MURANGA COUNTY GOVERNMENT BUDGET REVIEW AND OUTLOOK PAPER SEPTEMBER 2015 Foreword This is our third Murang’a County Budget Review and Outlook Paper, it is meant to give us an opportunity to critically review our performance in the FY 2014/2014 flag out our shortcomings, identify our strengths and create a strong base for good performance in 2015/2016. While our intentions may mean well, financial management remain a delicate and sensitive function that largely dictate broadly the direction an organization takes. Both our planning and budgeting are done based on some factored assumptions that are at best very fluid. Whether it has to do with national government transfers that are at times delayed; local revenue collections and expenditures projection that bears the influence of national macroeconomic influences either positively or negatively. As critical stakeholders to the processes we should always endeavor to give our best given the challenging environment. It’s my desire that we all appreciate our mandated roles meant to ensure that the whole process works and deliver to the residents. All efforts should be geared to realizing 2015/2016 budget plans in a manner that allows for structured engagement especially to allow for a realistic and implementable budget. …………………… HON. GEORGE KAMAU COUNTY EXECUTIVE MEMBER INCHARGE OF FINANCE ICT AND ECONOMIC PLANNI 1 Abbreviations and Acronym MFET-Medium Term Expenditure Framework PFM-Public Finance Management CFSP- County Fiscal Strategy Paper IFMIS- Integrated Financial Management Information System CIDP- County Integrated Development Plan 2 BACKGROUND Legal basis for the production of the Budget Review and Outlook Paper The Budget Review and Outlook Paper (BROP) is prepared in accordance with section 118 of the Public Finance Management Act, 2012. The law states that: 1. The county Treasury shall prepare and submit to county executive for approval, by 30th September in each financial year, a BROP which shall include: a. Actual fiscal performance of the previous financial year compared to the budget appropriation for the year. b. Information on how actual financial performance for the previous financial year may have affected compliance to with the fiscal responsibility principles or the financial objectives in the latest Fiscal strategy paper and c. The reasons for any deviation from the financial objectives together with proposals to address the deviation and the time estimated to do so. 2. County Executive shall consider the BROP with a view to approving it , without amendments, not later than fourteen days after its submission. 3. Not later than seven days after the BROP has been approved by County executive, the County Treasury shall: a. Submit the paper to the budget committee of the county Assembly to be laid before the County Assembly; and b. Publicize the paper not later than fifteen days after laying the paper before the county assembly. 3 I INTRODUCTION 1. The Budget Review and Outlook Paper (BROP) is a key document in the budget process it is meant to give a review of 2014/2015 budget and as well present an outlook on the budgeted revenues and at give an insight on the 2015/2016 budget. OBJECTIVESOF BROP 1. provide a review of the previous year fiscal performance 2. Reassess the progress of 2015/2016 budget implementation 3. Project the implementation of 2015/2016 budget 4. Give indicative sector ceiling for 2016/2017 budget II. REVIEW OF FISCAL PERFORMANCE IN 2014/2015 A. Overview The year 2014/2015 was both successful and challenging; the County was able to implement the budget largely as per plans. However, there existed some observable overspending in some programmes either due to inaccurate cost estimates or unforeseen happenings. Measures to counter repeat of the same have been instituted by the County Treasury through full adoption of the IFMIS system and capacity development is ongoing. B. 2014/2015 Fiscal Performance Local Revenue The total revenue collected from local sources was ksh 562 million against a budgeted target of Kshs 850 million. 4 REVENUE TYPE FY 2013/3014 FY 2014/2015 FY 2015/2016- (Estimated) Local revenue 419,989,717 562,227,534 850,000,000 Equitable share 3,917,321,109 4,673,157,909 5,355,997,309 DANIDA fund 22,430,000 24,810,000 Total County 4,337,310,826 5,235,385,443 6,230,807,309 Revenue National Government transfer The county budgeted to receive Kshs 4,673,157,909 as the equitable share an increase from Kshs 3,917,321,109 received in the FY 2013/2014. EXPENDITURE The total expenditure for 2014/2015 financial year amounted to ksh 5,261,798,499 up from Kshs 3,832,147,000 spent in the FY 2013/2014. The recurrent expenditures amounted to ksh 2,972,344,941 with development expenditures totaling Kshs 2,289,453,556 as tabulated below. DEPARTMENT ACTUALS APPROVED ACTUALS VARIANCE FY2013/2014 BUDGET FY2014/2015 KSHS(000) FY 2014/2015 KSHS(000 KSHS(000) COUNTY ASSEMBLY 385,124 670,222 449,902 220,320 PUBLIC SERVICE 566,781 379,199 326,666 52,533 &ADMINISTRATION FINANCE IT & 339,198 900,000 714,590 185,410 ECONOMIC PLANNING 5 AGRICULTURE 432,172 800,000 1,015,137 215,137 LIVESTOCK & IRRIGATION ENVIRONMENT AND 14,211 34,800 3,909 30891 NATURAL RESOURCES EDUCATION & 124,950 388,625 258,746 129,879 TECHNICAL TRAINING HEALTH & 1,170,535 914,766 1,182,514 267,748 SANITATION TRANSPORT & 384,970 905,250 965,028 59,778 INFRASTRUCTURE LANDS & PHYSICAL 12,238 119,975 61,936, 58,036 PLANNING COMMERCE, 356,178 688,925 164,744 524,181 INDUSTRY &COOPERATIVE DEVELOPMENT YOUTH, CULTURE, 55,120 179,825 118,626 61,199 GENDER, SOCIAL SERVICES AND PECIAL PROGRAMME TOTAL 3,822,477 5,981,587 5,261,798 719,789 EXPENDITURE Overall balance and financing The County realized revenues totaling Kshs 5,235,385,443 against an expenditure of Kshs 5,261,798,449 reflecting a balance carried forward deficit of Kshs 26,413,006 6 III. COMPLIANCE OF FY 2014/2015 REALIZED BUDGET TO THE FISCAL RESPONSIBILITY PRINCIPLES The prepared budget was Kshs 3,117,522,000 for development against a total expenditure of Kshs 5,981,587,000. The realized budget was Kshs 2,289,454,556 development against Kshs 5,261,798,449 as total expenditures. The realized development ratio for the fy is 44% against the minimum required by the PFM Act of 30%. The budgeted development ratio to the total budget was 52% but could not be achieved due to; ➢ Some works done within the financial year was not paid timely due to late release of June 2015 allocation. ➢ Some schedule programmes could not be timely procured given the rigorous procurement procedures. ➢ Local revenue was not realized 100% and the deficit reduced what was available for programmes financing. The county continuously ensured that debts were maintained at a sustainable level on general supplies requirements and on cash flow management interventions. Within the year the only loan sought was kshs 200 million from KCB and which was well within the provision of section 142 of the PFM Act. Fiscal risks have continued to be managed prudently by the County Treasury. As well the county has continued to manage local revenue collection prudently with a view to maintain a reasonable degree of predictability on our fees and charges to minimize the likelihood of antagonizing the local business community. 7 1V. UPDATED ECONOMIC AND FINANCIAL FORECASTS A. Implementation of 2015/2016 Budget 2015/2016 budget implementation has continued although with a lot of challenges, some existing commitments carried forward from the FY 2014/2014 appear not to have sufficient budgetary allocations while some allocation eg Ward Development Fund requires setting up of legal and administrative structures. B. UPDATED FINANCIAL FORECASTS The total projected local revenue as per CFSP was Kshs 850 million agaist a realized actual (2014/2015) of 562 million, going by the current economic performance the initially projected increase doesn’t appear realistic. County treasury will review the figure to Kshs 650 million. The equitable share of revenue was projected to be Kshs 5,226 million as per the CFSP but the gazetted allocation for 2015/2016 is Kshs……………. The budgeted amount of Kshs 5,783 million was meant to include the unspent 2014/2015 allocations, however the aligning of the rolled over bills relating to the Kshs 467 million is yet to be finalized. The downward revision will be matched by a reduction in budgeted expenditures and the alignment of rolled over bills relating to cash in the County Revenue Account will be realized by preparing a supplementary budget. C. Medium Term Fiscal Framework THE County has continued to use of MTEF as a tool linking Policy, Planning and Budgeting. The MTEF consists of a top-down resource envelope, and a bottom-up estimation of the current and medium-term costs of existing policy and, ultimately, the matching of these 8 costs with available resources. The departments will soon undertake a MTEF public participation to properly align the revised stakeholder’s priorities with available resources. The both local revenues and the national government transfers are projected to grow by fifteen percent (15%). Expenditures will be balanced to the available resources as no borrowing is being contemplated in the medium term other than what is expressly for cash flow management. D. Risks to the Outlook. The likely risks of the outlook for 2015 and medium term include: ➢ low economic growth of the economy, leading to inadequate funding to the counties, ➢ Extreme weather conditions negatively affecting agricultural production, ➢ Late disbursement of funds by the National Treasury making funds absorption targets levels not to be realized. ➢ Inadequate resources to support some of the development projects/programmes that may lead to non-completion within the planned time frames. ➢ Unrealized targets on revenue collection ➢ Disharmony between critical stakeholders leading to derailment of programmes ➢ Shifting departmental priorities necessitating changes to the current outlook and especially the development of strategies to counter El-nino related emergencies. V. RESOURCE ALLOCATION FRAMEWORK 2016/2017 A. (I) 2015/2016 Budget The current year budget allocation framework is as below 9 DEVELOPM TOTAL % ENT BUDGET ALLOCATI RECURRENT ALLOCATIO ON DEPARTMENT ALLOCATION N Kshs(000) Kshs(000) K s h s (000) Office of the Governor 3% and Deputy Governor 218,372, 6,100 224,472 County Assembly 588,991 255,583 844,574 13% Finance ICT and 1,115,443 17% Planning 242,243 873,200 Agriculture Livestock 4% and fisheries 141,343 102,264 243,607 Energy Transport and 11% Infrastructure 753,222 Development 44,722 708,500 Commerce, Trade, 2% Industry, Tourism and Cooperative 152,130 Development 6,130, 146,000 Health and Sanitation 1,117,205 4 37,048 1,554,253 23% Land Housing and 2% Physical Planning 11,284 103,280 114,564 Public Service and 11% Administration 727,625 25,400 753,025 Education and Technical 264,800 4% Training 172,800 92,000 Youth, Culture Gender, 8% Social Services and 501,393 Special Programs 37,153 464,240 Environment and 1% Natural Resource 9,100 82,625 91,725 County Public Service 45,505 1% Board 40,004 5,500 TOTAL COUNTY BUDGET 3,356,972 3,301,740 6,658,712 100% Overall Budget Financing Kshs (000) % RATIO TOTAL INCOME 2015/2016 6,230,807 10 BALANCE B/F 2014/2014 427,905 GROSS INCOME 6,658,712 PERSONNEL COSTS 2,537,150 38% OPERATION AND MAINTENANCE 819,822 12% TOTAL RECURRRENT EXP 3,356,972 50% DEVELOPMENT 3,301,740 50% TOTAL EXPENDITURE 6,658,712 100% SURPLUS DEFICIT 0 Particulars Total AGRICULTURE, LIVESTOCK AND FISHERIES Kshs (000) Cash Crop Development Program 66,000 Food Security Program 17,000 Livestock and Fisheries Development Program 31,287 Veterinary Services Program 26,016 Administration and Support Program 103,304 SUB TOTAL 243,607 ALCOHOLIC DIRECTORATE Supply Suppression and Enforcement Program 17,500 Demand Reduction Treatment and Rehabilitation Program 21,000 Policy Research and Strategy Program 3,500 Demand Reduction Program 11,268 Administration and Support Program 6,540 11 SUB TOTAL 59,808 ENVIRONMENT Waste Management Program 50,000 Pollution Control Program 2,125 Environmental Conservation Program 30,000 Environmental Leadership and Governance 2,500 Administration, Support and Coordination 7,100 SUB TOTAL 91,725 GOVERNORSHIP County and Executive Coordination Program 29,982 Compliance and Auditing Program 1,612 Disaster Control and Management program 1,610 Policy Formulation Program 1,296 County Executive Program 189,972 SUB TOTAL 224,472 TRADE, INDUSTRY AND TOURISM General Administration and Support program 11,130 Trade and Industries Development Program 50,000 Consumer Protection and Agribusiness and Marketing program 71,000 Tourism Development Program 20,000 12 SUB TOTAL 152,130 EDUCATION AND TECHNICAL TRAINING Education intervention Programmes Vulnerable Persons Youth Polytechnics & Vocational training 48,000 Early childhood Development 128,000 Scholarship Fund 72,000 Administration and Support 16,800 SUB TOTAL 264,800 FINANCE, IT AND PLANNING ICT Development programme 30,000 Financial Management programme 100,000 Ward Development fund 700,000 Administration and Support 285,443 SUB TOTAL 1,115,443 INFRASTRUCTURE, TRANSPORT AND ENERGY Water development programme 495,000 Road Development programme 117,500 Market & Urban Development 100,000 Administration and Support 40,722 Energy Development SUB TOTAL 753,222 13 LANDS, HOUSING AND PHYSICAL PLANNING Estate management and Housing programme 3,007 Land valuation and administration programme 12,709 Land survey and GIS programme 27,456 Development control and planning programme 49,801 Administration and support 21,591 SUB TOTAL 114,564 PUBLIC SERVICE BOARD Human Resource management and devt 7,000 National Value and Governance 3,500 General Administration and support 35,004 SUB TOTAL 45,504 PUBLIC SERVICE DEPARTMENT Public Service Administration programme 753,025 SUB TOTAL 753,025 HEALTH AND SANITATION Curative health Programme 312,427 Promotive and services programme 8,176 Infrastructure support programme 70,695 14 Health administration planning and support programme 1,069,100 Public Health and sanitation programme 34,047 SUB TOTAL 1,494,445 DEPARTMENT OF SOCIAL SERVICES Cooperative Development programme 37,500 Sport Development programme 76,990 Culture Development programme 49,250 Social Development programme 90,000 Youth Empowerment programme 80,000 Milk Value Chain and other development programme 133,000 Administration and Support 34,653 SUB TOTAL 501,393 COUNTY ASSEMBLY - Legislation and representation 249,216 Oversight 153,183 General Administration planning and support services 442,175 SUB TOTAL 844,574 GRAND TOTAL 6,658,712 (II) Adjustment to the 2015/2016 Budget 15 It is essential that the County urgently prepares a supplementary budget to allow for inclusion of conditional funding as approved by the National Assembly for the following activities. Kshs. ➢ Free maternal health care 80,802,400. ➢ User fees foregone 21,971,530 ➢ Leasing of medical equipment 95,744,680 ➢ Road maintenance fuel levy fund 68,038,977 ➢ Conditional allocation (loans and grants) 100,000,000 . B. Medium Term Expenditure Framework As outlined in the county planning framework, we shall continue to implement the priority programmes and projects. The MTEF allows for rolling over of programmes beyond one financial year where necessary due to time span requirements or financing constraints. We remain cognizant of the critical role that the County continues playing in serving the residents and especially in provision of the constitutionally mandated services. We shall diligently continue to fulfill our role within sectors and departments as appropriate. The following are the already identified programmes for 2016/2017; amendment and funding allocation will be finalized through the legally outlined stakeholder’s engagements. AGRICULTURE, LIVESTOCK AND FISHERIES Cash Crop Development Program 16 Food Security Program Livestock and Fisheries Development Program Veterinary services FINANCE, IT AND ECONOMIC PLANNING ICT Development programme Financial Management programme ENVIRONMENT Waste Management Programme Pollution Control Programme Environmental Conservation Programme Environmental Leadership and Governance TRADE, INDUSTRY AND TOURISM Trade and Industries Development Program Consumer Protection and Agribusiness and Marketing program Tourism Development Program Milk Value Chain and other development programme EDUCATION AND TECHNICAL TRAINING Education intervention Programmes Youth Polytechnics & Vocational training Early childhood Development INFRASTRUCTURE, TRANSPORT AND ENERGY Water development programme Road Development programme programme Market & Urban Development programme 17 Energy Development programme LANDS, HOUSING AND PHYSICAL PLANNING Estate management and Housing programme Land valuation and administration programme Land survey and GIS programme Development control and planning programme HEALTH AND SANITATION Curative health Programme Promotive and services programme Medical equipments and health Infrastructure support programme Health administration planning and support programme Public Health and sanitation programme Alcoholic drinks control and management programme DEPARTMENT OF SOCIAL SERVICES Cooperative Development programme Sport Development programme Culture Development programme Social Development programme Youth Empowerment programme PUBLIC SERVICE AND ADMINISTRATION County Executive Coordination Human Resource management and devt National Value and Governance County Public administration 18 V. 2016/2017 Budget Framework The 2015/2016 budget will be developed as per the priorities of the Annual Development Plan 2016-2017, County Fiscal Strategy Paper 2016 and the CIDP. Revenue collection projections The 2016/2017 budget will target revenue collection of ksh 700 million and the Equitable County allocation of about ksh.5.9 billion. The total local revenue collection and the disbursement from the National Government combined will be expected to raise ksh. 6.6 billion. Expenditure Forecasts in 2016/217, overall expenditures are projected to be about ksh. 6.6 billion. The County will prepare a balanced budget. Departmental expenditures will be as proposed by users and stakeholders but within the approved sector ceilings. PROPOSED FINANCIAL RESOURCES ALLOCATION CEILINGS The 2016/2017 will be guided by the already prepared Annual Development Plans and firmed up by the county Fiscal Strategy Paper to be submitted to the County Assembly by 28th February 2016. To guide stakeholder on the proposed resource, envelop for departments the following are the proposed indicative ceilings. DEPARTMENT TOTAL BUDGET % ALLOCATION Kshs(000) Office of the Governor and Deputy 3% Governor 230,000 County Assembly 660,000 10% Finance ICT and Planning 320,000 5% 4% Agriculture Livestock and fisheries 250,000 19 Energy Transport and Infrastructure 17% Development 1,160,000 8% Commerce, Trade, Industry, Tourism and Cooperative Development 550,000 Health and Sanitation 1,600,000 24% 2% Land Housing and Physical Planning 130,000 12% Public Service and Administration 760,000 Education and Technical Training 270,000 4% Youth, Culture Gender, Social Services 8% and Special Programs 500,000 2% Environment and Natural Resource 100,000 County Public Service Board 50,000 1% TOTAL COUNTY BUDGET 6,600,000 100% The above % resource allocation will be firmed up in the County Fiscal Strategy Paper whose consultations are underway. CONCLUSION As we progress through this critical phase of the budget process, it’s our most earnest wish that all critical stakeholders will pause to take stock and evaluate how well we have aligned our budget planning to the aspirations of our residents. Judging by the progress we are making its most unlikely that we shall have had time to complete the review of our CIDP before February a month by which the budget planning phase will have been concluded. I wish to indicate out strong intentions of using the proposed departmental/sector ceiling as valid guiding frame when we engage other stakeholders to compromise on resources sharing. GEORGE KAMAU CECM – FINANCE, ICT AND PLANNING 20