COUNTY GOVERNMENT OF ISIOLO COUNTY FINANCE & ECONOMIC PLANNING 2021 COUNTY FISCAL STRATEGY PAPER(CFSP) HARNESSING SUSTAINABLE & RESILIENT COUNTY ECONOMIC RECOVERY FEB 2021 FOREWORD The 2021 County Fiscal Strategy Paper (CFSP) is prepared against a background of a contracting Kenyan economy occasioned by the outbreak and rapid spread of the Covid-19 Pandemic. The Pandemic and the ensuing containment measures have devastated the economy disrupting businesses and livelihoods. On the domestic scene, the County has not been spared of the negative impact of the Pandemic coupled up with the 2013-17 Pending Bills payables. The Pandemic and the resultant containment measures have adversely affected businesses and economic activities. As a result, our Local revenue has declined sharply due to effects of the pandemic. Over the first half of the financial year (FY) we have only managed 38% of the projected estimates largely due to significant contractions in the tourism revenue stream which is the main source. Consequently, revenue growth is projected to bounce back in the fourth quarter of FY 2020/2021 and FY 2021/2022. To further reinforce this growth outlook, the policy measures outlined in the 2021 CFSP aims at stimulating County Economic Recovery. Building on the gains made by the County will mitigate the adverse impacts of the Pandemic on the economy and further re-position the economy on a steady and sustainable growth trajectory. The policies in this document have also been anchored on the 2020 Annual Development Plan (ADP) and 2018-2022 CIDP. The focus of the policies is to continue providing an enabling environment for economic recovery to safeguard livelihoods, jobs and businesses. In this respect, the County Government will strengthen implementation of programmes and measures that ensure a more inclusive growth, foster macroeconomic stability, and avail liquidity to the citizen through initiating innovative measures such as revolving loans and grants to boost credit to Micro & Small Enterprises. As we finalize preparation of the budget for the FY 2021/22, we are cognizant of prevailing unfavorable macroeconomic conditions which have adversely affected County own source revenue performance. At the same time, additional expenditure requests for FY 2020/21 budget are at unprecedented level which necessitates alignment of expenditures to the available fiscal space. Thus, we have to critically review our existing programmes and policies to ensure that they are not only consistent with our development agenda but also informed by emerging realities brought about by the emergence of the Covid-19 Pandemic. Going forward, we expect County own revenue collection in the FY 2021/22 to spring back buoyed by the improving economic environment, local revenue policy and revenue administration measures that we have put in place. The enhanced revenue will enable implementation of the 2020 ADP Programs as well as the Post Covid-19 County Economic Recovery Strategy. Together with expenditure rationalization measures that we have instituted, we expect the funding pressures to ease and create fiscal space for priority programmes in the FY2021/22 and the Medium Term Budget. The policy intentions outlined in this CFSP have benefited from wide consultations. I would like to thank H.E. the Governor for his guidance while developing this document. Much appreciation goes to the County Executive Committee Members (CECM), staff of the Economic Planning Department, Stakeholders and the general public for their valuable contributions. Mr Abdi Haji Daud County Executive Committee Member Finance And Economic Planning i ACKNOWLEDGEMENT The 2021 CFSP has been prepared in compliance with the provisions of the Public Finance Management Act, 2012. It outlines the current County Economy Macro-Fiscal outlook over the medium term and specifies the set strategic priorities and policy goals together with a summary of the County Government spending plans, as a basis for the FY 2021/22 budget. This publication is expected to improve the public‟s understanding of the County‟s public finances and guide debate on economic and development matters. As we finalize the budget for the FY 2021/22 and the medium term, I wish to emphasize that resources are limited while at the same time, the County is confronted with significant expenditure demands including financing the County Annual Development Plan (CADP) and the Post Covid-19 Economic recovery Programs implementations. This calls for proper prioritization to ensure that we focus on critical expenditures with the highest positive impact on the well-being of the people of Isiolo. For this reason, the County Government will continue to prudently manage the use of public resources over the 2021/22-2023/24 Medium Term Expenditure Framework (MTEF). Towards this end, while developing the budget proposals for the medium-term, The County Sector Working Groups (SWGs) undertook a critical scrutiny of County individual Departments budgets execution reports to curtail growth of recurrent budgets especially budget items under the category referred to as use of goods and services. The County Economic Planning also ensured that sector / departmental funding are availed for completion of ongoing projects, which are compliant with the Public Investment Management Guidelines issued by the National Treasury and Planning, and are supportive of accelerated inclusive growth and development. The preparation of the 2021 CFSP was a collaborative effort among various County departments. We are grateful for their inputs. We thank all the spending units and County Departments for timely provision of information. We are also grateful for the comments received from the participants of the Public Hearings and the general public which provided invaluable inputs to the 2021 CFSP. Finally, we are grateful to the core team from the Economic Planning and Budget Department that coordinated the finalization of this document. The team tirelessly put together this document and ensured it was produced in time while maintaining high quality standards. Equally, my special thanks go to all who are not mentioned but took part in this exercise; you remain an asset to this County. MR. PATRICK LENAWASAE CHIEF OFFICER - ECONOMIC PLANNING ii ABBREVIATIONS AND ACRONYMS A.I.A Appropriation in Aid AIDS Acquired Immunodeficiency Syndrome CECM County Executive Committee Member CFSP County Fiscal Strategy Paper CIDP County Integrated Development Plan CRA Commission on Revenue Allocation DANIDA Danish International Development Agency ECD Early Childhood Development FY Financial Year GDP Gross Domestic Product HIV Human Immunodeficiency Virus ICT Information Communication Technology IFMIS Integrated Financial Management Information System Ksh Kenyan Shilling LAPSSET Lamu Port and South Sudan-Ethiopia Transport MTEF Medium Term Expenditure Framework MTP Medium Term Plan PAYE Pay As You Earn PFM Public Finance Management PPP Public Private Partnership SBP Single Business Permit VAT Value Added Tax iii TABLE OF CONTENT FOREWORD .................................................................................................................................. i ACKNOWLEDGEMENT .................................................................................................................. ii ABBREVIATIONS AND ACRONYMS ............................................................................................... iii TABLE OF CONTENT ..................................................................................................................... iv LIST OF TABLES ........................................................................................................................... vi LIST OF FIGURES ......................................................................................................................... vii OUTLINE OF CFSP 2020 .............................................................................................................. viii CHAPTER ONE .............................................................................................................................. 9 INTRODUCTION ........................................................................................................................... 9 1.1 Overview ....................................................................................................................................... 9 1.2 Legal Basis for County Fiscal Strategy Paper ................................................................................. 9 1.2.1 Constitution of Kenya, 2010 ................................................................................................... 9 1.2.2 Public Finance Management (PFM) Act, 2012 ..................................................................... 10 1.3 Principles of Public Finance and Fiscal Responsibility Principles ................................................ 11 1.3.1 Principles of Public Finance .................................................................................................. 11 1.3.2Fiscal Responsibility Principles .............................................................................................. 11 1.4 Budgeting Approach ................................................................................................................... 12 1.5 CFSP Preparation Methodology .................................................................................................. 13 CHAPTER TWO ........................................................................................................................... 14 RECENT ECONOMIC AND FISCAL DEVELOPMENT ......................................................................... 14 2.1 Global and Regional Economic and Fiscal Overview ................................................................... 14 2.2 National Recent Economic and Fiscal Development .................................................................. 14 2.2.1 National Economic Overview ............................................................................................... 14 2.2.2 National Fiscal Overview ...................................................................................................... 16 2.3 County Recent Economic and Fiscal Development ..................................................................... 17 2.3.1 County Economic Overview ................................................................................................. 17 2.3.2 County Fiscal Overview ........................................................................................................ 18 2.3.3County Expenditure Analysis ................................................................................................ 23 CHAPTER THREE ......................................................................................................................... 26 FORWARD ECONOMIC AND FISCAL DEVELOPMENTS ................................................................... 26 3.1 Global Economic Outlook and Fiscal Development .................................................................... 26 3.2 National Economic and Fiscal overview ...................................................................................... 26 3.3 County Economic and Fiscal Overview ...................................................................................... 26 3.3.1 County Fiscal Overview....................................................................................................... 27 CHAPTER FOUR .......................................................................................................................... 28 STRATEGIC PRIORITIES AND INTERVENTIONS .............................................................................. 28 4.1 Overview ..................................................................................................................................... 28 4.2 Health services ............................................................................................................................ 28 4.3 Livestock Management and Crop Productivity ........................................................................... 28 4.4 Water Resource Management .................................................................................................... 29 4.5 Early Childhood Development and Vocational Development .................................................... 30 4.6 Youth empowerment, Sports and Talent Development ............................................................. 30 4.7 Tourism Development and Wildlife Conflict Management ........................................................ 31 4.8 Lands, Urban Planning and Development, Roads & Infrastructure& public works .................... 32 iv 4.9 County Administration ................................................................................................................ 32 4.10 County Assembly ....................................................................................................................... 33 4.11 Public Participation/ Sector Hearings and Involvement of Stakeholders ................................. 33 CHAPTER FIVE ............................................................................................................................ 34 FISCAL POLICY AND BUDGET FRAMEWORK ................................................................................. 34 4.5 Overview of County Fiscal Policy ................................................................................................ 34 5.2 County Fiscal Framework ........................................................................................................... 35 5.2.1 Observing Fiscal Responsibility Principles ......................................................................... 35 5.2.2 Fiscal and Public Financial Management Reforms .............................................................. 36 5.3 Budget Framework for 2021/2022 .............................................................................................. 36 5.3.1 Revenue Forecasts ............................................................................................................... 37 5.3.2 Expenditure Forecasts .......................................................................................................... 37 5.4 Risk Management ....................................................................................................................... 39 CHAPTER SIX .............................................................................................................................. 41 MEDIUM TERM EXPENDITURE FRAMEWORK .............................................................................. 41 6.1 Overview ..................................................................................................................................... 41 6.2 Resource Envelope ...................................................................................................................... 41 6.3 Proposed Resource Allocation Prioritization Criteria ................................................................. 43 6.4 Overall Spending Priorities .......................................................................................................... 43 6.5 Medium-Term Expenditure Baseline Ceilings ............................................................................. 43 CHAPTER SEVEN ......................................................................................................................... 46 CONCLUSION ............................................................................................................................. 46 v LIST OF TABLES Table 1: Departmental Programmes ..................................................................................................... 12 Table 2: 2020/21 Approved Budgets Revenue Projection Estimates ................................................... 18 Table 3: Direct Transfers from National Government .......................................................................... 20 Table 4: Balance Brought From Financial Year 2019/2020 ................................................................... 20 Table 5: County Own Revenue Collection Performance Comparison in the First Half Year of FY 2019/2020 & 2020/21 ........................................................................................................................... 21 Table 6: Half year OSR performance FY 2013/13 to FY 2020/21 .......................................................... 22 Table 7: Comparison of Local Revenue Collection Performance for the First half of FY 2018/19 and 2020/21 ................................................................................................................................................. 22 Table 8: Departmental Recurrent Expenditure Analysis for the first half of the FY 2020/21............... 24 Table 9: Departmental Development Expenditure Analysis for the first half of the FY 2020/21 ......... 25 Table 10: Departmental Recurrent Expenditure Forecast for FY 2020/21 to 2023/24 ........................ 37 Table 11: Departmental Development Expenditure Forecast for FY 2020/21 to 2023/24 .................. 38 Table 12: Resource Envelope for FY 2021/22 ....................................................................................... 42 Table 13: Medium Term Expenditure Ceilings. ..................................................................................... 45 vi LIST OF FIGURES Figure 1: Half Year Local Revenue Performance from FY 2013/14 to FY 2020/21 ............................... 22 vii OUTLINE OF CFSP 2020 The CFSP is organized into seven chapters detailed as follows. Chapter 1: Gives an introduction on the various laws governing the preparation of the CFSP, plus the fiscal responsibility principles governing the budgeting process. Chapter 2: It provides an overview of the recent economic development and the macroeconomic outlook covering the national scene. Chapter 3: Outlines the forward economic and fiscal policies and the budget framework for the county. Chapter 4: Gives an analysis of strategic priorities and interventions. It also gives an analysis of the key priority sectors and interventions to be implemented. Chapter 5: Provides fiscal policy, budget framework and outlines the fiscal framework that is supportive of growth over the medium term period. Chapter 6: Presents the resource envelope and spending priorities of the proposed MTEF budget for the financial year 2020/21 and the medium term. It further provides the proposed sector ceilings and the baseline ceilings. Chapter 7: Provides a summarized Conclusion of the 2020 County Fiscal Strategy Paper. viii CHAPTER ONE INTRODUCTION 1.1 Overview 1 The preparation of the County Fiscal Strategy Paper (CFSP) is a requirement of Section 117 of the Public Finance Management (PFM) Act, 2012 and thus plays an integral part in the budget making process. It specifies the Broad Strategic Priorities and policy goals and guides the County Government in preparing its budget for the coming financial year and over the medium term period. 2 The CFSP 2021 forms the basis for implementation of the second-generation County Integrated Development Plan (CIDP 2018-2022). This Paper has, therefore, been formulated by adopting the priority areas as outlined in the Annual Development Plan( ADP), 2020 namely: i. Investing in Quality, affordable and accessible Health Services (i.e. preventative, curative and rehabilitative health care services); ii. Enhancing Food Security, sustainability of livestock based livelihoods and commercializing of livestock and crop production; iii. Promotion of Tourism, trade and industrial development for a rapidly industrializing economy; iv. Investment in Infrastructure development and expansion i.e. Roads, Water Supply, Market development; v. Investing in modern urban infrastructure and sustainable land management for socio economic development; vi. Investing in Education, focusing on construction of more ECDE structures and equipping of youth polytechnics as well as social development of the communities through social programs; vii. Enhancing governance, transparency and accountability in the delivery of services; viii. Investment in conflict resolutions by promoting initiatives for peaceful and cohesive society where all have access to equitable share of resources; ix. Promotion of Public participation through involvement in decision making in order to enhance ownership and sustainability of development programs; and x. Investing in Environmental conservation, natural resource management 1.2 Legal Basis for County Fiscal Strategy Paper 3 The preparation of the CFSP is anchored in the Constitution of Kenya, 2010; and, PFM Act, 2012. 1.2.1 Constitution of Kenya, 2010 4 Article 220 (1) states that budgets of the National and County Governments shall contain: - a) Estimates of revenue and expenditure, differentiating between recurrent and development expenditure. 9 b) Proposals for financing any anticipated deficit for the period to which they apply; and c) Proposals regarding borrowing and other forms of public debt during the following year. Sub-article (2) National legislation shall prescribe – a) The structure of the development plans and budgets of counties. b) When the plans and budgets of the Counties shall be tabled in the county assemblies; and c) The form and manner of consultation between the National Government and County Governments in the process of preparing plans and budgets. 1.2.2 Public Finance Management (PFM) Act, 2012 5 The County Fiscal Strategy Paper is prepared in accordance with section 117 of the Public Finance Management Act, 2012 which states that: a) The County Treasury shall prepare and submit to the County Executive Committee a County Fiscal Strategy Paper (CFSP) for approval and the County Treasury shall submit the approved Fiscal Strategy Paper to the county assembly, by the 28th February of each year b) The County Treasury shall align its County Fiscal Strategy Paper with the National objectives in the Budget Policy Statement. c) In preparing the County Fiscal Strategy Paper, the County Treasury shall specify the broad strategic priorities and policy goals that will guide the County Government in preparing its budget for the coming financial year and over the Medium Term. d) The County Treasury shall include in its Fiscal Strategy Paper, the Financial Borrowing for the financial year and over the Medium Term. e) In preparing the Fiscal Strategy Paper, the County Treasury shall seek and take into account views of: i. The Commission on Revenue Allocation (CRA). ii. The Public. iii. Any interested persons or groups; and iv. Any other forum that is established by legislation. f) Not later than fourteen days after submitting the County Fiscal Strategy Paper to the County assembly, the County assembly shall consider and may adopt it with or without amendments. g) The County Treasury shall consider any recommendations made by the County Assembly in finalizing the budget proposal for the financial year concerned; and h) The County Treasury shall publish and publicize the County Fiscal Strategy Paper within seven days after it has been submitted to the County Assembly. 10 1.3 Principles of Public Finance and Fiscal Responsibility Principles 1.3.1 Principles of Public Finance 6 Article 201 of the Kenyan Constitution, 2010 sets out the following principles of public finance: a) There shall be openness and accountability, including public participation in financial matters. b) The public finance system shall promote an equitable society, in particular- i. The burden of taxation shall be shared fairly. ii. Revenue raised nationally shall be shared equitably among national and county governments; and iii. Expenditure shall promote the equitable development of the country, including by making special provision for marginalized groups and areas. c) The burdens and benefits of the use of resources and public borrowing shall be shared equitably between present and future generations. d) Public money shall be used in a prudent and responsible way; and e) Financial management shall be responsible, and fiscal reporting shall be clear. 1.3.2Fiscal Responsibility Principles 7 The Public Finance Management (PFM) Act, 2012 sets out the following fiscal responsibility principles to ensure prudence and transparency in the management of public resources: i. The County Government‟s recurrent expenditure shall not exceed the County government‟s Total Revenue. ii. Over the Medium Term, a minimum of 30 percent of the County government‟s budget shall be allocated to the Development expenditure. iii. The County Governments' expenditure on wages and benefits for its public officers shall not exceed a percentage of the County government's total revenue as prescribed by the Executive Committee Member for Finance in regulations and approved by County Assembly and in line with the PFM act. iv. Over the Medium Term, the government's borrowing shall be used only for the purpose of financing development expenditure and not for recurrent expenditure. v. The County debt shall be maintained at sustainable level as approved by County Assembly. vi. The fiscal risks shall be maintained prudently; and vii. 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. 11 1.4 Budgeting Approach 8 The formulation of the CFSP 2021 takes into consideration the classification of devolved functions as a basis for revenue sharing as illustrated in Table 1 below. Table 1: Departmental Programmes Code Department Program 3511000000 County Assembly Services 0721003510 P21 County Assembly infrastructure, policy and service support 0722003510 P22 Legislative and oversight 0724003510 P24 Administration and support services 3512000000 County Executive 0713003510 P13 County Governance and Coordination Affairs 0716003510 P16 County Devolved Administration Affairs 0701003510 P1 County Governance and Coordination Affairs Deputy governor 0708003510 P8 Governors Delivery Unit 0723003510 P23 County Public Service 3513000000 Finance, Economic Planning, 0709003510 P9 Administration and support services Cohesion Special Programme 0710003510 P10 Public financial management 0711003510 P11 Economic Planning and Coordination Services 0712003510 P12 Cohesion and Peace Building 0725003510 P25 Special programmes 0726003510 P26 KDSP (Kenya Devolution Support Programme) Conditional Grant 3514000000 Lands, Urban Planning, Roads, 0107003510 P7 Housing and urban development and Infrastructure, Housing, and Public public works Works 0109003510 P9 Land Survey and land use planning 0204003510 P4 Road improvement, accessibility, Logistic and connectivity 3515000000 Agriculture, Livestock and Fisheries 0101003510 P1 Livestock Resource Management and Development Development 0102003510 P2 Fisheries Development and Management 0103003510 P3 Administrative, planning, and support services P4 Crop productivity Development and Management 0105003510 P5 Veterinary Services 3518000000 Education, Vocational Training, 0501003510 P1 General Administration, Planning and Youth Sports Culture ,Gender and Support Services. Social Services 0502003510 P2 Early Childhood Development 0503003510 P3 Technical and Vocational Training 0504003510 P4 Sports development and Youth Empowerment 0505003510 P5 Culture and Social Services 3519000000 Tourism, Wildlife Trade 0719003510 P19 Public Service Management and Cooperatives Enterprise Transformation Development, Administration and 0301003510 P1 Trade development and promotion Public Service Management 0303003510 P3 Co-Operative Development 0304003510 P4 Tourism Development Promotion 3521000000 Water, Sanitation, Energy, 1001003510 P1 Administration, Planning and Support Environment and Natural Resource services 12 Code Department Program 1002003510 P2 Water supply and storage services 1003003510 P3 Environment and Natural resources 3522000000 Health Services 0401003510 P1 Preventive and Promotive services 0402003510 P2 Administration and planning Support services 0403003510 P3 Curative Health Services 3524000000 Municipal Administration 0206003510 P6 KUSP 0207003510 P7 Municipal Administration 1.5 CFSP Preparation Methodology 9 Article 118 (1) (b) and 196 (b) of the Constitution of Kenya, 2010 provides that the public should be involved in the budget making process through public participation. In this respect, the County organized public hearings across the ten wards from which the County residents gave their inputs and contributions on their preferred priority areas for development. 13 CHAPTER TWO RECENT ECONOMIC AND FISCAL DEVELOPMENT 2.1 Global and Regional Economic and Fiscal Overview 10 The outbreak and spread of the Covid-19 Pandemic and the ensuing containment measures have devastated global economies. As a result, the global economy is projected to contract by 4.4 percent in 2020 from a growth of 2.8 percent in 2019. This economic outlook is worse than the growth reported during the 2008 - 2009 global financial crisis 11 Advanced economies are projected to contract by 5.8 percent in 2020 from a growth of 1.7 percent in 2019. Significant contraction of the economy is projected in the United States (-4.3 percent), Japan (-5.3 percent) and the United Kingdom (-9.8 percent). 12 Growth in the Euro area is expected to contract by 8.3 percent in 2020 from a growth of 1.3 percent in 2019 13 The emerging markets and developing economies are also projected to contract by 3.3 percent in 2020 from a growth of 3.7 percent in 2019. All major economies are projected to contact in 2020 except China which is projected to grow by 1.9 percent, a slowdown from a growth of 6.1 percent in 2019. 14 Sub-Saharan African region has not been spared the negative impact of the pandemic with the region projected to contract by 3.0 percent in 2020 from a growth of 3.2 percent in 2019. The largest impact of the crisis on growth has been for tourism- dependent economies, while commodity-exporting countries have also been hit hard. Growth in more diversified economies will slow significantly, but in many cases will still be positive in 2020. 15 Growth in the East African Community (EAC) region is estimated to slow down to 1.0 percent in 2020 compared to a growth of 6.2 percent in 2019. This growth will be supported by positive growths in Kenya, Tanzania and Rwanda. Economic activities in Burundi and Uganda are expected to contract in 2020. 2.2 National Recent Economic and Fiscal Development 2.2.1 National Economic Overview 16 Prior to the outbreak of Covid-19 pandemic, Kenya‟s economy was strong and resilient despite the challenging global environment. The broad-based economic growth for 2018 and 2019 averaged 5.9 percent outperforming the 5.5 percent for the previous 5 years (2013 to 2017) and the average growth rate of 4.7 percent in the period 2008 to 2012 17 In 2020, the Kenyan economy was adversely affected by the outbreak of Covid-19 Pandemic and the swift containment measures, which have not only disrupted the normal lives and livelihoods, but also to a greater extent businesses and economic 14 activities. As a result, our economy is estimated to slow down to around 0.6 percent in 2020 from a growth of 5.4 percent in 2019.The economy is projected to recover and grow by about 6.4 percent in 2021 and above 6.2 percent over the medium term. 18 The foreign exchange market has largely remained stable but was partly affected by a significant strengthening of the US Dollar in the global markets and uncertainty with regard to the Covid-19 pandemic. In this regard, the Kenya Shilling to the dollar exchanged at Ksh 110.6 in December 2020 compared to Ksh 101.5 in December 2019. Like most Sub-Saharan Africa currencies, the Kenya Shilling has remained relatively stable weakening by only 9.0 percent against the US Dollar. This stability in the Kenya Shilling was supported by increased remittances and adequate foreign exchange reserves. 19 Growth in broad money supply, M3, improved to 14.2 percent in the year to November 2020 compared to a growth of 5.9 percent in the year to November 2019 The improved growth in M3 was attributed to an increase in the Net Domestic Assets particularly improvement in net credit flows to the government and the private sector. This is largely due to an improvement in net credit flows to both the Government and the private sector. 20 Net services declined by 72.8 percent in the year to September 2020 mainly due to a significant decline in transport services and travel receipts as a result of the uncertainty associated with the Covid-19 pandemic and the resultant containment measures. Cargo through put performed well during the review period and provided a buffer in terms of transport receipts 21 The performance of most sectors of the economy declined in the second quarter of 2020, largely because of measures aimed at containing the spread of the Covid-19. However, the economy was supported by improved performance of Agriculture, Forestry and Fishing activities), Health Services and Mining and Quarrying activities. The agriculture sector recorded an improved growth of 6.4 percent in the second quarter of 2020 compared to a growth of 2.9 percent in the corresponding quarter of 2019. The sector‟s performance was supported by a notable increase in tea production, cane deliveries, milk intake and fruit exports. The sector‟s contribution to GDP growth was at 1.5 percentage points in the second quarter of 2020 compared to 0.7 percentage points over the same period in 2019. 22 Year-on-year overall inflation rate remained low, stable and within the Government target range of 5+/-2.5 percent since end 2017 demonstrating prudent monetary policies. The inflation rate was at 5.6 percent in December 2020 from 5.8 percent in December 2019. This lower inflation was supported by a reduction in food prices. Core inflation (Non-Food-Non-Fuel) contribution to inflation remain low at 0.8 percent in December 2020 compared to 0.4 percent in December 2019 reflecting muted demand pressures in the economy on account of prudent monetary policies. However, the contribution of fuel inflation to overall year-on-year inflation rose to 15 1.7 percent in December 2020 from 0.6 percent in December 2019 on account of increasing international fuel prices 23 Short-term interest rates remained fairly low and stable. The Central Bank Rate was retained at 7.00 percent on November 26, 2020 same as in April 2020 to signal lower lending rates in order to support credit access by borrowers especially the Small and Medium Enterprises, distressed by COVID-19 pandemic. The interbank rate declined to 5.1 percent in December 2020 from 6.0 percent in December 2019 in line with the easing of the monetary policy and adequate liquidity in the money market 2.2.2 National Fiscal Overview 24 Budget execution in the first half for the FY 2020/21 was hampered by revenue shortfalls and rising expenditure pressures. The shortfalls in revenues reflect the weak business environment and the impact of the tax reliefs implemented in April 2020 to support people and businesses from the adverse effect of Covid-19 Pandemic. Revenues are expected to progressively improve in the second half of the fiscal year following the gradual reopening of the economy and the increased demand for imports as well as improved domestic sales. Revenue performance is also expected to get a boost from reversal of tax reliefs, introduced in April 2020, effective January 2021. 25 Revenue collection to December 2020 declined by 14.0 percent compared to a growth of 17.1 percent in December 2019. This decline is attributed to the difficult operating environment due to the Covid-19 pandemic which has been adversely affecting revenue performance from March 2020. The cumulative total revenue amounted to Ksh 800.1 billion against a target of Ksh 907.7 billion. The shortfall was due to a decline in growth of all broad categories of ordinary revenues except import duty which grew by 0.5 percent during the review period 26 Total expenditure and net lending for the period ending December 2020 amounted to Ksh 1,191.0 billion which was below the projected amount by Ksh 67.9 billion. Recurrent spending amounted to Ksh 798.7 billion while development expenditures amounted to Ksh 262.8 billion. Transfer to County Governments amounted to Ksh. 129.5 billion of which the equitable share amounted to Ksh. 115.0 billion. Recurrent spending was below the projected target by Ksh 44.3 billion mainly on account of lower than targeted expenditure on operation and maintenance, attributed to scaled down operations of the National Government in first quarter of the FY 2020/21 due to Covid-19 Pandemic and lower than projected payments in compensation of employees, pension and foreign interest. Development expenditure was also below target by Ksh 6.8 billion on account of below target disbursement of foreign financed payments by Ksh 48.8 billion. Disbursement to domestically financed programmes was above target by Ksh 44.7 billion. 27 Fiscal operations of the Government by end of December 2020 resulted in an overall deficit, including grants of Ksh 362.6 billion against a projected deficit of Ksh 371.8 16 billion. This deficit was financed through net domestic borrowing of Ksh 345.4 billion and net foreign financing of Ksh 17.2 billion 2.2 County Economic and Fiscal Overview 2.3 County Recent Economic and Fiscal Development 2.3.1 County Economic Overview 28 Livestock keeping is the mainstay of Isiolo County economy. About 80 percent of the inhabitants derive their livelihood from livestock enterprise. The livestock production employs about 70 percent of the rural labor force. The County is endowed with enormous livestock resources but with multiple challenges ranging from poor governance of the rangelands largely due to the absence of an appropriate legal framework of land tenure, livestock diseases, frequent droughts and sometimes flooding, lack of an organized market for livestock and livestock products, and inappropriate and inadequate systems of social and financial service provision. The county government has completed the infrastructural part of the abattoir and once it becomes operational the livelihoods of Isiolo people will improve through improvement of livestock production markets. 29 Ongoing Infrastructural constructions in Isiolo Municipality ranging from Cabro paving of an extra 1.8km, construction Isiolo modern market, construction of Isiolo stadium , county headquarters, County Assembly Chamber and street lighting projects will create a conducive environment for both doing business and service delivery at the same time uplift the face of Isiolo municipality 30 Rural water projects such as Merti-Korbesa water project funded by county government and NDMA will also change the lives of the Korbesa people who have suffered for long time. Regular response to address areas with water shortage through water trucking systems has helped the communities to continue with their daily activities without much interruptions 31 Expansion of Isiolo County Referral Hospital to offer more specialised services that were not initially offered such as ICU has greatly impacted on the lives of people around Isiolo and its environment. Continuous regular supply of medical drugs and Operationalization of new more rural health facilities e.g Kombala and Saleti dispensaries has improved accessibility and affordability of health services to the interior parts of the county. Constructions of KMTC classrooms and hostels have increased enrolment of students. 32 The Completion of Isiolo International Airport and LAPSSET Projects are expected to stimulate County economic growth in the long run. These projects will turn Isiolo town into a major tourist destination and a regional economic hub. It will open up the northern frontier, thereby attracting both domestic and foreign investments. 17 2.3.2 County Fiscal Overview 33 The Approved Budget for the Financial Year 2020/21 amounts to KES 5,195,908,193, with KES 3,255,955,913 (63 percent) allocated for recurrent expenditure and KES 1,939,952,280 (37 percent) for development expenditure. 2.3.2.1 County Revenue Analysis 34 To be able to finance the budget for the Financial Year 2020/21, the County Government is expected to receive total revenue amounting to a total of KES. 5,195,908,193, whose breakdown is as shown in the table below Table 2: 2020/21 Approved Budgets Revenue Projection Estimates ITEM TITLE FY 2020/2021 Estimates % A GROSS COUNTY EXTERNAL REVENUE ESTIMATES 5,082,221,856 0.98 EQUITABLE SHARE 4,177,800,000 0.80 General Provisions (Equitable Share) 4,177,800,000 0.80 CONDITIONAL ALLOCATIONS FROM NATIONAL 233,336,461 0.04 GOVERNMENT Funds Received from Road Maintenance Levy Fund 124,519,106 0.02 Funds Received from Health Care Services Fund (User fee 3,472,461 0.00 foregone) Supplement for Construction of County Headquarters 100,000,000 0.02 Conditional Allocation for Development of Youth Polytechnic 5,344,894 0.00 CONDITIONAL ALLOCATIONS FROM 671,085,395 0.13 DEVELOPMENT PARTNERS Current Grants from Foreign Governments Danida 12,060,000 0.00 Kenya Devolution Support Programme (KDSP) World bank 45,000,000 0.01 World Bank Loan for Transforming Health Systems for 26,720,000 0.01 Universal Care Project Climate Smart Agricultural Project 479,143,620 0.09 Urban Support Project Development 93,968,100 0.02 Sweden Agricultural Sector Development Support Programme 14,193,675 0.00 (ASDSP) B GROSS COUNTY OWN SOURCE REVENUE 113,686,337 0.02 ESTIMATES GROSS COUNTY REVENUE ESTIMATES 5,195,908,193 100% 35 The total Approved budget revenue estimate for FY 2020/21 is KES. 5,195,908,193 that includes KES. 113,686,337 received from County Own Revenue sources, KES 4,177,800,000 from equitable share of revenue from National Government, KES. 233,336,461 from additional Conditional Allocations from the National Government (This is made up of KES 124,519,106 being Funds Received from Road Maintenance Levy Fund, KES. 3,472,461 from Funds Received from Health Care Services Fund (User fee foregone), KES. 100,000,000 from Supplement for Construction of County Headquarters and KES. 5,344,894 Conditional Allocation for Development of Youth Polytechnic) and KES 671,085,395 Conditional Allocation from development partners from loans and grants to County Government (This includes KES 12,060,000 being funds received from Current Grants from Foreign Governments Danida, KES. 45,000,000 from Kenya Devolution Support Programme (KDSP) World bank, KES. 26,720,000 being funds received form World Bank Loan for Transforming Health Systems for Universal Care Project, KES. 479,143,620 from Climate Smart Agricultural Project, KES. 93,968,100 from Urban Support Project Development and KES.14,193,675 from Sweden Agricultural Sector Development Support Programme (ASDSP). 18 36 The expected revenue estimates for financial year 2020/2021 would slightly change due to adjustment that would be made in supplementary 1 i.e. upward adjustment on equitable share due to changes on the County Allocation Revenue Act (CARA) of 2020 and down ward adjustments of County Own Source Revenue due to poor performance in the first half of Financial year 2020/2021 due to effects of COVID 19 Pandemic. st Revenue Received from exchequer as at 31 December 2020 37 In the first half of FY 2020/21, the County had receipts of KES. 1,552,532,070 comprising of KES. 1,399,563,000 from the National Government as a direct transfer to the County Revenue Fund Account, KES. 100,455,119 Conditional Allocations from Development Partners, KES. 31,129,777 Conditional Allocations from National Government and KES. 21,384,174 from local sources. There is also a balance brought forward of KES 405,964,086.90 from FY 2019/20 for the pending bills& conditional grants accruing from the same FY due to delay in disbursement from the exchequer. The tables below provides a summary of the revenues received from the National Government and balances brought forward during the first half of the financial year 2019/20. 19 Table 3: Direct Transfers from National Government REVENUE SOURCE Approved Budget Actual FY 2020/21 KES. Cumulative Receipts in KES. Revenue Budget External Revenue Estimates Equitable Share 4,177,800,000 1,399,563,000 General Provisions (Equitable Share) 4,177,800,000 1,399,563,000 Conditional Allocations From National Government 255,692,197 Conditional Allocations From National Government 233,336,461 31,129,777 Funds Received from Road Maintenance Levy Fund 124,519,106 31,129,777 Funds Received from Health Care Services Fund (User fee 3,472,461 - foregone) Supplement for Construction of County Headquarters 100,000,000 - Conditional Allocation for Development of Youth Polytechnic 5,344,894 - Conditional Allocations From Development Partners 671,085,395 100,455,119 Current Grants from Foreign Governments Danida 12,060,000 - Kenya Devolution Support Programme (KDSP) World bank 45,000,000 - World Bank Loan for Transforming Health Systems for Universal Care 26,720,000 - Project Climate Smart Agricultural Project 479,143,620 100,455,119 Urban Development Grant (UDG) Support Project 93,968,100 - Sweden Agricultural Sector Development Support Programme 14,193,675 - (ASDSP) Gross Internal Revenue Estimates 113,686,337 21,384,174 Crf B/F 2019/20 Gross County Revenue Estimates 5,195,908,193 1,552,532,070 Source: County Treasury BALANCE BROUGHT FROM FINANCIAL YEAR 2019/2020 Table 4: Balance Brought From Financial Year 2019/2020 BANK ACCOUNT BALANCE CRF 205,650,644.95 Fuel Levy Fund 140,829.05 Health Services Acc. (THS) 14,600,867.99 Health Services Acc.( Danida) 7,847,458.76 KDSP 14,900,000.00 UDG 77,111,157.55 UIG 10,418,702.00 Climate Smart 55,570,051.60 ASDSP 19,481,224.00 Livestock Support 243,151.00 Total 405,964,086.90 Source: County Treasury 2.3.2.2 County Own Source Revenue 38 Revenue collection to December 2020 to KES 21,384,174 declined from KES 95,272,479 recorded in December 2019. This decline is attributed to the difficult operating environment due to the Covid-19 pandemic which has been adversely affecting County Own Revenue performance from March 2020 in all streams. 39 In the first half of financial year 2020/21, the County collected KES. 21,384,174.10 Against a target of KES. 56,843,169 reflecting a 37% performance over the period under consideration. The largest revenue contributors shifted from Game reserve to sand cess. There is a huge decline of revenue from game reserve due to 20 the Covid 19 pandemic restrictions that affected our park hotels that nearly closed down. Revenues are expected to progressively improve in the second half of the fiscal year following the gradual reopening of the economy. 40 The table below provides a summary of the County Own Revenues received from the various streams during the first half of the financial years 2019/2020 and 2020/21 against their set targets. Table 5: County Own Revenue Collection Performance Comparison in the First Half Year of FY 2019/2020 & 2020/21 Revenue Source FY 2019/20 FY2020/2021 Targeted Actual Revenue Targeted Actual Revenue No Streams Receipts Receipts Performa Receipts Receipts Performa . (KES) (KES) nce % (KES) (KES) nce % 1 Plot application/Transfer 600,000 666,000 111% 600,000 - 0% 2 Land Rent/Rates – current 3,630,669 2,199,064 61% 3,500,000 1,234,324 35% 3 Penalties Rent/Rates 500,000 1,097,248 219% 600,000 270,492 45% 4 Land Rent/Rates – Arrears 5,000,000 4,268,571 85% 3,000,000 1,949,706 65% 5 Livestock Auction 1,750,000 1,887,116 108% 2,094,497 1,904,010 91% 6 Sand Cess 5,500,000 4,096,500 74% 5,000,000 4,221,400 84% 7 Barter/Murram 400,000 743,610 186% 1,618,776 - 0% 8 Miraa export/cess 1,250,000 1,288,950 103% 2,009,078 1,662,600 83% 9 S.B.P fees 3,750,000 933,764 25% 4,250,000 980,820 23% Promotion, 10 500,000 298,000 60% 600,000 12,000 2% Advertisement/branding 11 Liquor license 2,000,000 2,814,000 141% 1,900,000 - 0% 12 Public works/other charges 250,000 0 0% 250,000 - 0% 13 Stand Premium 100,000 35,000 35% 100,000 20,000 20% 14 Plot transfer approval 150,000 41,000 27% 300,000 - 0% 15 Lease extension 100,000 0 0% 100,000 - 0% 16 Livestock Veterinary 500,000 562,168 112% 800,000 280,165 35% 17 Weight and Measures 250,000 8,600 3% 250,000 9,600 4% Public Inspection - Public 18 750,000 193,590 26% 750,000 122,107 16% Health 19 Tractor Hire 200,000 182,750 91% 400,000 104,250 26% 20 Agriculture Training Centre 200,000 40,000 20% 150,000 40,890 27% 21 Game entrance/Royalties 57,500,000 66,974,988 116% 21,416,618 3,781,689 18% Market Stalks/Fee and 22 100,000 111,200 111% 600,000 715,900 119% Produce 23 Street parking fees 2,000,000 2,567,950 128% 2,740,000 1,508,655 55% 24 Hospital cost sharing 1,500,000 2,683,010 179% 2,450,000 1,893,926 77% 25 Slaughter fees 950,000 894,900 94% 1,000,000 636,120 64% 26 Building plan approval 500,000 6,500 1% 614,201 35,520 6% Receipt from Admin 27 600,000 589,000 98% 0% Fees/Application 28 Planning Fees 1,000,000 0 0% 0% 29 Hides and Skin 100,000 0 0% 0% 30 Clearance and Consent 100,000 89,000 89% 0% Total 91,730,669 95,272,479 104% 57,093,170 21,384,174 37% Source: County Treasury, 2021 21 Performance Analysis of County own generated revenue in the first half of FY 2013/14 to first half of FY 2020/21(in KES. Millions) Table 6: Half year OSR performance FY 2013/13 to FY 2020/21 Revenue 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Source Target 180 180 180 125 91 75 78 56 Actual 73 79 60 58 54 87 96 21 Half Year Local Revenue Performance from FY 2013/14 to 2020/21 200 180 160 140 120 100 80 60 40 20 0 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Target Actual Figure 1: Half Year Local Revenue Performance from FY 2013/14 to FY 2020/21 41 The table below shows a detailed half year performance of local revenue per revenue stream for the FY 2019/20 and 2020/21. Table 7: Comparison of Local Revenue Collection Performance for the First half of FY 2018/19 and 2020/21 Revenue Source Actual Receipts in the first Actual Receipts in Deviation half of 2019/20 (Ksh.) the first half of 2020/21 (Ksh.) SBP & Promotions Fee 1,231,764 980,820 -250,944 Agri. Produce Cess/Barter/Market Entrance/Tractor 743,610 715,900 -27,710 Livestock Cess 1,887,116 1,904,010 16,894 Sand Cess 4,096,500 4,221,400 124,900 Miraa Cess 1,288,950 1,662,600 373,650 Miscellaneous charges 0 0 Clearance & Consent 89,000 0 -89,000 Parking Fee 2,567,950 1,508,655 -1,059,295 Slaughter Fee 894,900 636,120 -258,780 Hides & Skin 0 Land Rates & Rents 7,564,883 3,454,522 -4,110,361 Plot transfer/ Subdivision/ Registration/ 707,000 0 -707,000 Approval/Application/public works Building Approval 6,500 35,520 29,020 22 Revenue Source Actual Receipts in the first Actual Receipts in Deviation half of 2019/20 (Ksh.) the first half of 2020/21 (Ksh.) Stand Premium 35,000 20,000 -15,000 Market stalls/Kiosks 111,200 0 -111,200 Other Sectors 0 Hospital 2,683,010 1,893,926 -789,084 Liquor Application 2,814,000 0 -2,814,000 Fisheries 0 0 0 Public Health 193,590 122,107 -71,483 Livestock/Veterinary/Meat Inspection 562,168 280,165 -282,003 Rent/Hire/Tractor Hire 182,750 104,250 -78,500 Movement permit 0 0 0 Weight and Measures 8,600 9,600 1,000 Agriculture Training Centre 40,000 40,890 890 Receipt from Admin Fees/Application 589,000 12,000 -577,000 Game collection 66,974,988 3,781,689 -63,193,299 Grand Total 95,272,479 21,384,174 -73,888,305 Source: County Treasury, 2021 42 Going forward the County Government needs to implement initiatives to boost revenue performance such as Compliance level reviews with a focus on enforcement risk framework to support targeted enforcement and Strengthening revenue Audit function in collection and administration of decentralized taxes, fees and charges 2.3.3County Expenditure Analysis 43 Total County expenditure for the period ended December 2020 amounted to KES. 1,431,854,683 during the first half of financial year 2020/21 which was below the projected amount of KES. 2,597,954,097 which represent absorption rate of 55.1% percent of the total budget. 44 A total of KES 1, 178,605,835 was spent on recurrent activities in the first half of financial year 2020/21. The recurrent expenditure for the period under review represented 72.4 percent of the approved annual recurrent budget. Development expenditure recorded an absorption rate of 26.1 percent (KES. 253,248,848). 45 The under absorption was mainly due to delay in disbursement from the exchequer due to overall revenue shortfall at the national level as a result of Covid 19 pandemic. 2.3.3.1 Recurrent Expenditure Analysis 46 The total recurrent expenditure during the first half of the FY 2020/21 was KES. 1,178,605,835 against a total recurrent budget of KES. 1,627,977,957representing absorption rate of 72.4 percent. The table below provides the analysis of 2020/2021 half year recurrent expenditure and budget absorption rate by sectors. 23 Table 8: Departmental Recurrent Expenditure Analysis for the first half of the FY 2020/21 Approved Recurrent Half Year Actual Absorption Sector Budget for half Year FY Recurrent Expenditure for Rate (%) 2019/20 FY 2020/21 County Assembly Services 210,677,579 182,755,909 86.7% County Executive 229,577,203 154,877,582 67.5% Office of Governor 174,106,076 120,580,910 69.3% CPSB 30,506,800 21,435,400 70.3% County Secretary 10,969,904 4,727,672 43.1% Delivery Unit 13,994,424 8,133,600 58.1% Finance, Economic planning and ICT 176,061,369 94,458,304 53.7% Finance 101,028,901 52,236,214 51.7% Special Programme 22,910,986 7,292,400 31.8% Economic Planning 26,940,883 18,545,155 68.8% Cohesion 25,180,600 16,384,535 65.1% Land, Roads, Urban planning, Housing and Public works 32,410,710 18,902,367 58.3% Lands 13,772,600 7,252,530 52.7% Roads 7,700,000 4,712,302 61.2% Public Works Urban Dev. 10,938,110 6,937,535 63.4% Agriculture, Livestock, Veterinary and Fisheries 84,942,302 64,012,314 75.4% Agriculture 26,820,569 18,215,527 67.9% Livestock 58,121,733 45,796,787 78.8% Education, Vocational Training, Youth, Sports and Gender 128,746,225 70,875,060 55.1% Education & Vocational Training 101,712,084 57,582,800 56.6% Youth & Sports 14,731,453 8,689,000 59.0% Culture & Social Services 12,302,689 4,603,260 37.4% Tourism, Trade and Enterprise Development 150,792,036 75,092,579 49.8% Tourism 67,090,665 46,988,984 70.0% Trade 9,882,277 6,957,200 70.4% PSM 73,819,094 21,146,395 28.6% Water, Energy, Environment and Natural Resources 40,242,214 22,271,418 55.3% Water 29,717,700 15,908,618 53.5% Environment 10,524,514 6,362,800 60.5% Health services 548,966,222 477,927,658 87.1% Municipal Administration 25,562,098 17,432,644 68.2% Total 1,627,977,957 1,178,605,835 72.4% Source: County Treasury, 2021 2.3.3.2 Development Expenditure Analysis 47 The total development expenditure during the first half of the FY 2020/21) was KES.253, 248,848 against half year total Approved budget of KES 969,976,140 representing an absorption rate of 26.1 percent. The table below provides the analysis of development expenditure during the first half of the financial year 2020/21. 24 Table 9: Departmental Development Expenditure Analysis for the first half of the FY 2020/21 Half Year Actual Development Budget Recurrent Sector for half Year FY Expenditure for FY Absorption Rate 2019/20 2020/21 (%) County Assembly Services 40,000,000 - 0.0% County Executive - - 0.0% Office of Governor - - 0.0% CPSB - - 0.0% County Secretary - - 0.0% Delivery Unit - - 0.0% Deputy Governor - - 0.0% Finance, Economic planning and ICT 210,524,568 102,322,300 48.6% Finance 158,565,486 102,322,300 64.5% Special Programme 51,959,082 0 0.0% Economic Planning 0.0% Cohesion 0.0% Land, Roads, Urban planning, Housing and Public works 96,456,519 - 0.0% Lands 14,750,000 - 0.0% Roads 79,956,519 - 0.0% Public Works Urban Dev. 1,750,000 - 0.0% Agriculture, Livestock, Veterinary and Fisheries 264,289,533 32,584,194 12.3% Agriculture 246,668,648 28,844,194 11.7% Livestock 17,620,885 3,740,000 21.2% Education, Vocational Training, Youth, Sports and Gender 107,173,716 36,990,330 34.5% Education & Vocational Training 16,672,447 - 0.0% Youth & Sports 80,000,000 36,990,330 46.2% Culture & Social Services 10,501,269 - 0.0% Tourism, Trade and Enterprise Development 20,700,000 - 0.0% Tourism 9,700,000 - 0.0% Trade 9,000,000 - 0.0% PSM 2,000,000 - 0.0% Water, Energy, Environment and Natural Resources 61,950,000 4,895,000 7.9% Water 43,950,000 4,895,000 11.1% Environment 18,000,000 0 0.0% Health services 54,390,000 20,491,683 37.7% Municipal Administration 114,491,805 55,965,341 48.9% Total 969,976,140 253,248,848 26.1% Source: County Treasury, 2020 25 CHAPTER THREE FORWARD ECONOMIC AND FISCAL DEVELOPMENTS 3.1 Global Economic Outlook and Fiscal Development 48 World economic growth is projected to rebound to 5.2 percent in 2021 from a contraction of 4.4 percent in 2020 mainly supported by a gradual strengthening in consumption and investment is also expected to firm up. Growth in the advanced economies is projected to improve to 3.9 percent in 2021 compared to a contraction of 5.8 percent in 2020 supported by improved growths in the major economies particularly the United States and the United Kingdom. Growth in the Euro area is also projected to improve to 5.2 percent from a contraction of 8.3 percent in 2020. 49 Growth in the emerging markets and developing economies are also projected to improve to 6.0 percent in 2021 from a contraction of 3.3 percent in 2020. This recovery is well echoed in the forecasted growths of Emerging and Developing Asia and Europe, Latin America and the Caribbean, and Sub-Saharan Africa. 50 Consistent with forecast in the other regions, economic growth in the Sub-Saharan Africa region is expected to recover to 3.1 percent in 2021 as most of the economies in the region recover from the adverse effects of the Covid-19 Pandemic. 3.2 National Economic and Fiscal overview 51 In the domestic scene, the growth outlook for 2020 has been revised down from the initial projection of 2.6. In this respect, economic growth for 2020 is now estimated at 0.6 percent in 2020 and recover to 6.4 percent in 2021 due to in part, the lower base effect in 2020. Economic growth is projected to slow down to 5.5 percent in 2022 (due to in part the uncertainty associated with the 2022 general elections) and recover to 6.1 percent by 2024. In terms of fiscal years, economic growth is projected to grow by 3.5 percent in FY 2020/21 and further to 6.2 percent over the medium term. 52 This growth outlook for FY 2020/21 and the medium term, will be supported by the stable macroeconomic environment, ongoing investments in strategic priorities of the Government under the “Big Four” Agenda, the ongoing public investments in infrastructure projects, the Economic Stimulus Program being implemented and the planned Post Covid-19 Economic Recovery Strategy, turn around in trade as economies recover from Covid-19 Pandemic and expected favorable weather that will support agricultural output. These factors will push up consumer demand and increase both public and private sector investment reinforcing the projected growth. The economic growth projections over the medium term are aligned to those of the Third Medium Term Plan (2018-2022) which is implementing Vision 2030. 3.3 County Economic and Fiscal Overview 53 Broad strategic priorities and policy are specified in the CFSP that will guide the County Government in the preparation of the budget for FY 2021/22 and over the medium term. The County Government will ensure that it continues to work with 26 the National Government, development partners and other counties in addressing development challenges facing residents of Isiolo County. 54 The County government will implement policies set out in CIDP II over the medium term with a focus on priority programmes identified in public participation forums with a view of securing socio- economic development. The County will focus on resource mobilization through grants and development partners to support development agenda across all sectors over the medium term. Revenue collection will be heightened by ensuring there are sufficient legislations to guide revenue collection, ensure there are no loopholes, improved enforcement and compliance and full integration of revenue collection. 3.3.1 County Fiscal Overview 3.3.1.1 County Revenue Analysis 55 The County Government is expected to receive total revenue of KES. 5,382,342,611 in the financial year 2021/2022. Whose breakdowns are as follows: 1 National Equitable share KES. 4,710,388,265 2 Grants for Supplement for construction of County Headquarters worth KES. 68,000,000. 3 The County is further expected to receive external grants and loans worth KES. 486,857,419 from development partners. 4 Local Revenue is however projected at KES 117,096,927 5 Medical equipment worth KES 153,297,872 which is deducted at source therefore not included as revenue to the County. 27 CHAPTER FOUR STRATEGIC PRIORITIES AND INTERVENTIONS 4.1 Overview 56 Over the Medium-Term the County government is targeting supporting growth in the following priority areas. 4.2 Health services 57 Health sector‟s overall goal is to attain the highest possible standards of health care to all in accordance with the Constitution and the Kenya Vision 2030. The Constitution underscores the “right to health” while the Vision 2030, the Medium- Term Plan III as well as the “Big Four” (4) agenda for the Government recognizes provision of equitable, accessible and affordable health care of the highest attainable standards to all Kenyans . 58 The National and County Governments have their specific functions that are complementary towards achievement of quality, efficient and affordable Universal Health Coverage (UHC) for all Kenyans, being one of the pillars of the “Big Four” Agenda. 59 The County has a poorly distributed health facility network with a number in rural areas still affected by shortage of technical staff, inadequate supply of medical equipment and commodities hampering access to quality health care. The sector prioritizes efforts to enhance the community health strategy to improve access to primary health care at the lowest level in the community. Enhance Efforts will be geared towards promotion of Primary Health Care Services such as implementation of the 2019-2023 County Nutrition Action Plan (CNAP), Rehabilitation & equipping of the existing health facilities, deploying of staff from headquarters to rural health facilities, Strengthening health management information system and collaboration with private partners through adopting the multi sectoral approach towards addressing County Health challenges. 60 The budget for FY 2021/22 will also focus on reversing the rising burden of communicable and non-communicable conditions by minimizing the health risks through priorities Programme that includes: i. Preventive and promotive services; ii. Curative Services; and iii. General Administration and Support services 4.3 Livestock Management and Crop Productivity 61 Livestock production is the backbone of the County‟s economy. About 80 percent of the inhabitants derive their livelihoods from livestock related enterprises. The livestock sub sector employs about 70 percent of the rural labour force. The County is also endowed with enormous livestock resources. However the County has huge unexploited potential for livestock production. The major challenges facing livestock production include: Low agricultural and livestock productivity; post-harvest loses; value addition; access to markets and financial intermediation and inclusion; Low agricultural productivity arises from to inadequate extension services; high reliance 28 of rain fed agriculture; poor quality farm inputs such as seeds and fertilizers; crop and livestock pest diseases and poor farming methods and wildlife destruction; Poor market linkages and inadequate market information that has led to exploitation of farmers by intermediaries hence fetching low prices to farmers produce. 62 The County Government intends to invest in the following as a means of mitigating the challenges above: Scale-up of appropriate climate resilient technologies and best practices [Soil & water conservation; Rainwater harvesting systems for dry land agriculture, Scale-up adoption of value chain-linked farm pond systems, etc, Scale- up integration of Nutrition-sensitive production, Promote market-linked micro- Irrigation agriculture, Technologies & Best practices on Post-harvest loss management, Agribusiness opportunities for Youth, Women & PLWD, Support livestock value chains including poultry production, Bee keeping, Pasture production (Fodder banks & seed Bulking), Scale-up of village group saving schemes and Micro-finance, Entrepreneurship / Agribusiness Training, Financial literacy skills, etc., Promote agribusiness and Value addition along selected value chains (e.g. camel milk ) – youth & women and the Support for innovations for livelihood diversification through but not limited to Income Generation Activities (IGAs). 63 The above interventions are aimed at strengthening community resilience and sustainably ensure that different households and communities meet their production related infrastructural needs. 64 The proposed interventions will also provide strengthened capacity to all value chain actors‟ i.e. farmers and traders in the various value chain enterprises. The Programme design of the various interventions will therefore take into account issues of building capacity among households with special interest vested on youth and women to facilitate their transitioning into viable commercial entities. All ensuing programmes from the above interventions will strengthen the capacity of Project Management Committees (PMCs). 4.4 Water Resource Management 65 The County government recognizes that a huge percentage of the inhabitants lack access to clean and safe water within five kilometres reach. 73 percent of the rural areas rely on water sources that are unsafe and are about 25 kilometres of reach during the dry season. Further, the livestock walking distance without stress is estimated at 10 kilometres yet 74 percent of pastoralist walk over 25 kilometres to the nearest water sources during the dry season. 66 The main challenges experienced in the sector include; i. Delay in procurement due to challenges of the e-procurement system. ii. Inadequate technical personnel for design and supervision of projects iii. Inadequate financing iv. Frequent breakdowns of existing and dilapidated water supplies. 29 v. Inadequate community capacity to run and manage the completed water projects vi. Frequent droughts that constrain the allocated resources due to emergencies that require emergency interventions such as water trucking and borehole breakdown repairs vii. Unpredictable rainfall and shortage of water during rainy seasons viii. Upstream abstractions of water from the rivers ix. Poor quality of water, not suitable for human consumption x. Inadequate sewerage systems that lead to pollution of water 67 In quest of the theme of this year‟s budget, the County will focus on continued investment in both surface and ground water sources with an aim of making water safe, adequate, reliable, and affordable. The County government will focus on: i. Increasing funding for drilling and equipping of boreholes in rural areas; ii. Increasing funding towards rehabilitation of the rural and urban water supply; iii. Increasing funding for water conservation structures such as dams, water pans and sand dams; iv. Increasing funding towards the protection of water catchment areas; v. Increasing funding towards appropriate water treatment technologies in rural areas; and vi. Increasing funding towards strengthening institutional capacity in the water sector. vii. Employment of more technical staff viii. Investing in wind and solar energy to improve water supply 4.5 Early Childhood Development and Vocational Development 68 The devolved education function is ECDE and village polytechnics. The public raised concerns about the quality of technical education in our Technical Training polytechnics. Some of the challenges faced by these institutions are: low enrolment; inadequate instructors; inadequate equipment and learning tools; inadequate infrastructures as well as community apathy towards technical courses offered at the village polytechnics. The County Government will continue investing in the upgrading and restructuring of the village polytechnics to provide market competitive graduates. The communities raised issues on the quality of ECDE education and proposed interventions such as staffing, construction of more ECDE infrastructure and Scaling up of the school feeding programme to enhance retention. The County Government will also continue to support needy students through bursaries. 4.6 Youth empowerment, Sports and Talent Development 69 The youth aged between 18 – 35 years constitute a large proportion of the County population. The challenges facing Isiolo youth includes: High Unemployment; limited access to economic opportunities and limited mentorship. Additionally, the youths are affected by high incidences of drug and substance abuse as well as increased engagement in criminal activities. The County Government has prioritized youth empowerment programme, which will focus on. 30 i. Enhancing technical training with market driven courses. This will include scaling up support of the Isiolo Youth Innovation Centre to Equip youths with necessary trainings for small business start ups. ii. Speed up of rolling out of the youth revolving loans/ grants iii. Designing of Drugs and substance awareness and rehabilitation programmes through the youth department and collaboration with Civil Society Organization. iv. Mentorship programme targeting youths in and out of school on life issues as well as career wise and Mainstreaming youth empowerment across the multispectral intervention 70 In sports and talent development, the public identified limited participation in sporting activities due to poor and inadequate sporting infrastructures & activities. The public prioritized sporting funding at the community level to fully engage the idle youths in productive activities, develop talent and ultimately earn livelihood from sports. The county government will invest in completion of Isiolo stadium to nurture talents; performing County/Ward league sporting activities across the county, and rehabilitation of the sports grounds. 4.7 Tourism Development and Wildlife Conflict Management 71 The tourism sector is one of the worst hit sectors by the Covid-19 Pandemic and the ensuing containment measures. The massive cancellation of hotel bookings prompted by lockdowns and travel bans imposed in an effort to curb the spread of the virus, occasioned massive job and income losses by many Kenyans directly and indirectly employed in the tourism sector. 72 Going forward, the sector is expected to recover gradually following the ease of travel restrictions, opening of international travel, implementation of protocol for management of restaurants and eateries, execution of Magical Kenya Tourism and Travel health and safety protocols and subsequent „Safe Travels‟ Stamp endorsements and Safer Tourism Seal. 73 To stimulate recovery of the County Tourism sector, the County Government needs to scale up efforts to promote aggressive post Covid-19 tourism marketing and providing necessary infrastructural support such as: game reserve roads improvement; rehabilitation of game reserve staff houses; provision of rangers‟ communication tools and equipment; recruitment and training of rangers. These will continue to provide an enabling environment for the sector to thrive in addition to marketing Isiolo game reserves and hotels as a preferred tourism destination. 74 Once all these are implemented The County Own Revenue from the tourism sector will gradually grow over the medium term period and then be used in funding other County Development Programmes / Projects. 75 Some sections of the County have been experiencing increased human wildlife conflict due to the increased competition for limited resources. This has led to loss of 31 livelihoods for farmers and households and in some extreme cases loss of lives from being mauled by wild animals. The County Government will collaborate with all agencies and jointly work with the communities to empower them to be part of the solution and not merely victims. 4.8 Lands, Urban Planning and Development, Roads & Infrastructure& public works 76 The land, urban planning and development are critical in enhancing the delivery of basic services to the population. The challenges posed by poorly organized patterns of settlement in the urban and rural areas are making service delivery costly. 77 Further, the public identified emerging challenging in the sector that includes poor urban planning, weak implementation of urban plans, inadequate supportive urban infrastructure, poor solid and liquid waste management systems, inadequate time consuming land adjudication services and inadequate survey, mapping and land titles among farmers and land owners in urban areas. 78 To address the challenges the government intends to formulate favorable physical planning, housing and land resource land policies for efficient realization of orderly land use and urban development. This includes improving urban planning and infrastructure development, improving land information management (digitization of land registry) and the increasing households with secure land tenure system through the following: 79 Enhancing Land survey, planning and titling: This will target urban land ownership, mapping and issuance of title deeds throughout the county. Land being a key factor of production, titling will provide an impetus to land development. The County will also target to improve slow land succession processes through collaboration with relevant national agencies to unlock land adjudication within the County. 80 The roads, Infrastructure and public works play a significant role as a driver and an enabler in the implementation of the Governor‟s Manifesto and the ever increasing urbanization especially Isiolo town that demands for new infrastructures. The Sector aims at providing efficient, affordable and reliable infrastructure which is critical for Socio-Economic Transformation underscored in the 2018-2022 CIDP. All these will be achieved through urban and rural road improvements, lighting, drainage maintenance and developments of solid and liquid waste management etc. 4.9 County Administration 81 The Sector is a fundamental pillar of the County Economy. It provides overall county leadership, oversight and policy direction; prudent public finance management for transparency and accountability; coordinates county and sectoral development planning; management and coordination of County Government activities; and ensures effective and efficient Public Service. 32 82 The sector will create an enabling environment for business, mobilization of resources for investments and development, and promote equitable County Socio- Economic Development. 4.10 County Assembly 83 The County Assembly will concentrate on development of county assembly chamber. 4.11 Public Participation/ Sector Hearings and Involvement of Stakeholders 84 The law requires that the input of the public be taken into account before the Budget proposals are firmed up. In this regard, Public Hearings for the CFSP 2021 were held in February 2021. Annex 1 provides a summary of issues raised during the Public Hearings. 33 CHAPTER FIVE FISCAL POLICY AND BUDGET FRAMEWORK 4.5 Overview of County Fiscal Policy 85 The objective of the fiscal policy is to support Economic Growth and ensure the debt position remains sustainable while at the same time supporting the County system for effective delivery of public goods and services in a sustainable manner. 86 The County Fiscal policy aims at shifting more public resources from recurrent to development expenditure to promote sustainable and inclusive growth in the long run. Specifically, over the medium term, at least 30 percent of the budget shall be allocated to development expenditure. 87 The fiscal policy will reinforce County Government‟s commitment to responsible financial management practices as outlined in the Public Finance Management Act 2012 while providing platform for the implementation of the CIDP 2018-2022 and all other policy documents within a context of sustainable public financing. 88 Much emphasis will be put on efficiency and improving the productivity of expenditure while at the same time ensuring that adequate resources are available for operations, maintenance, and development. Expenditure will promote equitable development as well as making provisions for any marginalized groups in the County. 89 The County government remains steadfast in implementing sound fiscal policies to create the necessary conditions for enhanced economic prosperity. The policies focus on critical development programmes in Health Services, livestock management and crop productivity, water resource management, ECDE and vocational development, roads and infrastructural development and tourism and cooperative development. In addition, the County is putting up strategies to improve revenue collection as well as consider external resource mobilization to finance development programmes as outlined in CIDP 2018-2022. 90 The County‟s fiscal policy for the FY 2021/22 budget and over the medium term aims at: i. Shifting more public resources from recurrent to Development Expenditure to promote sustainable and inclusive growth in the long run. At least thirty percent of the total County revenue shall be used in the implementation of development projects. More resources will be directed towards addressing the COVID pandemic activities in the County. ii. With the current COVID pandemic situation in the Country, the County will put measures in place to expand its revenue base over the medium term with a view of ensuring improved Own Source Revenue collection by improving efficiency in terms of cost savings in recurrent expenditure and ensuring priority is given to the development projects; 34 iii. Ensuring a balanced budget is maintained over the medium term period. In case of any forthcoming deficit, the County government will take prudent measures to reduce appropriations or increase revenues with minimal effects on public service delivery; iv. Expanding investment inflows by encouraging private sector investments. The County will continue venturing in public private partnerships with potential local and foreign investors and other development partners to assist in County development; and v. Productivity reforms in the public sector to improve value for money in service delivery. 5.2 County Fiscal Framework 91 Medium-Term Fiscal Framework aims at stimulating sustainable socio-economic growth and development while achieving a balanced fiscal policy. The main objective is to support speedy investment and effective delivery of public goods and services in a sustainable manner. The overall budget deficit is expected to remain at zero in the short term. In the long term, however, efforts will be made to maintain the budget deficit at less than a figure approved by the County assembly of total expenditure to secure fiscal sustainability. 92 The fiscal policy will be achieved through the County Government‟s commitment in ensuring a strong revenue base. The measures to achieve this is already contained in the County Finance Act, 2019 and is in line with the best practices that will help improve compliance in payment, minimize delays, and strive towards the revenue potential of the County. Further, the County treasury will develop and implement initiatives that will rationalize existing revenue incentives, expand the revenue base and eliminate the possibility of revenue leakages. 93 The County will continue to rationalize expenditure towards those priority programmes identified in public consultative forums. The critical programmes to be implemented are expected to accelerate County economic activities and socio- economic development. 5.2.1 Observing Fiscal Responsibility Principles 94 The County Government knows that the fiscal position it takes today will have implications in the future. Therefore, in line with the Constitution and Section 107 of the Public Finance Management Act (PFMA) of 2012 which outlines the fiscal responsibility principles, the principle of sharing the burdens and benefits of the use of resources between the present and future generation implies that we must make prudent policy decisions. 95 The ratio of development to recurrent expenditure will be at least 30:70 over the medium term, as set out in the law. In order to address the risks associated with wage bill and other operational expenses crowding out development, the proportion will be 35 managed in a manner that it should decrease or remain constant as the total expenditure increases. To ensure that the County Government get competitive rates for goods and services from its suppliers, payments shall be made on timely basis to nurture confidence and creditworthiness. 96 The County Government is also guided by Article 201 of the Constitution of Kenya that provides public finance principles to be followed that include: openness; accountability and public participation in financial matters. In this regard the County will involve the Public in developing priority programmes/projects for implementation. The County government shall also involve the various stakeholders in determining fees and levies for services offered which are expected to be fair with the overall goal being to promote equitable development of the County. 97 The County plans to raise its revenue through efficient collection methods, widening of revenue base, and applying reasonable revenue rates. It is therefore imperative to reform and modernize the County Revenue Management systems to ensure stability of revenue effort, while at the same time continuing to restructure expenditure systems to ensure efficiency and create fiscal space required to fund priority programmes on sustainable basis. 5.2.2 Fiscal and Public Financial Management Reforms 98 Reforms in policy, planning and budgeting will focus on strengthening data collection/analysis and reviewing budget procedures to ensure budget formulation process is appropriately integrated with planning. 99 The County Government will undertake several measures in improving revenue and expenditure performance. These include modernizing revenue administration infrastructure through automation of all key revenue collection points to ensure efficient and effective service delivery. The County will continue with expenditure management reforms to improve efficiency and reduce wastage in line with the PFM Act (2012) and fully embrace the Integrated Financial Management Information System (IFMIS). 100The County will also strive to ensure full stakeholder participation, transparency and accountability, and in adherence to the PFM Act on budget process, public consultation shall be ensured on all matters of planning and budgeting. 5.3 Budget Framework for 2021/2022 101The budget framework for financial year 2021/22 targets strategic priorities outlined in the ADP for FY 2021/22 and CIDP 2018-2022. The County Government will continue to re-direct most of its expenditure from non-core recurrent items to finance development activities. 102 During the medium term, the County Government will continue to diversify its revenue sources with great emphasis on identifying new revenue streams. Additionally, the overall budget deficit and current account deficit are projected to 36 decline as the County government has taken measures to contain Own source revenue targets and regularly revise the own source revenue base in line with the presiding economic conditions and also strictly adhering to budget lines. 103 The County will continue pursuing public private partnerships/ collaborations with potential local and foreign development partners to assist in bridging the budget gaps. 5.3.1 Revenue Forecasts 104The total revenue projection estimate for the financial year 2021/22 is KES 5,509,805,971 which is approximately 5.7% percent more than the revenue estimates of financial year 2020/21 which is KES 5,195,908,193. This is due to an increase in the equitable share allocation to the County which is projected to be KES 4,710,388,265, Own source revenue target is expected to be KES 113,686,337, Conditional grants and loans from Development Partners of is projected at KES 597,286,901, KES 68,000,000 Supplement for Construction of County Headquarters and additional Kshs 20,444,468 Unspent balance for Transforming Health Systems for Universal Care Project. 5.3.2 Expenditure Forecasts 105 To fully implement the expenditure forecast by sectors for the financial year 2020/21, the expenditure forecast for priority programmes in the financial year 2021/22 stands at KES. 5,436,304,080 comprising of a recurrent expenditure forecast of KES 3,418,753,709 and development expenditure forecast of KES 2,017,550,371. Both recurrent and development expenditure forecasts over the medium term are presented in table 10 and 11 respectively. 106 The resources that the County will require to implement priority programmes in the 2020 Annual Development Plan will be partly met through the Medium-Term Expenditure Framework (MTEF) budget. The projected revenue target for the Financial Year 2021/22 is KES. 5,509,805,971 including grants against the total sector expenditure projections of KES 5,436,304,080 excluding grants 107 Given that the County will be operating within a tight budgetary framework, full realization of the strategic objectives as outlined in the County Annual Development Plan, 2021 will largely depend on the goodwill of other development partners. 5.3.2.1 Recurrent Expenditure Forecasts 108 The table below provides the recurrent expenditure forecast by sectors over the medium term (Financial Year 2020/21 to Financial Year 2023/24). Table 10: Departmental Recurrent Expenditure Forecast for FY 2020/21 to 2023/24 Department Ceilings 2020/21 Expenditure Projection Projection Forecast FY Estimates FY Estimates FY 2021/22 2022/23 2023/24 Recurrent Recurrent Recurrent Recurrent County Assembly 421,355,158 422,619,223 443,750,185 461,500,192 Governor,0ffice 348,212,151 323,520,151 339,696,158 353,284,005 37 Department Ceilings 2020/21 Expenditure Projection Projection Forecast FY Estimates FY Estimates FY 2021/22 2022/23 2023/24 CPSB 61,013,600 60,831,232 63,872,794 66,427,705 Deputy Governor 22,401,125 23,521,181 24,462,028 County Secretary 21,939,807 23,475,593 24,649,373 25,635,348 Delivery Unit 27,988,848 26,862,157 28,205,265 29,333,475 Finance And Economic Planning 202,057,801 161,628,760 169,710,198 176,498,606 Economic Planning 53,881,766 49,781,130 52,270,186 54,360,993 Special Programmes And ICT 45,821,972 42,456,000 44,578,800 46,361,952 Cohesion 50,361,199 43,412,423 45,583,044 47,406,366 Lands And Physical Planning 27,545,199 20,811,251 21,851,814 22,725,886 Roads And Infrastructure 15,400,000 16,116,000 16,921,800 17,598,672 Public Works And Housing 21,876,220 28,653,816 30,086,506 31,289,967 Agriculture 53,641,138 58,555,606 61,483,387 63,942,722 Livestock & Fisheries 116,243,466 109,560,639 115,038,671 119,640,218 Education And Vocational Training 203,424,167 245,526,330 257,802,647 268,114,753 Youth And Sports 29,462,905 23,596,534 24,776,361 25,767,415 Culture And Social Service 24,605,377 23,182,577 24,341,706 25,315,374 Tourism And Wildlife 134,181,330 132,056,210 138,659,020 144,205,381 Trade 19,764,553 19,910,524 20,906,051 21,742,293 PSM 147,638,188 161,016,352 169,067,170 175,829,856 Administration 20,111,100 Water And Sanitation 59,435,400 60,128,924 63,135,370 65,660,785 Energy, Environment And Natural Resource 21,049,028 31,803,033 33,393,185 34,728,912 Health Services 1,097,932,444 1,226,365,795 1,287,684,085 1,339,191,448 Municipal Administration 51,124,196 64,371,223 67,589,784 70,293,376 Loans And Grants 0 - 0 - 3,255,955,913 3,418,753,709 3,589,691,394 3,733,279,050 5.3.2.2 Development Expenditure Forecast 109 The table below provides the development Expenditure forecast over medium term (FY 2020/21 to Financial Year 2023/24) Table 11: Departmental Development Expenditure Forecast for FY 2020/21 to 2023/24 Department Ceilings 2020/21 Expenditure Projection Projection Forecast FY Estimates FY Estimates FY 2021/22 2022/23 2023/24 Development Development Development Development County Assembly 80,000,000 80,000,000 84,000,000 87,360,000 Governor,0ffice 0 0 - CPSB 0 0 - Deputy governor 0 0 - county secretary 0 0 - Delivery unit 0 0 - Finance and Economic Planning 317,130,972 481,520,000 505,596,000 525,819,840 Economic Planning 0 - 0 - Special Programmes and ICT 103,918,164 132,686,000 139320300 144,893,112 Cohesion 0 0 - Lands and Physical Planning 29,500,000 21,101,775 22,156,864 23,043,138 Roads and Infrastructure 159,913,038 150,008,336 157,508,753 163,809,103 Public Works and Housing 3,500,000 2,640,000 2,772,000 2,882,880 Agriculture 493,337,295 20,800,000 21,840,000 22,713,600 Livestock & Fisheries 35,241,770 30,207,911 31,718,307 32,987,039 Education and Vocational Training 33,344,894 32,601,063 34,231,116 35,600,361 Youth and Sports 160,000,000 38,800,000 40,740,000 42,369,600 38 Department Ceilings 2020/21 Expenditure Projection Projection Forecast FY Estimates FY Estimates FY 2021/22 2022/23 2023/24 Culture and Social Service 21,002,537 24,434,638 25,656,370 26,682,625 Tourism and Wildlife 19,400,000 21,620,285 22,701,299 23,609,351 Trade 18,000,000 22,645,202 23,777,462 24,728,561 PSM 4,000,000 14,586,299 15,315,614 15,928,239 Administration Water and Sanitation 87,900,000 85,091,804 89,346,394 92,920,250 Energy, Environment and Natural Resource 36,000,000 43,760,894 45,948,939 47,786,896 Health Services 108,780,000 162,157,968 170,265,866 177,076,501 Municipal Administration 228,983,610 166,030,777 174,332,316 181,305,608 Loans and Grants 486,857,419 511,200,290 531,648,302 1,939,952,280 2,017,550,371 2,118,427,890 2,203,165,005 5.4 Risk Management 110 To ensure fiscal discipline, the County government will have a balanced budget in the Financial Year 2021/22. It will ensure that the allocated resources for spending are proportionate to the revenues expected. The budget will be financed through transfer from the National Government and County Own Revenue sources such as fees and charges, rates, among others as allowed by the County Government Acts. 111 The table below gives a breakdown of the various risks, their impact and the mitigation measures to be employed. Risk Management over the Medium Term Period Risk Impact Mitigation Pending bills Crippling the County Government‟s Implementing projects in a timely manner and ability to deliver in subsequent financial adherence to budget lines years. Adverse effect of Underperformance of revenue streams County Government will develop framework COVID-19 hence revenue shortfalls for actions aimed at protecting businesses from global pandemic the severe effects of the pandemic Own Source Budget deficits leading to accrued Enhanced resource mobilization from Revenue domestic payables development partners Shortfalls Delayed Delayed implementation of county Prepare a procurement plan that is in sync with Disbursement of activities/programmes. the cash flow. Funds Planning and Lack of project ownership and Restructuring of public participation. Adequate Implementation sustainability of projects. Delayed time and consultation for each of the laws, Process Risks /Untimely approvals of County policies policies. and laws. Procurement Delayed implementation of county budget Enforcing Public Procurement and Disposal Processes Act, 2015 Designing of implementable work plans for execution. Accounting and Internal audit oversight and accounting Regular review of financial statements and Reporting Risks errors. approved selection of accounting policies. Technical Risks. Sub-standard quality of infrastructure and Strengthening of the design and BQ section. systems installation Absorptive Risks Delayed delivery of service. Monthly and quarterly implementation reporting of all county projects and programmes. 39 Risk Impact Mitigation Strict adherence to financial procedures and regulations in project implementation. Performance contracting for County employees. Change Implementation of projects outside sector Strengthening of the Sector Working Groups. Management needs and duplication of projects. risk Natural Drought, Floods & Diseases resulting in Establishment of an Emergency Fund calamities reallocation of budget to accommodate the situation. Court cases. Litigations and court injunctions may Strict adherence to the provisions of the law derail timely execution of the Budget. and existing legal frameworks Political risks Delayed approval of bills and laws, Continuous engagement with the County hampering legal timelines and Assembly. implementation of projects and programmes. 40 CHAPTER SIX MEDIUM TERM EXPENDITURE FRAMEWORK 6.1 Overview 112 The policy measures outlined in MTEF budgeting will prioritize investments in the implementation of the County Strategic Interventions such as completion of the ongoing programmes and projects. Building on these gains, the County Government will strengthen implementation of programmes that make economic growth more inclusive and pursue measures that avail liquidity to private sector, including initiating innovative products to boost credit/ grants to Micro& Small Enterprises (MSE). 113 As we finalize preparation of the budget for the FY 2021/22, we are clearly conscious of our limited fiscal space occasioned by revenue shortfalls and rising expenditure pressures. To reverse this outcome, the County Government will continue to pursue the fiscal consolidation policy. This policy is expected to provide and maintain necessary balance between revenues and expenditures so as to ensure that the overall fiscal deficit is kept under control and to a bare minimum so as safeguard macroeconomic stability. The reduction in the fiscal deficit will reduce the pace of growth of the domestic payables. 114The expenditure priorities in this CFSP have been critically reviewed through wide consultations to ensure that they are in accordance to the County Government strategic priorities including County socio economic re-engineering and recovery strategy and the national government “Big Four” Agenda. Consequently, budget allocations have been premised on the sustainability, affordability and the degree to which the programmes contribute towards job creation, reduction in poverty and inequality. 115 In the view of the limited resources, the County government identified priority sectors that will continue to receive considerable resources. These priority sectors are required to utilize the allocated resources more efficiently to generate fiscal space to accommodate other strategic interventions. 6.2 Resource Envelope 116 The resource envelope projections for the FY 2021/22 and over the medium term will largely target the transfers from the Development Partners as provided for by the County Allocation of Revenue bill 2021 and the own source revenue collection as per the County Finance Act. 117 All the conditional transfers are included in the resource envelope for FY 2021/22. The County will also continue to benefit from grants intended to support health sector service delivery. These funds will be allocated to County Governments based on the criteria specified in the financing agreement between the Government of Kenya and the development partners. The table below shows the resource envelope over the medium term. 41 Table 12: Resource Envelope for FY 2021/22 Projection Estimate Estimate Projection Revenue Streams 2020/21 2021/22 Projection 2022/23 2023/2024 External Revenue Estimates Equitable Share 4,177,800,000 4,710,388,265 5,087,219,326 5,494,196,872 General Provisions (Equitable Share) 4,177,800,000 4,710,388,265 5,087,219,326 5,494,196,872 Conditional Allocations From National 233,336,461 68,000,000 73,440,000 79,315,200 Government Funds Received from Road Maintenance Levy Fund 124,519,106 0 0 Funds Received from Health Care Services Fund (User 3,472,461 0 0 fee foregone) Supplement for Construction of County Headquarters 100,000,000 68,000,000 73,440,000 79,315,200 Conditional Allocation for Development of Youth 5,344,894 0 0 Polytechnic Conditional Allocations From Development 671,085,395 617,731,369 0 0 Partners Current Grants from Foreign Governments Danida 12,060,000 9,396,750.00 0 Kenya Devolution Support Programme (KDSP) World 45,000,000 0 0 bank World Bank Loan for Transforming Health Systems 26,720,000 25,534,815.00 0 for Universal Care Project World Bank Loan for Transforming Health Systems 20,444,468.00 for Universal Care Project B/F 2020/2021 Climate Smart Agricultural Project 479,143,620 330699130 0 UNFPA 8,864,000.00 Urban Support Project Development 93,968,100 120374189 0 World bank – emergency locust 76,030,667.00 response Sweden Agricultural Sector Development Support Programme (ASDSP) 14,193,675 26,387,350.00 0 Gross County External Revenue Estimates 5,082,221,856 5,396,119,634 5,160,659,326 5,573,512,072 Gross Internal Revenue Estimates 113,686,337 113,686,337 135,246,951 156,210,228 Gross County Revenue Estimates 5,195,908,193 5,509,805,971 5,295,906,277 5,729,722,300 Source: Draft CARA, 2021 42 6.3 Proposed Resource Allocation Prioritization Criteria 118The resources available will be shared in accordance with the following prioritization criteria: (i) Non-Discretionary Expenditure: This expenditure takes first charge and includes payment of staff salaries and other statutory payments. Personnel emoluments are projected to account for about 37.8 percent of the resource envelope. (ii) Operations and Maintenance: These are resources available to sectors for basic operations and maintenance. This will account for about 24.5 percent of the non- discretionary expenditures. (iii) Development Expenditure: This will account for 37.7 percent of the projected revenue. Development expenditures will be shared based on the programs that address the County priorities and other strategic interventions as in the 2020, Annual Development plan. 119 The following guideline will be used on the development expenditure: (i) Outstanding Projects: Greater emphasis will be put on the completion of on-going projects. (ii) Strategic Interventions: Priority will be given to policy interventions with high impact on poverty reduction, climate change mitigation and adaptation, environmental conservation, and value chain addition. 6.4 Overall Spending Priorities 120 In finalizing the preparation of the budget for the financial year 2021/2022, the County Government will continue to pursue the policy of limiting less productive expenditures and redirecting resultant savings to capital investment. Effective use of resources will be sought across spending units and any identified saving will be redirected to deserving priority expenditures. 6.5 Medium-Term Expenditure Baseline Ceilings 121 The 2020/2021 baseline estimates depicts the department‟s current spending levels. In the recurrent expenditure category, expenditures on compensation of employee‟s accounts for about 37 percent of the resource envelope and it take the first charge. Expenditure on operations and maintenance accounts for 27 percent of the total County Resource Envelope. Overall, the recurrent expenditure on compensation to employees and operations and maintenance account for about 64 percent of the projected resource envelope. The balance of 36 percent from total resource envelope is the resources available to fund planned development programmes. 122The County will be committed to implementing priority programmes to achieve the County aspirations as outlined in the 2020 ADP and 2018-2022 CIDP while taking into account the need to optimize use of resources during the period. The County will in this regard develop a framework for better quality services based on strong links 43 between resources, budgeting, monitoring and clear expectations for delivering planned outcomes. 123Therefore the 2021/22 recurrent expenditure projection on compensation of employee‟s will account for about 37.8 percent of the resource envelope and it take the first charge. Expenditure on operations and maintenance accounts for 24.5 percent of the total County Resource Envelope. Overall, the recurrent expenditure on compensation to employees and operations and maintenance account for about 62.3 percent of the projected resource envelope. The balance of 37.7 percent from total resource envelope is the resources available to fund planned development programmes. 6.6 Departmental Priorities Ceilings 124The departmental budget ceilings for financial year 2021/22 are as provided in table below. Development expenditure allocations are shared out amongst departments based on the CIDP 2018-22 and ADP 2020 as well as other strategic objectives and policy goals identified in this CFSP. The ceilings are likely to change once the final 2021 County Allocation of Revenue Act (CARA) is out. The CARA will also specify the breakdown of all conditional Loans and Grants. 44 Table 13: Medium Term Expenditure Ceilings. Department Ceilings FY 2020/21 Ceiling Estimates FY 2021/22 Projection Estimates FY 2022/23 Projection Estimates FY 2023/24 Recurrent Development Total Recurrent Development Total Recurrent Development Total Recurrent Development Total County Assembly 421,355,158 80,000,000 501,355,158 448,252,680 80,000,000 528,252,680 461,700,260 83,200,000 544,900,260 475,551,268 85,696,000 561,247,268 Governor,0ffice 348,212,151 0 348,212,151 302,040,316 - 302,040,316 311,101,525 0 311,101,525 320,434,571 0 320,434,571 CPSB 61,013,600 0 61,013,600 58,639,215 - 58,639,215 60,398,391 0 60,398,391 62,210,343 0 62,210,343 Deputy governor 0 0 25,000,000 - 25,000,000 25,750,000 0 25,750,000 26,522,500 0 26,522,500 county secretary 21,939,807 0 21,939,807 24,692,234 - 24,692,234 25,433,001 0 25,433,001 26,195,991 0 26,195,991 Delivery unit 27,988,848 0 27,988,848 22,204,882 22,204,882 22,871,028 0 22,871,028 23,557,159 0 23,557,159 Finance and Economic Planning 202,057,801 317,130,972 519,188,773 159,127,379 518,520,000 677,647,379 163,901,200 539,260,800 703,162,000 168,818,236 555,438,624 724,256,860 Economic Planning 53,881,766 0 53,881,766 55,836,173 - 55,836,173 57,511,258 0 57,511,258 59,236,596 0 59,236,596 Special Programmes and ICT 45,821,972 103,918,164 149,740,136 45,992,850 110,000,000 155,992,850 47,372,636 114,400,000 161,772,636 48,793,815 117,832,000 166,625,815 Cohesion 50,361,199 0 50,361,199 49,663,959 40,000,000 89,663,959 51,153,878 41,600,000 92,753,878 52,688,494 42,848,000 95,536,494 Lands and Physical Planning 27,545,199 29,500,000 57,045,199 24,873,199 12,400,000 37,273,199 25,619,395 12,896,000 38,515,395 26,387,977 13,282,880 39,670,857 Roads and Infrastructure 15,400,000 159,913,038 175,313,038 16,016,000 155,500,000 171,516,000 16,496,480 161,720,000 178,216,480 16,991,374 166,571,600 183,562,974 Public Works and Housing 21,876,220 3,500,000 25,376,220 22,751,268 3,500,000 26,251,268 23,433,806 3,640,000 27,073,806 24,136,820 3,749,200 27,886,020 Agriculture 53,641,138 493,337,295 546,978,433 50,013,358 441,117,147 491,130,505 51,513,759 458,761,833 510,275,592 53,059,172 472,524,688 525,583,859 Livestock & Fisheries 116,243,466 35,241,770 151,485,236 121,437,775 52,544,000 173,981,775 125,080,908 54,645,760 179,726,668 128,833,335 56,285,133 185,118,468 Education and Vocational Training 203,424,167 33,344,894 236,769,061 201,898,884 23,000,000 224,898,884 207,955,851 23,920,000 231,875,851 214,194,526 24,637,600 238,832,126 Youth and Sports 29,462,905 160,000,000 189,462,905 30,331,991 100,000,000 130,331,991 31,241,951 104,000,000 135,241,951 32,179,209 107,120,000 139,299,209 Culture and Social Service 24,605,377 21,002,537 45,607,914 20,884,319 14,000,000 34,884,319 21,510,849 14,560,000 36,070,849 22,156,174 14,996,800 37,152,974 Tourism and Wildlife 134,181,330 19,400,000 153,581,330 130,781,330 15,000,000 145,781,330 134,704,770 15,600,000 150,304,770 138,745,913 16,068,000 154,813,913 Trade 19,764,553 18,000,000 37,764,553 28,106,543 2,500,000 30,606,543 28,949,739 2,600,000 31,549,739 29,818,231 2,678,000 32,496,231 PSM 147,638,188 4,000,000 151,638,188 178,273,224 7,000,000 185,273,224 183,621,421 7,280,000 190,901,421 189,130,063 7,498,400 196,628,463 Administration 0 12,924,615 12,924,615 13,312,353 0 13,312,353 13,711,724 0 13,711,724 Water and Sanitation 59,435,400 87,900,000 147,335,400 64,377,162 87,791,804 152,168,966 66,308,477 91,303,476 157,611,953 68,297,731 94,042,580 162,340,312 Energy, Environment and Natural 21,049,028 36,000,000 57,049,028 23,381,772 39,806,983 63,188,755 24,083,225 41,399,262 65,482,487 24,805,722 42,641,240 67,446,962 Resource Health Services 1,097,932,444 108,780,000 1,206,712,444 1,198,860,235 163,943,283 1,362,803,518 1,234,826,042 170,501,014 1,405,327,056 1,271,870,823 175,616,045 1,447,486,868 Municipal Administration 51,124,196 228,983,610 280,107,806 57,410,772 269,410,619 326,821,391 59,133,095 280,187,044 339,320,139 60,907,088 288,592,655 349,499,743 Total 3,255,955,913 1,939,952,280 5,195,908,193 3,373,772,135 2,136,033,836 5,509,805,971 3,474,985,299 2,221,475,189 5,696,460,488 3,579,234,858 2,288,119,445 5,867,354,303 45 CHAPTER SEVEN CONCLUSION 125 The CFSP 2021 is prepared as a guiding tool for budget preparation of financial year 2021/22. It is meant to broadly define the expected revenues and expenditure over the medium term as well as propose strategies of financing any anticipated deficit. Isiolo County Government is expected to prepare a balanced budget in financial year 2021/22. 126 The set of policies outlined in the CFSP reflects circumstances that are in line with the fiscal responsibilities as outlined in the PFM Act, 2012. They are also consistent with the County Government strategic objectives pursued as a basis for allocation of public resources. These strategic objectives are provided in the County Government priorities spelled out in the national policies and Isiolo CIDP, 2018-2022. 127 The adoption of Program Based Budgeting (PBB) will ensure that all County resources are linked to specific projects outputs and outcomes. The use of the Integrated Financial Management Information System (IFMIS) and the introduction of e-Procurement System will also make it possible for the County to track the resources to results achieved in a more efficient manner. 128 In the budget for the financial year 2021/22, key priority areas are livestock, investment in surface and underground water resources, road infrastructure network, Health services, tourism promotion and Education will receive considerate allocation while maintaining reasonable growth on other County sectors. Allocation of funds to these County key priority areas will generally reflect the critical needs of the County residents. It is envisaged that the enhancement of these key areas will drive the County economy up by creating greater supply hence improving the per capita income of households. Disclaimer: The figures will be amended once CARA 2021 is approved. 46