshs. 7.333 billion comprising of Kshs. 7.051 billion as equitable share of revenue raised nationally, Kshs. 222.2 million as conditional grants, Kshs. 59.17 million from own source revenue and Kshs. 534.51 million as balance brought forward from the FY 2021/22. County Budget Review and Outlook Paper 2023 [10] 2.2.2.1. Budget absorption and comparison between CFSP 2022 Ceilings and FY 2022/23 Budget Table 5: Budget Absorption and Comparison between CFSP 2022 Ceilings and FY 2022/23 Budget FY 2022/23 Exchequer Issues Expenditure in Ceilings in 2022 CFSP Budget Allocation in FY Expenditure FY 2022/23 Absorption Department in the FY 2022/23 The FY 2022/23 Deviation (Kshs. Million) 2022/2023 (Kshs. Million) to Exchequer rate (%) (Kshs. Million) (Kshs. Million) (%) Issues (%) Rec Dev Total Rec Dev Total Rec Dev Rec Dev Rec Dev Rec Dev Total m=(i/ q=((f- a b c=a+b d e f=d+e g h i j k=(i/g l=(j/h n=(j/e p=(i+j)/ d)*10 c)/c)*100 )*100 )*100 )*100 (f)*100 0 788,3 325,0 1,113, 788,3 325,0 County 1,113,39 Assembly 96,75 00,00 396,7 96,75 00,00 - - - - 0% 0% - - - 0% 6,752 1 0 51 2 0 Office of The 451,7 451,7 537,0 Governor and 537,038, 534,692 431,656 431,656 Deputy 68,10 - 68,10 38,74 - - - 81% 80 - 80 19% 748 ,769.76 ,410.15 ,410.15 Governor 1 1 8 644,5 466,4 1,111, 709,4 466,4 213,89 Finance and 1,175,88 708,980 650,012 212,009 862,022 Planning 83,05 46,39 029,4 42,61 46,39 3,805. 92% 99% 92 45 73 6% 9,013 ,084.42 ,468.00 ,616.05 ,084.05 1 8 49 5 8 30 Public Service 73,35 73,35 79,73 79,739,9 78,396, 75,217, 75,217, Board - - - 96% 94 - 94 9% 5,104 5,104 9,901 01 624.77 221.00 - 221.00 Trade, Tourism, 105,533,59 72,00 47,99 72,00 119,999, 47,757, 8,015, 43,847, 163 Wildlife and 99,69 64% 64 18 37 14% Cooperative 9,698 0,000 9,698 0,000 698 399.98 553.60 8 30,743, 13,103, 589.40 % Development 893.00 696.40 Agriculture, 155,1 304,8 460,0 163,2 385,8 311,59 Livestock, 549,078, 163,102 340,296 Fisheries and 52,78 75,39 28,18 32,78 45,68 2,568. 109,046 231,250 67% 74% 67 60 62 19% 471 ,670.90 ,941.35 Veterinary 4 6 0 4 7 55 ,312.00 ,629.35 Culture, 26,100 gender, Youth, 47,68 37,00 84,68 52,68 37,00 89,683,4 52,563, 26,873, 20,000, 46,873, Sports and ,000.0 51% 77% 51 54 52 6% 3,447 0,000 3,447 3,447 0,000 47 721.01 520.00 000.00 520.00 Social Services 0 Education and 194,6 103,0 297,6 199,1 103,0 56,139302,130, 198,730 188,752 43,014, 231,766 Vocational 50,65 00,00 50,65 30,65 00,00 ,971.0 95% 77% 95 42 77 2% Training 656 ,460.15 ,076.00 370.45 ,446.45 6 0 6 6 0 0 County Budget Review and Outlook Paper 2023 [11] Medical 1,181, 170,0 1,351, 1,194, 170,0 1,187,8 17,266 1,048,7 1,091,0 Services, 1,364,97 42,266, 245 public Health 679,1 00,00 679,1 974,9 00,00 76,703. ,312.6 46,590. 12,902. 88% 88 25 80 1% 4,923 312.00 % and sanitation 10 0 10 23 0 55 0 25 25 144,7 144,7 146,7 Special 146,797, 145,505 142,767 142,767 program 97,76 - 97,76 97,76 - - - 98% 97 - 97 1% 767 ,966.99 ,940.00 ,940.00 7 7 7 Roads, Transport, 537,4 605,4 475,4 357,9867,98 96,98 572,471, 95,957, 84,204, 302,941 387,146 Public works, 82,35 71,09 82,35 8,386. 88% 85% 87 64 68 -5% Housing and 8,739 8,739 095 176.04 415.00 ,836.00 ,251.00 6 5 6 40 Urbanisation Water, Irrigation, 119,4 401,5 520,9 132,4 401,5 126,42533,921, 121,324 181,752 Environment 21,03 00,00 21,03 21,03 00,00 3,942. 49% 97% 45 31 34 2% and Natural 037 ,530.29 7 0 7 7 0 35 59,229, 122,522 ,007.30 Resources 590.00 ,417.30 Public Service, 1,474, 1,519, 1,243, 1,235,9 42,024 1,053,9 1,065,0 Administration 45,00 45,00 1,288,65 11,081, and Citizen 926,9 926,9 659,2 98,600. ,238.0 58,627. 40,138. 85% 26% 85 25 83 -15% 0,000 0,000 9,221 511.20 participation 60 60 21 39 0 65 85 Lands and 14,74234,44 30,00 64,44 36,44 30,00 66,446,5 36,041, 27,217, 7,013,0 34,230, Physical ,745.0 76% 48% 75 23 52 3% Planning 6,563 0,000 6,563 6,562 0,000 62 479.65 673.00 00.00 673.00 0 Hola 36,45 36,45 39,78 39,789,9 38,895, 32,465, 32,465, Municipality - - - - 83% 0% 82 - 82 9% 0,000 0,000 9,915 15 476.67 406.00 406.00 5,448, 2,492, 7,941, 5,468, 2,511, 1,174, 4,966,0 7,980,01 4,645,8 3,960,8 1,005,2 TOTAL 899,7 304,1 203,9 742,7 274,4 187,52 95,530. 85% 86% 72 40 62 0% 7,206 23,665 92,142 03,389 68 50 18 65 41 3 80 County Budget Review and Outlook Paper 2023 [12] Budget Allocation: 20. From the above tabulation, it is observed that the following County departments received a significant allocation of development funds during in the FY 2022/23: Roads, Transport, Public Works, Housing and Urbanization (Kshs. 572 million); Finance and Economic Planning (Kshs. 466 million); Water, Irrigation, Environment & Natural Resources (Kshs. 402 million) and Agriculture, Livestock, Fisheries and Veterinary Services (Kshs. 385 million). Similarly, the significant allocation of recurrent expenditure was to the Department of Health (Kshs. 1.2 billion), Department of Finance and Economic Planning (Kshs. 709 million), and the Department of Public Service Management, Administration and Citizen Participation (Kshs. 1.24 billion). However, the allocation for both the recurrent and development expenditure in the Department of Finance and Economic Planning had a provision for the settlement of both pending bills in recurrent and development expenditure respectively, hence the significant allocations in both recurrent and development allocations. Budget Absorption: 21. For the FY 2022/2023, The County achieved an overall absorption on the Budget allocation of 62 percent with an average of 72 percent for recurrent and 40 percent for development. Overall, the departments were more efficient in the absorption of their recurrent budgets than in their development budgets with all departments absorbing more of their respective recurrent than development budgets. The four County departments with the least absorption rates are: Water, Energy, Mining and Natural Resources, and Environment and Climate Change (combined at 34%), and Trade, Tourism, Wildlife and Corporative Development (37%). Departments with a higher proportion of recurrent expenditure had a higher absorption rate than those with a significant development expenditure. These include Cohesion and Special Programs (97%), County Public Service Board (94%) and Department of Public Service Management, Administration and ICT (83%). Departments with a high absorption rate in development expenditure are Roads, Transport, Public Works, Housing and Urbanization (64%), and Agriculture, Livestock, Fisheries and Veterinary Services (60%). 22. The overall under absorption was a result of delayed remittance of April, May and June equitable share disbursement which was released in June 2023. Additionally, the County’s County Budget Review and Outlook Paper 2023 [13] supplementary budget was operationalized late in the FY occasioning delays in implementation of the same. Expenditure to Exchequer Issues: 23. The County, on average spent 85% of the requisitioned funds; 85 percent being for recurrent and 86 percent for development expenditure. Two departments spent more than the Exchequer requisition: Department of Medical Services (245% in Development expenditure) and Trade, Tourism and Industry (163% in development expenditure). The lowest absorption rates were recorded in the departments of Water and Environment (49% in recurrent expenditure) and Culture and Gender (51% in recurrent expenditure). Deviation from CFSP: 24. The budget deviated from the CFSP that was submitted to the County Assembly by an average factor of 23 percent. This deviation was caused by the balance brought forward (Kshs. 1.080 billion) from the previous financial year and conditional grant allocations (Kshs. 241.5 million) which were not allocated to specific departments in the ceiling; reason being ceilings were prepared based on total non-discretionary revenue (Equitable Share and Own Source Revenue). 2.2.2.2. Recurrent and Development Expenditure 25. In the Budget Estimates for the FY 2022/23, the bulk of the expenditure was recurrent in nature with a recurrent to development expenditure ratio of 69:31. The allocation for development expenditure amounted to Ksh 2.511 billion. The County Assembly, the Departments of Finance and Economic Planning, Health, and Public Service Administration, Management and ICT had the high allocations in the budget. This is to provide for the settlement of pending bills, the human resources for health, salaries of most of the County departments. 26. Considering actual expenditure, the largest amount of the development budget in the FY 2022/2023 was spent in the Department of Roads, Public Works, Housing and Urbanization (Kshs. 302.94 million out of the Kshs. 936.38 million spent). The department of Finance played a key role in the settlement of pending bills having absorbed Kshs. 212 million of its development expenditure. This is in an effort to comply with the Intergovernmental Budget and Economic Council (IBEC) resolutions, and the PFM regulations, 2015, Section 41 (2) on debt service payment. County Budget Review and Outlook Paper 2023 [14] 2.2.2.3. Expenditure per Economic Classification 27. During the FY 2022/2023, the County spent Kshs 4.966 billion, which was 71.7 per cent of the total funds released (Kshs.7.333 billion). This was a decrease from Kshs 6.295 billion spent in FY 2021/22. Of the Kshs 4.966 billion spent, a total of KShs. 3.960 billion was spent on recurrent expenditures while KShs. 1.005 billion was spent on development activities. The recurrent expenditure comprised of Kshs. 1.745 billion for Personnel Emoluments and Kshs. 216 billion for Operation and Maintenance. Figure 4 presents a comparison between the total expenditure in the FY 2020/21, FY 2021/22 and the FY 2022/2023. Figure 4: Expenditure by Economic Classification in the FY 2021/22 and the FY 2022/23 Expenditure by Economic Classification Over Three Years 3000 2500 2000 1500 1000 500 0 FY 2020/21 FY 2021/22 FY 2022/23 Financial Years Compensation to Employees Operations and Maintenance Development Implications for the FY 2022/2023 Performance 28. The underperformance in Own Source Revenue (OSR) has a downward effect adjustment in ordinary revenues for FY 2022/23 and the medium term. This in turn affects effective implementation of programs and projects due to budget deficits. The County Treasury will focus on partnering with KIPPRA and other agencies to harmonize OSR forecasting and implement measures to improve and meet future collection targets. County Budget Review and Outlook Paper 2023 [15] Expenditure in Kshs. M Table 6: County Government Fiscal Projections in the Medium Term FY 21/22 FY 2022/23 FY 2023/24 FY 2024/25 FY 2025/26 FY 2026/27 CBROP CBROP CFSP CBROP CFSP Actual Budget Actual Budget CBROP 2024 CFSP 2026 2022 2023 2024 2024 2025 (f) = 8,426,332, 7,980,017, 7,839,198, 8,869,497, 8,869,497, 9,312,972, 9,312,972, 9,778,621, 9,778,621, 10,267,552,46 Revenue (Total) 10,267,552,465 (d)+(e) 066 206 210 865 865 758 758 396 396 5 Unspent Bal b/f 1,504,916, 1,080,241, 507,115,8 1,109,178, 1,109,178, 1,159,805, 1,159,805, 1,212,481, 1,212,481, (e) 1,267,259,318 1,267,259,318 \Previous FY 022 526 75 403 403 793 793 400 400 Total Revenue & (d) = (a) 6,921,416, 6,899,775, 7,332,082, 7,760,319, 7,760,319, 8,153,166, 8,153,166, 8,566,139, 8,566,139, 9,000,293,147 9,000,293,147 Grants +(b)+(c) 044 680 335 462 462 965 965 996 996 Equitable Share 6,503,832, 6,528,408, 7,050,681, 6,790,702, 6,790,702, 7,130,237, 7,130,237, 7,486,749, 7,486,749, (c) 7,861,087,030 7,861,087,030 Allocation 312 765 467 542 542 669 669 553 553 72,260,81 87,846,00 96,630,60 96,630,60 106,293,6 106,293,6 116,923,0 116,923,0 Local Revenue (b) 59173171 128,615,329 128,615,329 3 0 0 0 60 60 26 26 345,322,9 283,520,9 22222769 872,986,3 872,986,3 916,635,6 916,635,6 962,467,4 962,467,4 Grant (Total) (a) 1,010,590,789 1,010,590,789 19 15 7 20 20 36 36 18 18 Total (k) = (j) 6,295,874, 7,980,017, 4,966,095, 8,869,497, 8,869,497, 9,312,972, 9,312,972, 9,778,621, 9,778,621, 10,267,552,46 10,267,552,466 Expenditure + (i) 044 206 531 865 865 758 758 396 396 6 (j) = (g) 3,893,837, 5,468,742, 3,960,892, 5,215,039, 5,215,039, 5,475,791, 5,475,791, 5,749,581, 5,749,581, Recurrent 6,037,060,224 6,037,060,224 + (h) 000 765 142 606 606 586 586 166 166 Recurrent as % of 62% 69% 80% 59% 59% 59% 59% 1 59% 1 59% CG Total Budget Personnel 1,683,780, 2,075,223, 1,744,563, 2,408,039, 2,408,039, 2,528,441, 2,528,441, 2,654,863, 2,654,863, (g) 2,787,606,436 2,787,606,436 Emolument 354 161 618 249 249 211 211 272 272 Operations & 2,210,056, 3,393,519, 2,216,328, 2,807,000, 2,807,000, 2,947,350, 2,947,350, 3,094,717, 3,094,717, (h) 3,249,453,788 3,249,453,788 Maintenance 646 604 524 357 357 375 375 894 894 PE as % of CG 27% 26% 35% 27% 27% 27% 27% 0 27% 0 27% Budget 2,402,037, 2,511,274, 1,005,203, 3,654,458, 3,654,458, 3,837,181, 3,837,181, 4,029,040, 4,029,040, Development (i) 4,230,492,242 4,230,492,242 044 441 389 259 259 172 172 231 231 Dev’tt as % of CG 38% 31% 20% 41% 41% 41% 41% 0 41% 0 41% Total Budget Unspent Bal (m) = 2,130,458, 2,873,102, 0 0 0 0 0 0 0 0 0 Current FY (f) – (k) 022 679 County Budget Review and Outlook Paper 2023 [16] 3. RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK 3.1. Overview 29. This CBROP is set against the backdrop of higher than expected inflation worldwide, owing to the Russia-Ukraine conflict that has caused an increase in oil, gas and food prices. These have also been compounded lingering ripple effects of the COVID-19 Pandemic and extensive drought associated with the adverse effects of climate change which impacrted highly on agriculture and food security. The economy registered a 4.8 percent expansion in 2022, with projections indicating a 5.5 percent growth in 2023 and a consistent percentage over the medium term (WEO July 2023). 30. The country experienced severe climate related shocks in 2022. This impact was felt heaviest in ASAL counties, and subjected households to food insecurity, loss of lives, livelihoods and loss of livestock occasioned by severe drought. This led to a subsequent contraction of the agriculture sector by 1.6 percent in 2022. 31. The performance of the industry sector slowed down to 3.5 percent in 2022 compared to a growth of 6.8 percent in 2021 on account of a slowdown in activities in the manufacturing, electricity and water supply and construction sub-sectors. In the year, services sector remained strong growing at 6.7 percent, with improved performance in information and communication, financial and insurance and professional, administrative and support services sub-sectors. 32. Available economic indicators in the first three quarters of 2023 remain strong with the continued recovery in the agricultural sector and sustained performance of the services sector. In this respect, economic growth is projected at 5.5 percent in 2023 and 5.7 percent in 2024 supported by broad-based private sector growth and sustained government investment in the nine priority value chains (Leather, Cotton, Dairy, Edible Oils, Tea, Rice, Blue economy, Natural Resources (including Minerals and Forestry), and Building Materials) 33. Inflation remained above the Government target range of 5±2.5 percent from June 2022 to June 2023. In order to anchor inflation expectations and bring down inflation within the target range, the Monetary Policy Committee (MPC) gradually raised the policy rate (Central Bank Rate (CBR)) from 7.50 percent in May 2022 to 10.50 percent in June 2023. County Budget Review and Outlook Paper 2023 [17] 34. The Kenyan foreign exchange market remained under pressure as global economic uncertainty regarding the ongoing Russian-Ukraine conflict as well as increase in interest rates in advanced economies in response to inflationary pressures weighted on the exchange rate. Specifically, the headwind from a strengthening dollar, boosted by rising US interest rates and elevated commodity prices, the exchange rate to the Kenya shilling weakened at a rate of 20.5 percent in the 12 months to August 2023 compared to 9.3 percent in the 12 months to August 2022. The Kenya shilling exchanged at Ksh 143.9 in August 2023 compared to Ksh 119.5 in August 2022. Against the Euro, the Kenya shilling weakened to exchange at Ksh 157.1 in August 2023 compared to Ksh 121.0 in August 2022 while against the Sterling Pound the Kenyan shilling weakened to exchange at Ksh 182.9 compared to Ksh 143.5, over the same period. 3.2. Recent Economic Developments 35. The county witnessed a reduction in economic development owing to the 2022 general elections and the resultant slump in economic activities, rising inflation and resultant higher cost of doing business due to high fuel prices. The rise in fuel prices was occasioned by removal of the fuel subsidy and ripple effect of the ongoing Russia – Ukraine conflict. Depressed rainfall in many parts of the country (including Tana River) led to a decrease in agricultural and livestock activities. However, despite the respective challenges sectors including health, water, and infrastructure continued to cushion the livelihoods of residents of Tana River County during the financial year under review due to decisive investments by the administration. 36. The Department of Health, Medical Services and Sanitation committed to develop an amenity Wing which is aimed at increasing the total revenue towards the County. The department also prioritized the establishment of a High Dependency Unit at the Hola referral Hospital which will boost the self-sustaining system of the Health sector as well as reduction in referral cases to other Counties. The sector has also constructed a newly equipped modern laboratory to increase accessibility and affordability of the health services to its citizens. The department also prioritized the construction of mortuary in Ngao and Hola to eliminate the need to travel to Malindi for morgue services. The department continues to focus on preventive and promotive health services to reduce the burden on the curative services. County Budget Review and Outlook Paper 2023 [18] 37. With a view to addressing the challenge of accessibility to clean water, the Department of Water and energy has continued investing in the construction water infrastructure, operationalization and maintenance of Water Supplies, provision of water harvesting storage, floods control and water pan construction. The projects initiated include piping of water to the new County Headquarters in Dayate, construction of Bura – Chifiri water pipeline, Kelokelo Water Works and elevated steel tank in Madogo ward. Additional investments in the water sector include the new pipeline to the Ward Administrator’s office in Kipini West, clear water tank in Malindi ya Ngwena and Chewani water project. The Department of Environment and Natural Resources successfully implemented several projects such as; garbage collection within 5 urban centers, management of sea water intrusion at Kalota (Ozi), established a report from the feasibility studies on the sea water intrusion for further action, establishment and development of 3 sub counties public parks. The department developed the Tana River Climate Change Act, the Tana River Climate Change Policy, the Tana River Climate Change adaptation plan and Climate Change Action Plan. The department will shift its focus on investing in garbage collection equipment and collection through the Hola Municipality staff to reduce the costs of collection in and around the urban centres. 38. Considering that agriculture is major contributor to the county economy, significant efforts were made to boost the sector including; training of lead farmers on Good Agricultural Practices (GAPS) in Tana North (40 groups), land preparation through ploughing, harrowing and ridging across the county (5,100 acres), capacity building (training) of mango farmers in Tana North (400 farmers), exchange program of fishers to Kisumu and Kilifi counties, Dunga and Ngomeni BMUs respectively and distribution of boats, cooler boxes, hooks and nets to BMUs. The department also oversaw operationalization of the Small-scale Irrigation project through which 12 irrigation projects have been supported. 39. The Department of Lands and Physical Planning focused on finalization of the County Spatial Plan, which includes the identification and mapping of key urban towns and development of Eco-villages/clusters which is both a solution to planned and organized settlement as well as a flood mitigation measure. Planning of towns provides a spatial framework for sustainable utilization of resources and efficient use of the available land mass. It also enables formal settlement for the people of Tana River and the growth of urban towns that will in turn bring about economic growth in the County. County Budget Review and Outlook Paper 2023 [19] 40. Municipality Board is in place and a Municipality Manager has been officially appointed. The board in place will ensure that there is efficient service delivery in the municipality that will in turn bring about economic growth. During the period under review, the Municipality did not have a development expenditure, therefore only carrying out activities recurrent in nature. 41. To improve the retention rate in EYE the department of Education and Vocational Training continued with the established school feeding programs. In addition, the department continued to put in place measures to address the rate of unemployment among the youth through provision of best employable skill training and equipping of vocational training centers with modern tools and equipment. The Tana River Youth Empowerment and Innovation Centre was launched and decisive investment made to operationalize the facility for skills development. The department also released a total of Kshs. 150 million to Ward Bursary Fund to benefit needy students. 42. The Department of Roads, Transport, Public Works, Housing and Urbanization achieved a number of milestones. The Roads and Transport sub sector oversaw the improvement of various roads including; Madogo market access roads to cabro standards, upgrading of Bura township roads to bitumen standard, rehabilitation of Sailoni – Mwina – Kirete road and rehabilitation of B89 – Handampia road. The Public Works sub sector oversaw the continued construction of the County Headquarters in Dayate, with the project currently at 80% completion. The department is in the process of formulation and adoption of building regulations policies that are in line with the goal of providing cost effective, climate proof and sustainable infrastructure within the county. The sub sector also oversaw the construction of a fire station at Dayate as well as training of fire marshals and operators to enable the county operationalize the firefighting services within the urban areas in Tana River. 43. The Department of Public Service, Administration and Citizen Participation oversaw recruitment in both the executive and the County Public Service Board (CPSB), and civic education of the citizenry through public barazas and public participation forums during the planning, budget and M&E processes.. Construction of Ward Administrators’ offices is also on going in various wards. County Budget Review and Outlook Paper 2023 [20] 44. The Department of Finance and Economic Planning, has ensured usage of e-procurement by all county departments and agencies and focused on timely financial reporting, formulation of the County Budget and other policies. In the FY 2023/24, the department has prioritized payment of pending bills to allow for completion of stalled projects and spur economic growth through the resultant liquidity of merchants operating in the county economy. The department also reduced on the revenue collection on cash basis in favour of till and paybill numbers. 45. During the period under review, collection in local revenue declined, with 18% decrease collected compared to the FY 2021/22. This can be attributed to the slowing down of economic activities during the political campaign period. This is expected to improve with the election period having ended and economic activities resuming to previous levels. The underperformance on collection of county own source revenue for the financial year 2021/22 had a negative effect on the resource envelope. The current revenue trend has been taken into consideration and the department is keen to revert to the improvement of own source revenue collection 3.3. County Economic Outlook and Policies 46. For the financial year 2023-2024, the county has emphasized programs and projects across the four strategic objectives: urban planning and climate proof infrastructure development; accessible and quality education; quality and affordable healthcare; and modern and commercially-oriented agriculture. 47. Projects to support the strategic objectives include institutional strengthening of the Hola Municipality, survey and titling of settlements, improving supply and availability of pharmaceutical and non-pharmaceutical supplies in health facilities accross the County, and expansion of the county medical workforce in areas that require specialization. In agriculture, the county is implementing three projects: KCSAP, ASDSP and NAVCDP which are expected to improve food production and resilience against drought. In education, the County continues to establish and improve EYE centre facilities and subsidize vocational training. County Budget Review and Outlook Paper 2023 [21] 48. The County has instituted various mechanisms to ensure efficient utilization of resources. These include rolling out the County M&E committees alongside use of e-CIMES to track results of policies, programmes and projects. Other initiatives on this include the completion and launch of the Third Generation CIDP and the CIDP III Indicator handbook and improving the human resource capacity for budget, planning and M&E in the Directorate of Economic Planning and Budgeting. The County has also operationalized Sector Working Groups and Budget Implementation Committees to assist the County Treasury in planning, budgeting and budget execution. 49. The County will continue to establish and strengthen partnerships with national government MDAs and development partners. Through these partnerships, the County anticipates to receive technical assistance, and access financial resources to complement the county’s allocation to projects and programs. 50. The County will continue to engage with County citizens and other stakeholders in the County with an aim of soliciting feedback on the County plans, projects and programs. This is especially in the planning and budgeting cycle. 3.4. Risks to the Outlook 51. 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. Contracting global economy occasioned by the Ukraine – Russia conflict, weakening of the Kenyan shilling against global currencies as well as increased fuel prices. 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. Depreciation of the Kenya shilling against the US dollar had a negative effect on the Consumer price index inflation leading to increased inflation. iii. The effects of the public debt and of pending bills are likely to contribute to the sluggish growth of the economy and have a negative trend on revenue collections to fund government expenditures. iv. The impending Elnino rainfall will have a major impact on Agricultural and economic activities across the country. b. Micro-economic risks include; County Budget Review and Outlook Paper 2023 [22] i. Agriculture is the main economic activity in the County and one that provides employment and contributes to food security. Tana River has been adversely affected by the ongoing drought and the depressed rainfall. The incidence of these disasters affects food security, disrupts socio-economic activities and, in the case of floods, causes destruction to transport, irrigation, water storage and distribution infrastructure. ii. Accessibility to some key areas of the county has been a challenge due dilapidated road network. The poor roads cause delays in deliveries and increase in transport costs that are in turn transferred to the consumer, with prices varying upward on some products as compared to recommended retail prices in other areas. 52. The County administration is continually monitoring these risks and undertaking appropriate measures to make the county economy resilient against these risks. To steer an appropriate recovery, the County is working with the National Drought Management Authority (NDMA) Frontier Counties Development Council (FCDC), Jumuia ya Kaunti za Pwani and other partners to mitigate the expected flood situation by reaching those who are most vulnerable while putting in place measures to address related risks before the onset of the heavy rains. County Budget Review and Outlook Paper 2023 [23] 3.5. County Economic Outlook and Policies 53. For the financial year 2022-2023, the county has emphasized programs and projects across the four strategic objectives: urban planning and climate proof infrastructure development; accessible and quality education; quality and affordable healthcare; and modern and commercially-oriented agriculture. 54. Projects to support the strategic objectives include institutional strengthening of the Hola Municipality, survey and titling of settlements, improving supply and availability of pharmaceutical and non-pharmaceutical supplies in health facilities accros the County, and expansion of the county medical workforce in areas that require specializatino. In agriculture, the county is implementing three projects: KCSAP, ASDSP and IDEAS which are expected to improve food production and resilience against drought. In education, the County continues to establish and improve EYE centre facilities and subsidize vocational training. 55. The County has instituted various mechanisms to ensure efficient utilization of resources. These include rolling out the County M&E committees alongside use of e-CIMES to track results of policies, programmes and projects. Other initiatives on this include adoption of the CIDP II Indicator handbook and improving the human resource capacity for M&E in the Directorate of Economic Planning and Budgeting. The County has also operationalized Sector Working Groups and Budget Implementation Committees to assist the County Treasury in planning, budgeting and budget execution. Additionally, the County is in the process of formulating th 3rd generation CIDP which will be the blueprint upon which development planning shall be hinged. 56. The County will continue to establish and strengthen partnerships with national government MDAs and development partners. Through these partnerships, the County anticipates to receive technical assistance, and access financial resources to complement the county’s allocation to projects and programs. 57. The County will continue to engage with County citizens and other stakeholders in the County with an aim of soliciting feedback on the County plans, projects and programs. This is especially in the planning and budgeting cycle. County Budget Review and Outlook Paper 2023 [24] 58. On revenue administration, the County is optimistic that the National Policy to Support Enhancement of County Own Source of Revenues shall be fully implemented. One of the elements of the Policy is automation of revenue collection from which the County will optimize revenue collection and administration. 3.6. Risks to the Outlook 59. Despite slow economic growth in Tana River County, the economy of Tana River is prone to both macro-economic and micro-economic risks. c. Macro-economic risks include; v. Contracting global economy occasioned by the containment measures of the COVID-19 pandemic and the ripple effects of the Russia – Ukraine conflict 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. vi. Depreciation of the Kenya shilling against the US dollar had a negative effect on the Consumer price index inflation leading to increased inflation. vii. The effects of the public debt and of pending bills are likely to contribute to the sluggish growth of the economy and have a negative trend on revenue collections to fund government expenditures. d. Micro-economic risks include; i. The impending El Nino that is likely to affects the movement of goods and people, destroy critical infrastructure in the County and increase the burden of human and livestock diseases. ii. Agriculture is the main economic activity in the County and one that provides employment and contributes to food security. Tana River has been adversely affected by the ongoing drought and the depressed rainfall. The incidence of these disasters affects food security, disrupts socio-economic activities and, in the case of floods, causes destruction to transport, irrigation, water storage and distribution infrastructure. iii. Accessibility to some key areas of the county has been a challenge due dilapidated road network. The poor roads cause delays in deliveries and increase in transport costs that are in turn transferred to the consumer, with prices varying County Budget Review and Outlook Paper 2023 [25] upward on some products as compared to recommended retail prices in other areas. 60. The County administration is continually monitoring these risks and undertaking appropriate measures to make the county economy resilient against these risks. To steer an appropriate recovery, the County is working with the National Drought Management Authority (NDMA) Frontier Counties Development Council (FCDC), Jumuia ya Kaunti za Pwani and other partners to arrest the drought situation by reaching those who are most vulnerable while working toward drought mitigation measures and the ending of drought emergencies in subsequent years. The Inuka Fund has been rolled out to avail affordable credit to SMEs in the County. 61. The County will endeavor to step up efforts in building resilience against the climate shocks. This includes building climate-proof infrastructure, enacting legislation to support disaster risk management, utilize the Emergency Fund and the Disaster Risk Management Fund to support emergency response, reducing over-reliance on rain-fed agriculture, specific actions to promote drought resilience among pastoralists, and improving water security in the hinterlands. County Budget Review and Outlook Paper 2023 [26] 4. RESOURCE ALLOCATION FRAMEWORK 4.1. Overview 62. This section sets out how the County Government of Tana River intends to live within its means. It establishes the resource envelope 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. 63. In order to ensure effective utilization of public finances, resource allocation will be guided by the following; i. The Public Finance Management Act, 2012 and the PFM (County Government) Regulations, 2015 especially adherence to the fiscal responsibility principles. ii. Need to complete ongoing projects. iii. Pending Bills Reports: Report of the Tana River County Ineligible Pending Bills Resolution Committee for the pending bills for the FYs 2018/19 and FY 2019/20. Consideration shall also be made to settle pending bills for the FYs 2020/21, 2021/22 and 2022/23. iv. Emerging priorities v. County-specific development plans including the Annual Development Plan for the FY 2024/25 and the 3rd Generation County Integrated Development Plan. vi. Medium Term Plan IV (2023 - 2027) of the Kenya Vision 2030. 4.2. Adjustment to the FY 2022/2023 Budget 64. Adjustments expected in the 2023/2024 budget estimates 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 resource constraints, the county will rationalize expenditures by considering emerging needs such as: a. Preparedness actions against El Nino and the need to support recovery from EL Nino and provide for risk of other disasters such as floods. b. Pending bills based on the report of the Report of the Tana River County Ineligible Pending Bills Resolution Committee for the pending bills for the FYs 2018/19 and FY 2019/20. County Budget Review and Outlook Paper 2023 [27] 65. The Tana River County Treasury has prepared the FY 2023/2024 Budget taking into consideration the development aspirations as pronounced by H.E the Governor and those prioritized by the communities in the County. 66. There was a significant increase in own source revenue in the FY 2021/2022. The county treasury managed to collect Kshs. 84.5 million representing 116 percent collection of the targeted amount and 126.94 percent of the 66.5 million realized in the FY 2020/2120. The County Treasury has overperformed in collection of own source revenue (OSR) against a target of Kshs. 66 million in the previous financial year. The County Treasury intends to roll 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 prompting the County Treasury to increase OSR target to 83.853 million. 67. The county treasury appropriated some monies to offset 2018/19, 2020/21 and the approved ineligible pending bills depending on the report of the Tana River Ineligible Pending Bills Resolution Committee. The county managed to offset all the approved historical pending bills in the F/Y 2020/21. The OAG commissioned a special audit for the pending bills in the FY 2018/19 and FY 2020/21. Both the historical pending bills and those in the FYs 2018/19, 2020/21 and 2021/22 will eat into the County Resource envelope. This has mostly affected the current development projects and Operation and Maintenance expenses as well as future allocations. Based on the rising wage bill, the county treasury has maintained the decision to allow departments to employ only with the approval of the County Executive Committee and confirmation by the County Treasury on the availability of Funds. 4.3. The Medium-Term Expenditure Framework 68. 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. 69. During FY 2021/2022, the County will focus on building foundations for increasing the Own Source Revenue collections through formulating a revenue strategy, developing a valuation roll, resource mapping, civic education of the general public on the importance of OSR, and automation of revenue collection. With increased sources and capacity, the County Budget Review and Outlook Paper 2023 [28] County will look to increase OSR targets in subsequent financial years. Focus will also be geared toward departments with high revenue potential such as those in the County departments of Trade, Tourism and Wildlife as well as the Agriculture and Livestock departments through industrialization by setting up processing plants and value addition for commodities such as milk, honey and mangoes. 70. The County will continue to invest in infrastructure, quality and affordable universal care, education, urban planning and development, good governance among others so as to consolidate the gains made for the last seven years. The County expects an increase in the resource envelope subject to implementation of the third basis for revenue sharing amongst County Governments. The table below provides projected baseline ceilings and the 2024/2025 to 2026/2027 MTEF by department. County Budget Review and Outlook Paper 2023 [29] Table 7: Summary of Indicative Ceiling for FY 2024/2025 and the MTEF Departments Total Budget Estimates in KShs % Share of Total Expenditure Revised Estimates Estimates Projections Estimates Ceilings Projections 2022/23 2023/24 2024/25 2025/26 2026/27 2022/23 23/24 24/25 25/26 26/27 County Assembly 1,113,396,752 1,008,437,753 1,058,859,64 1,111,802,62 1,167,392,753 14% 11% 11% 11% 11% 0 2 Office of The Governor and 537,038,748 436,641,663 458,473,747 481,397,434 505,467,306 7% 5% 5% 5% 5% Deputy Governor Finance and Planning 1,175,889,013 1,108,674,422 1,164,108,14 1,222,313,55 1,283,429,228 15% 12% 12% 12% 12% 3 0 County Public Service Board 79,739,901 73,355,104 77,022,859 80,874,002 84,917,702 1% 1% 1% 1% 1% Trade, Tourism, Wildlife and 119,999,698 215,599,698 226,379,683 237,698,667 249,583,600 2% 2% 2% 2% 2% Cooperative Development Agriculture, Livestock, 549,078,471 1,114,127,611 1,169,833,99 1,228,325,69 1,289,741,976 7% 13% 13% 13% 13% Fisheries and Veterinary 2 1 Culture, gender, Youth, Sports 89,683,447 102,683,447 107,817,619 113,208,500 118,868,925 1% 1% 1% 1% 1% and Social Services Education and Vocational 302,130,656 439,302,116 461,267,222 484,330,583 508,547,112 4% 5% 5% 5% 5% Training Medical Services, public 1,364,974,923 1,439,761,277 1,511,749,34 1,587,336,80 1,666,703,648 17% 16% 16% 16% 16% Health and sanitation 1 8 Special program 146,797,767 150,234,635 157,746,367 165,633,685 173,915,369 2% 2% 2% 2% 2% Roads, Transport, Public 572,471,095 693,771,095 728,459,650 764,882,633 803,126,764 7% 8% 8% 8% 8% works, Housing and Urbanisation Water, Irrigation, 533,921,037 414,547,278 435,274,642 457,038,374 479,890,293 7% 5% 5% 5% 5% Environment and Natural Resources Public Service, Administration 1,288,659,221 1,452,318,017 1,524,933,91 1,601,180,61 1,681,239,644 16% 16% 16% 16% 16% and Citizen participation 8 4 Lands and Physical Planning 66,446,562 133,593,750 140,273,437 147,287,109 154,651,465 1% 2% 2% 2% 2% Hola Municipality 39,789,915 86,450,000 90,772,500 95,311,125 100,076,681 0% 1% 1% 1% 1% Total 7,980,017,205 8,869,497,866 9,312,972,759 9,778,621,397 10,267,552,467 100% 100% 100% 100% 100% County Budget Review and Outlook Paper 2023 [30] 4.3.1. Proposed 2022/2023 Budget Framework PROPOSED REVENUE 2023/24 2024/25 2025/26 2026/27 2022/2023 Balance B/F 1,080,234,257 1,109,178,403 1,164,637,322.63 1,222,869,188.76 1,284,012,648.19 Equitable share 6,528,408,765 6,790,702,542 7,130,237,669.10 7,486,749,552.56 7,861,087,030.18 Local revenue 87,846,000 96,630,600 101,462,130.00 106,535,236.50 111,861,998.33 Conditional Allocations 249,230,277 872,986,320 916,635,635.96 962,467,417.76 1,010,590,788.64 Total Revenue 7,945,719,299 8,869,497,864 9,312,972,758 9,778,621,396 10,267,552,465 County Budget Review and Outlook Paper 2023 [31] 71. The 2022/2023 budget framework is guided by the updated medium term macro-fiscal framework outlined in the table above. 4.3.1.1. Revenue Outlook 72. The resource envelope in FY 2022/23 is projected at a total of Kshs. 7.509 billion which comprises of Equitable share of revenue raised nationally of Kshs. 6.854 billion (projected to grow by 5 percent from the Kshs. 6.528 billion in the FY 2021/22) and conditional grants projected to amount to Kshs. 570.74 million. Meanwhile the County Treasury is projecting to collect Ksh 83.853 million as OSR. However, these estimates shall be firmed up by the Budget Policy Statement (BPS), County Allocation of Revenue Act 2022 and approved policies by the County Executive Committee. 4.3.1.2. Expenditure Outlook 73. The total expenditure in the FY 2022/23 is estimated at Kshs. 7.509 billion comprising of recurrent expenditure which is estimated at 70 percent and development estimated at 30 percent. In the FY 2021/22 Budget Estimates, the county wage bill is within the 35 percent ceiling stipulated in the fiscal responsibility principles of the Public Finance Management Act, 2012. This proportion shall be maintained in the FY 2022/23 which means that the County can recruit for necessary positions within the additional resources. This is assuming that the County shall receive the revenues as projected. 74. Over the medium term the county intends to live within its means and therefore shall endeavor to operate a balanced budget. 75. The table below indicates projections for expenditure in the Medium-Term 2021/22 – 2023/24 Table 7:Summary of Expenditure Projections for FY 2021/22 and MTEF Actual Budget Projected Estimates Estimates FY 2022/23 FY 2023/24 FY 2024/25 FY 2025/26 FY 2026/27 Personnel Emoluments 1,744,563,618 2,408,039,249 2,528,441,211 2,654,863,272 2,787,606,436 Operations &Maintenance 2,216,328,524 2,807,000,357 2,947,350,375 3,094,717,894 3,249,453,788 Development 1,005,203,389 3,654,458,259 3,837,181,172 4,029,040,231 4,230,492,242 Unspent Bal FY 2,873,102,679 0 0 0 0 Total 7,839,198,210 8,869,497,865 9,312,972,758 9,778,621,396 10,267,552,466 County Budget Review and Outlook Paper 2023 [32] 5. CONCLUSION 76. The County is making progress in addressing some of the challenges previously identified as affecting budget implementation. 77. Despite the 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. iii. Off-budget, off-plan expenditures. iv. Overcommitment on the approved budgets resulting in pending bills 78. The County should implement the following recommendations in order to improve budget execution; a. The county Government (departments) should adhere to Section 166 of the PFMA. 2012 in submission of quarterly reports in the desired format. b. The County Government should devise strategies to enhance local revenue collection, mainly through automation of revenue collection and civic education on the importance of OSR to the public through the proposed 2023 Finance Bill. c. The county should spend within its means and avoid any leakages. County Budget Review and Outlook Paper 2023 [33] ANNEX: CALENDAR FOR FY 2024/25 BUDGET PROCESS No. Activity Responsibility Deadline 1. Develop and issue MTEF Guidelines County 28-Aug-23 Treasury 2. Submission of the ADP County 01-Sep-23 Treasury 3. Launch of Sector Working Groups County 15-Sept-23 Treasury 4. Programme Performance Reviews (PPRs) CDAs 30-Sept-23 4.1 Review of programmes outputs and outcomes 4.2 Expenditure review 4.3 Progress report on CIDP/ADP implementation 5. Development of Medium-Term Budget Framework Macro Working 29-Sept-23 Group 5.1 Develop the Medium-Term Fiscal Framework and “ Resource Envelope 5.2 Review and Determination of policy priorities “ 5.3 Develop Preliminaries resource allocation to sector “ 5.4 Draft County Budget Review and Outlook Paper “ (CBROP) 5.5 Submission of CBROP to Executive Committee “ 29-Sep-23 5.6 Approval of CBROP by Executive Committee “ 13-Oct-23 5.7 Submit Approved CBROP to County Assembly “ 20-Oct-23 6. Preparation of MTEF budget proposals Line 28-Nov-22 Departments 6.1 Retreats to Draft sector report Sector Working 24 Oct – 3 Group Nov, 2022 6.2 Briefing Sector Chairpersons and Accounting Officers on 07-Nov-22 Sector Draft Reports. 6.3 Convene public sector hearing County Treasury 08-10-Nov- 22 6.4 Review and Incorporation of Stakeholder Inputs in the 14-Nov-22 Sector Proposals 6.5 Submission of sector Report to the County Treasury Sector Working 15-Nov-22 Group 6.6 Consultative meeting with CECMs/CCOs County Treasury 16-Nov-22 7. Draft County Fiscal Strategy Paper (CFSP) Macro Working 28-Feb-23 Group 7.1 Draft CFSP Macro Working 14-Dec-22 Group 7.2 Public/Stakeholders Participation County Treasury 30-Jan – 01- Feb-23 7.3 Review and Incorporation of Stakeholder Inputs in the “ 06-Feb-23 Sector Proposals 7.4 Submission of CFSP to County Executive for approval “ 08-Feb-24 7.5 Approval of CFSP by the County Executive Committee 16-Feb-24 7.5 Submission of CFSP to County Assembly for approval. “ 28-Feb-24 County Budget Review and Outlook Paper 2023 [34]