COUNTY GOVERNMENT OF KWALE COUNTY TREASURY MEDIUM TERM 2023 COUNTY FISCAL STRATEGY PAPER Towards Economic Recovery and Enhanced Public Service Delivery FEBRUARY 2023 2023 County Fiscal Strategy Paper ©County Fiscal Strategy Paper (CFSP) 2023 To obtain copies of the document, please contact: Budget & Economic Planning Division County Treasury County Government of Kwale P.O BOX 4 – 80403 KWALE, KENYA. Email: countytreasury@kwale.go.ke Website: www.kwalecountygov.com Kwale County Treasury, 2023 Page i 2023 County Fiscal Strategy Paper FOREWORD The 2023 County Fiscal Strategy Paper (CFSP) is the first to be prepared under the third term of devolution in Kwale. The preparation of the 2023 CFSP is guided by the provisions of section 117 of the Public Finance Management Act 2012. It sets out the priority programmes, policies and reforms of the new administration that will be implemented in the Medium-Term Expenditure Framework 2023/24 – 2025/26. This 2023 CFSP comes at a time when the County Government is finalizing the preparation of the ten-year long term plan, the County Sectoral Plan(CSP) 2023-2032 which will pave way for the preparation of the third Generation of the County Integrated Development Plan(CIDP) 2023-2027. This 2023 CFSP will prioritize implementation of high impact programmes in both the CSP 2023-2032 and the CIDP 2023-2027 which guarantee re-positioning of the county to take advantage of the ongoing transformative National flagship projects and also address the key development challenges. This is expected to ensure a steady recovery of the economy and sustainable growth, poverty reduction and rapid county transformation. The 2023 CFSP is framed against a backdrop of global and domestic economic slowdown courtesy of the ongoing Russia-Ukraine war, increased global inflation as well as climate change related effects. In 2021, the Kenya economy had picked due to economic recovery strategies of the COVID-19 pandemic. The economy bounced back recording a GDP growth rate of 7.5 percent in 2021 up from 6.1 registered in 2020. Following the Russia-Ukraine, global trade has been disrupted resulting in increased fuel, fertilizer and food prices. In Kenya, inflation rate is sky-rocketing above the Government target range. This has been occasioned by external shocks and climate related food and energy prices. The Kwale county economy continues to face various challenges key among them being drought which affects agricultural productivity. The county has witnessed a severe drought resulting in famine for over 200,000 citizens. Being responsible to its citizens, the county government has mobilized relief food to feed the hungry population. The county government’s vision is to transform the key sectors which continue to derail the county transformation agenda. In the first five years of her administration, the Governor has promised to address the impediments in the sector of health and water services to improve on service delivery. The county government will also encourage investments in Agriculture (Agro-processing industry), Micro, Small and Medium Enterprises (MSMEs), Arts, Sports and Creative Industry both local and international to have a huge impact and linkages to our economy. Investments undertaken in these sector will bolster resilience, economic turnaround and inclusive growth in tandem with the Kenya Kwanza Government Economic Recovery Agenda anchored on the bottom up approach. The fiscal policy which this government will implement over the medium term will aim at supporting the economic recovery agenda while at the same time uplifting the household welfare of the citizens. The County Government will continue with its programme of mobilizing revenues with vigor taking into consideration the availability of relevant laws and regulations. In addition, prudent expenditure will be undertaken to curtail non-priority expenditures and ensure adequate funding for high impact programmes. Other measures which will be undertaken to increase revenues include broadening the tax base, reducing waivers on fees and charges, finalizing the valuation roll, fully implementing the revenue management system and implementing the recently approved revenue raising laws (Acts). The county government will also explore the need for borrowing to undertake county flagship projects including tarmacking of key roads, construction of medium sized dams and setting up agro-based processing industries to encourage value addition. The county government will undertake the use of Public Private Partnership financing for county commercial viable flagship projects. Kwale County Treasury, 2023 Page ii 2023 County Fiscal Strategy Paper In this 2023 CFSP ,the County government expects to receive a total revenue of Kshs 10,547,073,518 out of which Kshs 8,580,238,742 will be equitable share, Kshs 600,000,000 will be the target for own source revenue, Ksh 330,000,000 from mineral royalties and Ksh 1,036,834,776 will be sourced through grants from development partners. In terms of spending ceilings, development will be Kshs 4,206,628,827 (39.9 percent) and recurrent expenditure will be Kshs 6,340,444,691 which is equivalent to 60.1 percent of the expected total revenues. From the recurrent expenditure ceiling, Kshs 3,681,383,539 (34.90 percent) and Kshs 2,631,675,362 (24.95 percent) will be allocated to personnel emoluments and operations and maintenance respectively. From the foregoing analysis, expenditure ceilings have been proposed after careful scrutiny of departments’ absorption capacity and alignment to the county government transformation agenda as outlined in this 2023 CFSP and the Governors Manifesto and other strategic interventions aligned to the Kenya Kwanza Government’s Economic Recovery Agenda. I wish to encourage all sector working groups and departments to adhere to the set expenditure ceilings, and the strict deadlines proposed in the document to facilitate finalization of the FY 2023/2024 and the Medium Budget proposal. In the preparation of this draft county fiscal strategy paper, we consulted widely among various stakeholders. This is in compliance to the requirements of section 117 of the Public Finance Management Act 2012. The policy initiatives and strategic priorities highlighted in this CFSP have inputs from various stakeholders. We are grateful for their inputs. I would like to thank H.E Governor and H.E Deputy Governor for their guidance while preparing this document. Finally, I would like to appreciate my colleagues in the County Executive Committee, County Government employees, Non –state members of the County Budget and Economic Forum and the general public for their immense support. My special thanks to the staff of the County Economic Planning Division for their steadfastness, dedication and general excellent work. BAKARI HASSAN SEBE COUNTY EXECUTIVE COMMITTEE MEMBER EXECUTIVE SERVICES, FINANCE & ECONOMIC PLANNING Kwale County Treasury, 2023 Page iii 2023 County Fiscal Strategy Paper ACKNOWLEDGEMENT The preparation of the County Fiscal Strategy Paper CFSP is provided by section 117 of the Public Finance Management Act, 2012. The 2023 CFSP outlines the strategic priorities of the new administration, highlights the recent economic developments, the micro fiscal outlook over the medium term, the county fiscal performance by second quarter of financial year 2022/2023, projections of revenues and expenditures, risk analysis and interpretation of fiscal responsibility principles together with a summary of sectors spending plans and ceilings as the basis for the FY 2023/2024 budget. The publications of this 2023 CFSP will improve the citizens understanding of Kwale County finance management and guide the debate on economic and development matters. We have a few steps to finalizing preparation of the FY 2023/2024 budget. It is worthwhile to emphasize that we are operating under tight fiscal constraints. The resources are scarce to enable us accomplish the strategic priorities and promises we have made to the citizens. This calls for fiscal discipline. Our fiscal policy will entail elimination of non-core priorities and channeling the saved resources to priority areas. We will monitor expenditures and ensure we curtail the growth of recurrent expenditures to avail resources to funding our priorities in line with the Governor’s vision and manifesto and this 2023 CFSP. The preparation of this 2023 CFSP was a collaborative effort among various departments and organs of the county government. We are grateful for their input. We thank departments and agencies for timely provision of information. We appreciate the wise counsel and leadership direction from the County Executive Committee Member for Executive Services, Finance & Economic Planning. His wisdom has given invaluable insights to the fiscal policy underpinning this strategy paper and the setting of expenditure ceilings. We are also indebted to the participants of the public consultations held in the sub counties on 21st and 22nd February 2023.They provided useful information which has been used in this 2023 CFSP. Finally, we are grateful to the core team from the Economic Planning and Budgeting Division that coordinated the finalization of this document. The core team under the leadership of the County Director, Economic Planning & Budgeting burnt the midnight oil putting together contents of this document and ensured it was produced in time and is of high quality standard. ALEX ONDUKO THOMAS CHIEF OFFICER EXECUTIVE SERVICES, FINANCE & ECONOMIC PLANNING Kwale County Treasury, 2023 Page iv 2023 County Fiscal Strategy Paper ABBREVIATIONS AND ACRONYMS BPS Budget Policy Statement CBEF County Budget and Economic Forum CBROP County Budget Review and Outlook Paper CBOs Community Based Organizations CBK Central Bank of Kenya CBR Central Bank Rate CCG Council of County Governors CEC County Executive Committee CECM County Executive Committee Member CFSP County Fiscal Strategy Paper CIDP County Integrated Development Plan CO Chief Officer COFOG Classification of Functions of Government CPI Consumer Price Index CHVs Community Health Volunteers ECDE Early Childhood Development Education EU European Union FY Financial Year IBEC Intergovernmental Budget and Economic Council IFMIS Integrated Financial Management Information System KBRR Kenya Banks Reference Rate KNBS Kenya National Bureau of Statistics MTEF Medium Term Expenditure Framework Kwale County Treasury, 2023 Page v 2023 County Fiscal Strategy Paper MTP Medium Term Plan NGOs Non-Governmental Organizations PER Public Expenditure Review PFMA Public Finance Management Act PWDs Persons with Disabilities SGR Standard Gauge Railway SDGs Sustainable Development Goals SMEs Small and Medium Enterprises SSA Sub -Saharan Africa SWGs Sector Working Groups US United States TVET Technical Vocational Education Training WEO World Economic Outlook WSTF Water Services Trust Fund Kwale County Treasury, 2023 Page vi 2023 County Fiscal Strategy Paper About The County Fiscal Strategy Paper The County Fiscal Strategy Paper (CFSP) is a county government policy document that sets out the county’s strategic priorities and policy objectives that will guide the preparation of the county budget for the coming financial year and over the medium term. Section 117 of the Public Finance Management Act (PFMA), 2012 states that the County Treasury shall prepare and submit to the County Executive Committee the CFSP for approval. Then the approved CFSP is to be submitted to the County Assembly by the 28th of February each year. The County Assembly shall in not more than 14 days after the CFSP is submitted, table and discuss a report containing its recommendations and pass a resolution to adopt it with or without amendments. The County Executive Committee Member for Finance shall take into account resolutions passed by the County Assembly in finalizing the Budget for the coming financial year. The County Fiscal Strategy Paper contains: a) 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. b) An assessment of the current state of the national economy including macro-economic forecasts. c) The financial outlook with respect to county government revenues, expenditures and borrowing for the financial year and over the medium term. d) The proposed expenditure ceilings for the county government departments and the Assembly. e) The fiscal responsibility principles and financial objectives over the medium term. f) Statement of specific risks. The preparation of the County Fiscal Strategy Paper is a consultative process that involves seeking and taking into account the views of the Commission on Revenue Allocation (CRA); the public; any other interested persons or groups; and any other forum that is established by the PFM Act 2012. The County Treasury shall align its County Fiscal Strategy Paper with the national objectives in the Budget Policy Statement. Kwale County Treasury, 2023 Page vii 2023 County Fiscal Strategy Paper The Constitution of Kenya 2010 on Principles of Public Finance 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. Kwale County Treasury, 2023 Page viii 2023 County Fiscal Strategy Paper Fiscal Responsibility Principles for the National and County Governments Section 107 of the Public Finance Management Act, 2012 sets the principles of fiscal responsibility. Subsection (2) states that: In managing the county government's public finances, the County Treasury shall enforce the following fiscal responsibility principles: - a) the county government's recurrent expenditure shall not exceed the county government's total revenue b) over the medium term a minimum of thirty percent of the county government's budget shall be allocated to the development expenditure c) the county government's expenditure on wages and benefits for its public officers shall not exceed a percentage of the county government's total revenues as prescribed by the County Executive member for finance in regulations and approved by the County Assembly. d) Over the medium term, the county government's borrowing shall be used only for financing development expenditure and not for recurrent expenditure. e) the County debt shall be maintained at a suitable level as approved by County Assembly f) the financial risks shall be managed prudently, and g) a reasonable degree of predictability with respect to the level of tax bases shall be maintained, taking into account any tax reforms that may be made in the future h) Short-term borrowing as mentioned in (d) above shall be restricted to management of cash flows and shall not exceed five percent of the most recent audited county government revenue. Kwale County Treasury, 2023 Page ix 2023 County Fiscal Strategy Paper TABLE OF CONTENTS FOREWORD............................................................................................................................................... ii ACKNOWLEDGEMENT ......................................................................................................................... iv ABBREVIATIONS AND ACRONYMS ................................................................................................... v About The County Fiscal Strategy Paper .................................................................................................. vii The Constitution of Kenya 2010 on Principles of Public Finance ....................................................... viii Article 201 of the Kenyan Constitution, 2010 sets out the following principles of public finance – . viii a) there shall be openness and accountability, including public participation in financial matters; viii b) The public finance system shall promote an equitable society, in particular- ............................... viii i. the burden of taxation shall be shared fairly; .................................................................................... viii ii. Revenue raised nationally shall be shared equitably among national and county governments; and ............................................................................................................................................................. viii iii. Expenditure shall promote the equitable development of the country, including by making special provision for marginalized groups and areas; .......................................................................... viii c) The burdens and benefits of the use of resources and public borrowing shall be shared equitably between present and future generations; ............................................................................................... viii d) Public money shall be used in a prudent and responsible way; and ............................................... viii e) Financial management shall be responsible, and fiscal reporting shall be clear............................ viii Fiscal Responsibility Principles for the National and County Governments ....................................... ix TABLE OF CONTENTS ........................................................................................................................... x LIST OF FIGURES .................................................................................................................................. xii LIST OF TABLES .................................................................................................................................... xii CHAPTER ONE: INTRODUCTION ....................................................................................................... 1 1.1 Overview ....................................................................................................................................... 1 1.2 2023 CFSP Preparation Methodology .......................................................................................... 2 CHAPTER II: RECENT ECONOMIC DEVELOPMENTS AND MEDIUM TERM OUTLOOK ... 3 2.1 Overview ....................................................................................................................................... 3 2.2 Recent Economic Development and Outlook ............................................................................... 4 2.2.1 Global and regional Economic developments ....................................................................... 4 2.2.2 Regional Economic Development and Analysis ................................................................... 5 2.3 Fiscal Policy ................................................................................................................................ 25 2.4 Economic Outlook ...................................................................................................................... 26 2.5 Risks to the Economic Outlook .................................................................................................. 27 Kwale County Treasury, 2023 Page x 2023 County Fiscal Strategy Paper County Recent Economic Developments & Outlook ............................................................................. 27 Overview ................................................................................................................................................. 27 Gross County Product -GCP ................................................................................................................... 27 County Economic Activities and Recent Developments .................................................................... 29 Risks to the County Economic Outlook .......................................................................................... 32 CHAPTER THREE: STRATEGIES AND POLICIES FOR ECONOMIC RECOVERY AGENDA TO PROMOTE INCLUSIVE GROWTH .............................................................................................. 34 3.0 Preamble ..................................................................................................................................... 34 3.1 Policies and Strategies Towards Economic Recovery ................................................................ 35 3.1.1 Agricultural Transformation and Inclusive Growth ............................................................ 35 3.1.2 Transforming the Micro, Small and Medium Enterprises (MSME) Economy ................... 36 3.1.3 HealthCare .......................................................................................................................... 36 3.1.4 Digital Superhighway and Creative Economy .................................................................... 37 CHAPTER FOUR: BUDGET FOR FY 2022/2023 AND THE MEDIUM TERM ............................. 38 4.1 Fiscal Framework ........................................................................................................................ 38 Overview ............................................................................................................................................. 38 Revenue Projections ................................................................................................................................ 38 Expenditure Projections .......................................................................................................................... 38 4.1 FY 2023/24 and Medium Term Budget Priorities ...................................................................... 40 Allocation of Baseline Ceilings .............................................................................................................. 40 Criteria for Resource Allocation ............................................................................................................. 41 Details of Sector Priorities ...................................................................................................................... 41 CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS ................................................. 50 ANNEX 1: STATEMENT OF SPECIFIC FISCAL RISKS ................................................................ 51 Kwale County Treasury, 2023 Page xi 2023 County Fiscal Strategy Paper LIST OF FIGURES Figure 1: Quarterly Real GDP Growth Rates ............................................................................................... 7 Figure 2: Sectors Contribution to real GDP growth ..................................................................................... 8 Figure 3: Recent Trends in Inflation ............................................................................................................. 9 Figure 4: Contribution of broad categories to overall inflation (percentage points) ................................... 10 Figure 5: Comparative Overall Inflation versus Food Inflation .................................................................. 11 Figure 6: Year on Year Inflation Rates of selected Sub-Saharan African Countries (September, 2022) ... 12 Figure 7: Kenya Shilling Exchange Rate .................................................................................................... 13 Figure 8: Performance of Selected Sub-Saharan Countries Currencies against the US Dollar (Sept 2021 to Sept, 2022) .................................................................................................................................................. 14 Figure 9: Growth in NDA and its Sources (Percent) .................................................................................. 16 Figure 10: Performance of Balance of Payments and its Components ....................................................... 17 Figure 11: Foreign Exchange Reserves by September, 2022 ...................................................................... 19 Figure 12: Performance at the NSE by end September, 2022. .................................................................... 19 Figure 13: Kwale County Recurrent Budget Expenditures as at 31st December 2022 ............................... 23 Figure 14: Analysis of Personnel Emoluments Expenditure as at 31st December 2022 ............................. 25 Figure 15: Kwale County GCP growth. ...................................................................................................... 28 Figure 16: Factors Affecting Agricultural Production, 2022 ...................................................................... 35 LIST OF TABLES Table 1: Key Economic Indicators of selected OECD Countries 2019-2022 ............................................... 5 Table 2: Sectoral GDP Growth rate (percent) ............................................................................................... 8 Table 3: Interest rates (percent) .................................................................................................................. 15 Table 4: Balance of Payments (USD Million) ............................................................................................ 18 Table 5: Budget Execution Highlight for the period ending 30th September 2022 ..................................... 20 Table 6: Statement of Receipts and Payments for the Period Ended 31st December 2022 ........................ 21 Table 7: Analysis of development Expenditure FY 2022/2023 .................................................................. 22 Table 8: Analysis of recurrent Expenditure As At 31st December 2022. .................................................... 23 Table 9: Analysis of Personnel Emoluments Expenditure as at 31st December 2022. ............................... 24 Table 10: Kwale County Sectoral Contribution to Real GCP, 2018-2020, Ksh million ............................ 28 Table 11: Resources envelope for MTEF period 2022/2023-2024/2025 .................................................... 38 Table 12: Summary of Allocations by Vote and Economic Classification................................................. 39 Table 13: Summary of Budget Allocations for the MTEF FY2022/23-2024/25 by sector ........................ 42 Table 14: Summary of Recurrent expenditure allocations for the MTEF FY2022/23-2024/25 by sector.. 43 Table 15: Summary of Budget Allocations for the MTEF FY2022/23-2024/25 by sector ........................ 44 Kwale County Treasury, 2023 Page xii 2023 County Fiscal Strategy Paper Kwale County Treasury, 2023 Page xiii 2023 County Fiscal Strategy Paper CHAPTER ONE: INTRODUCTION 1.1 Overview 1. Kwale County is one of the six counties in the coastal region under the Jumuiya ya Kaunti za Pwani (JKP) economic bloc. The county has an estimated population of 866,820 of which 49.0 per cent is male and 50.9 per cent female (Kenya National Bureau of Statistics, KNBS 2019. The County has a population density of 105 per km2. About 85.4 per cent of the population lives in rural areas of whom 57.0 per cent are female. The youth constituted 33.0 per cent of the population of whom 53.0 per cent were female. The elderly population (over 65year-old) makes up 3.8 per cent of the total population of whom 53.7 per cent were female. The population in school going age group (4-22 years) was 49.3 per cent in 2019. Of the population 112,152(1.7 per cent) are persons with disability. In 2015/2016, the overall poverty rate in Kwale County was 47.0 per cent against the national poverty rate of 36.1 per cent. In addition, 40.3 per cent of the population were living in food poverty and 69.9 per cent were living in multidimensional poverty that means being deprived in several dimensions including health care, nutrition and adequate food, drinking water, sanitation and hygiene, education, knowledge of health and nutrition, housing and standard of living, and access to information. 2. The 2023 County Fiscal Strategy Paper (CFSP) is prepared in compliance with the provisions of section 117 of the Public Management Act, 2012. The 2023 CFSP sets out the broad strategic priorities and policy goals that will guide the county government in preparing the budget for the financial year (FY) 2023/2024 and over the medium term. This document is expected to improve the public’s understanding of County Government’s fiscal matters as well as strategic priorities to improve the well-being of Kwale people. 3. This 2022 CFSP seeks to the implement the strategic priorities and programmes articulated in the FY 2023/2024 County Annual Development Plan (CADP). The CADP FY 2022/2023 is linked to the priorities in the County Integrated Development Plan (CIDP) 2023-2027 and the County Sectoral Plans (CSP) 2023- 2032.This 2023 CFSP will form a basis for FY 2023/2024 budget. The order of funding for priorities in this CFSP is line with the Governor’s manifesto and the CSP and CIDP. A five pillar strategy has been adopted indicating the five main priority areas namely: (a) Healthcare (b) Water Services (c) Infrastructural Development (d) Education (e) Agriculture, Livestock, Fisheries and the Blue Economy. Priority will also be given to promotion of tourism, trade and investment and the economic empowerment of the citizens. 4. This 2023 CFSP contains; (a) an assessment of the current state of the Kenyan economy which has a bearing on the county economy (b) the financial outlook with respect to county government revenues and expenditures for the next financial year and over the medium term(c) the proposed expenditure ceilings for the county executive departments and the county assembly (d) the fiscal responsibility principles and financial objectives over the medium term (e) the statement of financial risks. The County Fiscal Strategy Paper 2023 is also aligned to the National strategic objectives in the 2023 Budget Policy Statement. Kwale County Treasury, 2023 Page 1 2023 County Fiscal Strategy Paper 1.2 2023 CFSP Preparation Methodology 5. Article 201 emphasizes as one of the principles of public finance: openness and accountability including public participation in financial matters. In pursuit of this provision, the County Treasury will hold public participation fora at the sub county level but with representation from the wards to collect views and contributions on the draft 2023 CFSP. Further, in adherence to section 117 (e), the County Treasury shall seek and take into account the views of: the Commission on Revenue Allocation (CRA), the Public, any interested persons or groups and any other forum that is established by legislation. 6. This 2023 CFSP is organized as follows: Chapter I introduces the paper. Chapter II provides an assessment of the current state of the Kenyan economy which has a bearing on the county economy and a review of the fiscal performance as at 31th December 2022 and its implications on the financial objectives given in this 2023 CFSP and the PFMA fiscal responsibility principles. Programmes and Strategies for Economic Recovery and County Transformation are given in chapter III. This is followed by proposed resource allocation framework, fiscal projections and sector ceilings in chapter IV and chapter V concludes the paper. Statement of financial risks is given in the appendix section. Kwale County Treasury, 2023 Page 2 2023 County Fiscal Strategy Paper CHAPTER II: RECENT ECONOMIC DEVELOPMENTS AND MEDIUM TERM OUTLOOK 2.1 Overview 7. While the COVID-19 pandemic halted growth in 2020, growth has since recovered although not strongly enough to put GDP back on the pre-pandemic path. Kenya’s economy staged a significant recovery in 2021 following the COVID-19 shock aided by supportive policies, although some sectors remained severely affected. A strong recovery in the services sector as well in manufacturing and construction contributed to an economic rebound of 7.5% in 2021, following a contraction of 0.3% in 2020. Due to below-average rainfall, agricultural output which had been the strongest sector in 2020, contracted by 0.2%.The economy continued to recover in the first quarter of 2022, at a rate of 6.8% (compared to 2.7% growth in the first quarter of 2021).However, real GDP growth in 2022 is projected to moderate back to 5.5% for 2022 due to high energy and food prices caused by global supply constraints, and poor agricultural performance linked to the ongoing drought. 8. Compared to forecasts made in 2020 and 2021, the outlook for growth and investment now looks slightly better. While GDP is still lower than projected pre-pandemic, recovery was faster than initially predicted, resulting in a better outlook than was apparent in 2020 and 2021. Furthermore, the level of investment in the economy has overtaken the pre-crisis forecast (correspondingly, the forecast for consumption, falls back again). As a result, according to the World Bank’s central projection, Kenya is set for steady growth at 5– 6% per annum over the medium term with a growing share of investment – enough to allow increases in real per capita income and poverty reduction. 9. Kenya has avoided the very high inflation seen in some African countries, but price rises have picked up rapidly in 2022, reaching almost 10% in October. The global commodity markets shock and the regional drought (affecting 29 counties) have pushed up domestic prices in 2022 particularly for food and energy. Inflation has exceeded the 7.5% upper target set by the Central Bank of Kenya since June 2022, thus resulting in a tightening of monetary policy. This comes at a time when Kenya is under pressure to cut fuel subsidies and non-priority spending. Inflation also goes hand in hand with a depreciation of the Kenyan shilling and, when combined with the tightening global monetary policy, is pushing the cost of (and limiting access to) foreign borrowing 10. The economy recorded strong growth in the second quarter of 2022. It grew by 5.2 percent compared to 11.0 percent in a similar quarter of 2021 supported by strong performance of financial and insurance services, transport and storage, wholesale and retail trade, information and communication, real estate, and construction sectors. 11. The agriculture sector contracted by 2.1 percent compared to a contraction of 0.5percent in a similar quarter of 2021, due to unfavorable weather conditions. Broad money supply (M3) slightly contracted by 0.3 percent in the third quarter of 2022 compared to an increase of 5.3 percent in the second quarter of 2022, mainly reflecting reduction in deposits. The global economy is expected to slow down to 3.2 percent in 2022 and moderate to 2.7 percent in 2023, from 6.0 percent in 2021. This reflects significant weakness in the economic activities in the US, Euro Area and China, due to ongoing war in Ukraine, lingering inflation pressures, subdued external demand and prolonged COVID-19 infections. Kwale County Treasury, 2023 Page 3 2023 County Fiscal Strategy Paper 12. The current account balance is estimated to have narrowed to USD 1,531 million in the third quarter of 2022 from USD 1,714 million in the third quarter of 2021, reflecting increased receipts from both services and merchandise goods exports amid sustained growth in imports. Secondary income inflows were resilient despite a decline of USD 20 million to USD 959 million in the third quarter of 2022 from USD 979 million in a similar quarter in 2021. 13. The banking sector remained stable and resilient in the third quarter of 2022, with strong liquidity and capital adequacy ratios. The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.7 percent in September compared to 14.7 percent in June. 14. Repayments and recoveries were noted in the Building and Construction, Tourism, Manufacturing, Real Estate, Financial Services, Transport and Communication and Trade sectors. Commercial banks have continued to make adequate provisions for the NPLs. The Government’s budgetary operations at the end of the first quarter of FY 2022/23 resulted in a deficit (including grants) of 0.9 percent of GDP. Both revenue collection and expenditure remained below their respective targets. 15. Kenya’s public and publicly guaranteed debt increased by 1.4 percent during the first quarter of the FY 2022/23. Domestic and external debt increased by 1.8 percent and 0.9 percent, respectively. The overall equity market activity increased in the third quarter of 2022 compared to the second quarter. The NSE 20 share and NASI indices as well as market capitalization increased in the third quarter compared to the second quarter. However, the equity turnover and total number of shares traded declined. 2.2 Recent Economic Development and Outlook 2.2.1 Global and regional Economic developments 16. World real Gross Domestic Product is estimated to have grown by 5.9 per cent in 2021 compared to a contraction of 3.1 per cent in 2020. The growth was mainly attributed to easing of COVID-19 restriction measures which led to increased global trade and increased activities in both the industrial and service sectors. The growth was manifested in advanced economies and Emerging Markets and Development Economies which expanded by 5.0 per cent and 6.5 per cent, respectively, in the review period. Sub-Saharan Africa economy grew by 3.7 per cent in 2021, mainly due to favorable weather conditions in most of the countries in the region. 17. East Africa Community economy grew by 4.9 per cent in the period under review compared to 1.0 per cent growth in 2020. World trade volume increased by 9.3 per cent in 2021 compared to a contraction of 8.2 per cent in 2020, reflecting increased demand and activities in the economy. Global inflation rose from 3.2 per cent in 2020 to 4.3 per cent in 2021 due to increase in prices of energy and agricultural commodities, and supply chain disruptions. Unemployment rate eased from 6.6 per cent in 2020 to 6.2 per cent in 2021 as businesses reopened and the number of working hours increased, after relaxation of COVID-19 restrictions. Most economic activities recorded positive growths except in Agriculture, Forestry and Fishing activities which contracted by 0.2 per cent in the review period. Activities that were affected more severely by the pandemic in 2020 such as Education and Accommodation and Food Service grew faster than those that were less severely affected. Kwale County Treasury, 2023 Page 4 2023 County Fiscal Strategy Paper 18. Economic growth in 2021 was supported by improved performance in key sectors of the economy including; Manufacturing (6.9%), Wholesale and Retail Trade (7.9%), Real Estate (6.7%), Transportation and Storage (7.2%), and Financial and insurance activities (12.5%).Agriculture remained the dominant sector, accounting for about 22.4 per cent of the overall GDP in 2021. Industry related activities and service activities accounted for about 17.0 per cent and 60.6 per cent, respectively in 2021. 19. In the review period, monetary policy was premised on the need to accelerate economic recovery after a slowdown witnessed in most of the economic activities in 2020. Central Bank Rate (CBR) was maintained at 7.00 per cent throughout 2021. Overall liquidity and broad money grew by 9.48 per cent and 6.1 per cent, respectively in 2021. Nominal GDP increased from Ksh 10,716.0 billion in 2020 to Ksh 12,098.2 billion in 2021 while Gross National Disposable Income increased from Ksh 11,058.4 billion in 2020 to Ksh 12,588.2 billion in 2021. Gross domestic per capita increased by 11.4 per cent from Ksh 220,132.2 in 2020 to Ksh 245,145 in 2021. 2.2.2 Regional Economic Development and Analysis Organization for Economic Co-operation and Development (OECD) 20. The OECD bloc recorded a growth of 5.3 per cent in 2021 compared to a contraction of 4.7 per cent in 2020. The accelerated growth was attributed to improved global demand due to reopening of international borders during the review period. Overall inflation rose from 1.5 per cent in 2020 to 3.5 per cent in 2021, mainly due to increased energy and food prices, and supply shortages. Unemployment rate in the OECD eased to 6.2 per cent in 2021 from 7.1 per cent reported in 2020, as a result of increased employment by reopening businesses. Table 1: Key Economic Indicators of selected OECD Countries 2019-2022 2019 2020 2021* 2022* World Real GDP Growth 2.8 -3.1 5.9 4.4 World Inflation 3.5 3.2 4.3 3.8 World Trade Growth 0.9 -8.2 9.3 6.0 Real GDP Growth United states of America 2.3 -3.4 5.6 3.7 United Kingdom 1.7 -9.7 6.9 4.8 Japan 0.0 -4.6 1.8 3.4 Germany 1.1 -4.9 2.9 4.1 Euro Area 1.6 -6.5 5.2 4.3 Total OECD 1.8 -4.7 5.3 3.9 Inflation United states of America 1.5 1.2 3.9 4.4 United Kingdom 1.8 0.9 2.4 4.4 Japan 0.5 0.0 0.0 0.8 Kwale County Treasury, 2023 Page 5 2023 County Fiscal Strategy Paper Germany 1.4 0.4 3.1 2.8 Euro Area 1.2 0.3 2.4 2.7 Total OECD 2.0 1.5 3.5 4.2 Current Account Balances as % of GDP United states of America -2.2 -2.9 -3.6 -3.8 United Kingdom -2.7 -2.6 -2.8 -3.5 Japan 3.4 2.9 3.2 2.6 Germany 7.6 6.8 6.8 6.1 Euro Area 3.0 2.7 3.4 3.1 Total OECD 0.3 0.0 0.1 -0.3 Unemployment Rate United states of America 3.7 8.1 5.4 3.8 United Kingdom 3.8 4.5 4.5 4.3 Japan 2.3 2.8 2.8 2.6 Germany 3.2 3.9 3.6 3.2 Euro Area 7.6 7.9 7.7 7.2 Total OECD 5.4 7.1 6.2 5.5 Source of data: ECD Economic Outlook No.110, IMF World Economic Outlook datasets (January 2022) Domestic Economic Developments 21. The Kenyan economy continued to demonstrate remarkable resilience in the first half of 2022 despite the global economic slowdown. The economy grew by 6.8 percent in the first quarter of 2022 compared to a growth of 2.7 percent in a similar quarter in 2021. The growth momentum slowed down in the second quarter of 2022 with the economy expanding by 5.2 percent compared to a growth of 11.0 percent in the corresponding quarter of 2021. The growth was supported by the non-agricultural sectors particularly strong activity in financial and insurance, transportation and storage, wholesale and retail trade, real estate, and construction sub-sectors. However, performance of the agriculture sector remained subdued due to unfavorable weather conditions Kwale County Treasury, 2023 Page 6 2023 County Fiscal Strategy Paper Figure 1: Quarterly Real GDP Growth Rates 12 11 10 9.3 7.4 8 6.8 6 6 5.24.8 5 4.6 4.4 4 2.7 2.3 2 0 -2 -4 -3.5 -4.1 -6 PERIOD Source: Kenya National Bureau of Statistics 22. Activities in the agriculture, forestry and fishing sector contracted for the third consecutive quarters mainly attributed to unfavorable weather conditions that resulted to reduced agricultural production. The sector is estimated to have contracted by 2.1 percent in the second quarter of 2022 compared to a contraction of 0.5 percent in the corresponding quarter of 2021. The performance of the sector was evident in the significant decline in exports of vegetable and cut flower, and production of tea, coffee and milk. The sector’s contribution to GDP growth was -0.4 percentage points in the second quarter of 2022 compared to -0.1 percentage points’ contribution in the same quarter in 2021. 23. The performance of the industry sector slowed down to a growth of 4.5 percent in the second quarter of 2022 compared to a growth of 9.1 percent in the same period in 2021. This was mainly on account of normalization of activities in the manufacturing, electricity and water supply and construction sub-sector after the strong recovery in 2021. The industry sector accounted for 0.7 percentage points of growth in the second quarter of 2022 compared to 1.5 percentage points contribution in the same quarter in 2021. Kwale County Treasury, 2023 Page 7 GROWTH RATE 2023 County Fiscal Strategy Paper Table 2: Sectoral GDP Growth rate (percent) Source: Kenya National Bureau of Statistics Figure 2: Sectors Contribution to real GDP growth 2 12 10 1.5 8 1 6 4 0.5 2 0 0 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 -2 -0.5 -4 -1 -6 PERIOD AGRICULTURE INDUSTRY SERVICES GDP GROWTH(AT MARKET PRICE) Source: Kenya National Bureau of Statistics Kwale County Treasury, 2023 Page 8 contribution(percentage point) Axis Title 2023 County Fiscal Strategy Paper Inflation rate 24. The year-on-year inflation rate was above the 7.5 percent upper target for the fourth consecutive month since June, 2022. Inflation rate was at 9.2 percent in September, 2022 from 6.9 percent in September 2021. This was mainly due to higher food and fuel prices. 25. Inflation is expected to remain elevated in the near term due in part to the scaling down of the Government price support measures, resulting in increases in fuel and electricity prices; the impact of tax measures in the FY 2022/23 Budget; and global inflationary pressures Overall annual average inflation remained within Government target range at 6.8 percent in September 2022 compared to the 5.9 percent recorded in September 2021 26. Overall inflation increased to 8.7 percent in the third quarter of 2022 from 7.2 percent in the previous quarter, driven by supply side factors that exerted upward pressure on food and energy prices. Food inflation increased to 15.4 percent in the third quarter of 2022 from 12.8 percent in the previous quarter, largely driven by unfavorable weather conditions and elevated transport costs. 27. Fuel inflation increased to 9.4 percent from 9.2 percent in the previous quarter, reflecting elevated global oil prices. Non-food Non-fuel (NFNF) inflation remained low, increasing modestly, reflecting muted demand pressures in the economy. It increased to 3.3 percent from 2.7 percent in the previous quarter. 28. The contributions of food and fuel components to overall inflation increased during the quarter under review. The food component increased to 5.5 percentage points from 4.6 percentage points in the previous quarter, while that of fuel increased to 2.1 percentage points from 1.3 percentage points. However, the contribution of Non-food Non-fuel inflation declined to 1.1 percentage points from 1.2 percentage points. Figure 3: Recent Trends in Inflation Source: Kenya National Bureau of Statistics and Central Bank of Kenya Kwale County Treasury, 2023 Page 9 2023 County Fiscal Strategy Paper Food Inflation 29. Although international food prices were easing in the third quarter of 2022, food inflation increased to 15.4 percent in the third quarter of 2022 from 12.8 percent in the previous quarter. The elevated food price was largely driven by edible oils, maize, and wheat products. As a result, the contribution of non- vegetable items to food inflation increased further. The contribution of vegetable items to food inflation declined further during the quarter driven by favorable seasonal factors Fuel Inflation 30. Fuel inflation increased to 9.4 percent from 9.2 percent in the previous quarter, despite government interventions to stabilize energy prices. The increase was largely due to elevated global oil prices whose level and volatility has increased following the Russia-Ukraine war. Moreover, the scaling down of government subsidies on pump prices and electricity towards the end of the quarter under review exerted upward pressure on fuel inflation. The energy component remained the major driver of fuel inflation, due to higher costs of energy items such as diesel, petrol, kerosene, gas/LPG, and electricity. On the other hand, the contribution of non-energy[H1] items remained relatively stable during the quarter. Non-Food Non-Fuel Inflation (NFNF) 31. Non-food Non-fuel (NFNF) inflation remained low, increasing modestly, reflecting muted demand pressures in the economy. It increased to 3.3 percent from 2.7 percent in the previous quarter. The increase was reflected in increased prices across most categories in the NFNF basket. Figure 4: Contribution of broad categories to overall inflation (percentage points) Overal Inflation Food inflation Fuel inflation Non-Food Non-Fuel inflation Annual Average Inflation Three Months Annualised Inflation 60.0 50.0 8.3 13.6 8.8 9.7 8.2 6.8 40.0 9.4 6.1 2.8 6.65.8 6.2 3.3 6.4 6.6 3.4 5.0 5.2 5.7 6.1 6.7 3.1 3.230.0 2.3 2.5 2.7 2.7 9.4 8.0 8.6 11.72.0 6.1 13.9 14.2 10.8 2.1 9.2 20.0 10.1 6.8 15.4 15.3 15.3 15.5 7.0 7.3 10.110.0 9.9 12.8 9.2 5.8 6.0 6.7 6.0 5.3 7.2 8.7 8.3 8.5 9.2 0.0 2020 2022 Period Source: Kenya National Bureau of Statistics and Central Bank of Kenya. Kwale County Treasury, 2023 Page 10 Percentage Points Q1 Q2 Q3 Q4 Q1 Q2 Q3 JULY AUGUST SEPTEMBER 2023 County Fiscal Strategy Paper Figure 5: Comparative Overall Inflation versus Food Inflation Comparative analysis-overal inflation and Food inflation 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2020 2022 Overal Inflation Food inflation Source: Central bank of Kenya 32. Kenya’s year-on-year overall inflation rate compares favorably with the rest of Sub Saharan Africa countries. In September, 2022, Kenya recorded a lower inflation rate than Zambia, Uganda, Nigeria, Burundi, Rwanda, Ethiopia and Ghana. Tanzania, Namibia and South had lower inflation rates than Kenya. Kwale County Treasury, 2023 Page 11 Q1 Q2 Q3 Q4 Q1 Q2 Q3 JULY AUGUST SEPTEMBER 2023 County Fiscal Strategy Paper Figure 6: Year on Year Inflation Rates of selected Sub-Saharan African Countries (September, 2022) 40.0 37.2 35.0 30.7 30.0 23.9 25.0 20.8 20.9 20.0 15.0 9.2 9.9 10.0 10.0 7.1 7.5 4.8 5.0 0.0 Tanzania Namibia South Kenya Zambia Uganda Nigeria Burundi Rwanda Ethiopia Ghana Africa Source: National Central Banks Kenya Shilling Exchange Rate 33. The foreign exchange market has largely remained stable despite the tight global financial conditions attributed to strengthening of the US Dollar. The Kenya Shilling to the US Dollar exchanged at KSh. 120.4 in September, 2022 compared to Ksh 110.2 in September 2021.Over the same period, the Kenyan Shilling strengthened against other major international currencies. The Euro exchanged at KSh. 119.3 in September, 2022 compared to Ksh 129.8 in September 2021 while the Sterling Pound exchanged at KSh. 136.7 compared to Ksh 151.5 over the same period. Kwale County Treasury, 2023 Page 12 2023 County Fiscal Strategy Paper Figure 7: Kenya Shilling Exchange Rate Source: Central bank Of Kenya 34. In comparison to Sub-Saharan Africa currencies, the Kenya Shilling has remained relatively stable despite weakening by 9.3 percent against the US Dollar the depreciation rate of the Kenyan Shilling was lower than that of Botswana pula, Namibian Dollar, South African Rand, Malawian Kwacha and Ghanaian Cedi. The stability in the Kenya Shilling was supported by increased remittances, adequate foreign exchange reserves and improved exports. Kwale County Treasury, 2023 Page 13 2023 County Fiscal Strategy Paper Figure 8: Performance of Selected Sub-Saharan Countries Currencies against the US Dollar (Sept 2021 to Sept, 2022) 30 26.9 25 20.3 20.6 18 20 15 8.3 9.3 10 5.6 3.4 4.2 5 2.80.6 0 CURRENCY Source: National Central Banks Interest Rate Central Bank Rate 35. The Monetary Policy Committee (MPC) in September 2022 raised the Central Bank Rate (CBR) from 7.50 percent to 8.25 percent in order to anchor inflation expectations. The MPC noted the sustained inflationary pressures, the elevated global risks and their potential impact on the domestic economy and concluded that there was scope for a tightening of the monetary policy. In the July MPC meeting, the Committee had retained the CBR rate at 7.50 percent noting that its action of tightening monetary policy in May 2022 was timely in anticipating emerging inflationary pressures, and the impact of the May action was still transmitting through the economy Short Term Rates 36. The average interbank interest rates declined to 4.36 percent in September 2022 from 5.06 percent in June 2022, partly reflecting improved liquidity conditions in the money markets following seasonal increased government payments towards the end of the fiscal year. The average 91-day Treasury bill rate increased to 8.92 percent from 7.90 percent in June, while the average 182-day Treasury bill rate increased to 9.60 percent from to 9.07 percent. Lending and Deposit Rates 37. Commercial banks average lending rate increased slightly in the third quarter of 2022, partly reflecting the monetary policy stance. The weighted average lending rate increased marginally to 12.41 percent in September 2022 from 12.27 percent in June 2022 while the weighted average deposit rate increased to 6.82 percent from 6.62 percent in June 2022. Consequently, the spread declined to 5.59 percent in the third quarter. Kwale County Treasury, 2023 Page 14 DEPRECIATION (%) 2023 County Fiscal Strategy Paper Table 3: Interest rates (percent) 2021 2022 ep Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 91-day Treasury bill rate 6.57 6.83 6.95 7.1 7.26 7.32 7.28 7.25 7.39 7.65 7.9 8.21 8.58 8.92 182-day Treasury bill 7.07 7.25 7.36 7.66 7.95 8.08 8.09 8.08 8.27 8.69 9.07 9.29 9.45 9.6 rate Interbank rate 3.1 4.73 5.3 4.97 5.1 4.36 4.73 4.72 4.67 4.6 5.06 5.5 5.35 4.36 Repo rate 5.41 5.54 6.4 5.03 5.31 5.09 - - 5 6.38 6.8 7.24 - - Reverse Repo rate - 7.62 7.45 - 8.37 8.51 8.46 8.54 8.78 8.16 8.44 8.59 9.21 9.63 Central Bank Rate (CBR) 7 7 7 7 7 7 7 7 7 7 7.5 7.5 7.5 8.25 Average lending rate (1) 12.12 12.1 12.12 12.15 12.16 12.12 12.17 12.15 12.2 12.22 12.27 12.35 12.43 12.41 Overdraft rate 11.38 11.34 11.33 11.41 11.48 11.57 11.63 11.5 11.69 11.76 11.86 12.02 12.1 11.99 1-5years 12.29 12.29 12.29 12.34 12.33 12.34 12.32 12.39 12.41 12.43 12.48 12.56 12.67 12.66 Over 5years 12.24 12.21 12.25 12.23 12.24 12.12 12.24 12.17 12.2 12.18 12.23 12.27 12.35 12.33 Average deposit rate (2) 6.3 6.34 6.39 6.43 6.5 6.53 6.61 6.5 6.58 6.59 6.62 6.74 6.93 6.82 0-3months 6.59 6.61 6.64 6.76 6.91 6.95 7.1 6.89 6.95 6.92 6.96 7.13 7.3 7.18 Over 3 months deposit 7.03 7.04 7.15 7.16 7.19 7.19 7.23 7.25 7.3 7.36 7.39 7.45 7.52 7.4 Savings deposits 2.64 2.57 2.58 2.6 2.55 2.55 2.56 2.48 2.56 2.52 2.5 2.94 3.46 3.44 Spread (1-2) 5.82 5.76 5.72 5.72 5.66 5.59 5.55 5.65 5.62 5.62 5.66 5.61 5.5 5.59 Source: Central Bank of Kenya Money and Credit 38. Broad money supply, M3, grew by 6.1 percent in the year to September, 2022 compared to a growth of 8.8 percent in the year to September 2021. The growth in September, 2022 was mainly due to an increase in domestic credit particularly net lending to the private sector. This growth was however curtailed by a decline in the Net Foreign Assets (NFA). Net Foreign Assets (NFA) of the banking system in the year to September 2022 contracted by 55.7 percent, compared to a contraction of 11.5 percent in the year to September 2021.The decline in NFA was partly due to the Central Bank payments of Government external obligations, and increased banks’ borrowings from foreign sources and reduction in foreign deposit assets to support lending to customers. 39. Broad money supply (M3) slightly contracted by 0.3 percent in the third quarter of 2022 compared to an increase of 5.3 percent in the previous quarter, largely reflecting reduction in deposits. The decline in deposits was mainly on account of household deposits and other deposits at the Central Bank. Household deposits declined by 1.4 percent compared to an increase of 4.7 percent in the previous quarter, mainly reflected in demand deposit holdings. The decline in other deposits at the Central Bank was on account of reduced county government deposits. The growth in corporate deposits also declined, largely recorded in time and savings, and foreign currency deposits category. The 12-month growth in broad money supply (M3) decreased to 6.1 percent in September 2022 from 7.4 percent in June 2022, largely reflecting reduced net foreign assets of the banking system Private Sector credit 40. Private sector credit improved to a growth of 12.5 percent in the 12 months to December, 2022 compared to a growth of 8.6 percent in the year to September 2021.This was supported by increased credit demand following improved economic activities. Strong credit growth was observed in the following sectors: mining, transport and communication, agriculture, trade, consumer durables, manufacturing, business services and building and construction. All economic sectors registered positive credit growth rates. Kwale County Treasury, 2023 Page 15 2023 County Fiscal Strategy Paper 41. Net Domestic Assets (NDA) registered a growth of 16.4 percent in the year to September, 2022 an improvement compared to a growth of 13.1percent over a similar period in 2021. The growth in NDA was mainly supported by resilient growth in credit to the private sector as business activities improved. The Government has launched the Hustlers Fund, as an intervention to correct market failure problems that led to unscrupulous shylock private credit entities. Hustler fund program aims to lift those at the bottom of the pyramid through structured products in personnel finance that includes savings, credit, insurance and investment. Figure 9: Growth in NDA and its Sources (Percent) 40.00 20.00 35.00 18.00 16.00 30.00 14.00 25.00 12.00 20.00 10.00 15.00 8.00 6.00 10.00 4.00 5.00 2.00 0.00 0.00 2021 2021 2021 2021 2022 2022 2022 2022 2022 2022 2022 2022 2022 SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT PERIOD PRIVATE CREDIT DOMESTIC CREDIT NET DOMESTIC ASSETS Source: Central bank of Kenya External Sector Developments 42. There was an improvement in overall balance of payment to a surplus of USD 2,318 Million (2.1 percent of GDP) in September, 2022 from a deficit of USD 745.6 Million (0.7 percent of GDP) during the same period the previous year 2021. This growth was attributed to improvement in financial account despite a decline in the merchandise account reflecting increased imports of petroleum products owing to high international crude oil prices. 43. The current account deficit was generally stable at USD 5,771.0 million (5.2 percent of GDP) in November 2022 compared to USD 5,811.6 million (5.4 percent of GDP) in November 2021. The current account balance was supported by an improvement in the net receipts on the services account and the net secondary income balance despite a deterioration in the net primary income balance and merchandise account Kwale County Treasury, 2023 Page 16 PRIVATE CREDIT AND DOMESTIC CREDIT NET DOMESTIC ASSETS 2023 County Fiscal Strategy Paper Figure 10: Performance of Balance of Payments and its Components Source: Central Bank of Kenya 44. The current account deficit was generally stable at USD 6,020.6 million (5.4 percent of GDP) in September, 2022 compared to USD 5,739.5 million (5.2 percent of GDP) in September 2021. The current account balance was supported by an improvement in the net receipts on the services account and the net secondary income balance despite a deterioration in the net primary income balance and merchandise account. 45. The balance in the merchandise account declined by USD 2,139.2 million to a deficit of USD 12,548.5 million in September, 2022 mainly due to increased payments on imports in spite of an improvement in the export earnings .In the year to September, 2022, exports grew by 14.0 percent primarily driven by improved receipts fromt ea and manufactured goods despite a decline in receipts from horticulture. The increase in tea exports reflects improved prices attributed to demand from traditional markets. On the other hand, imports of goods increased by 18.0 percent in the year to September, 2022 mainly due to increases in imports of oil and other intermediate goods. 46. Net receipts on the services account improved by USD 1,506.8 million to USD 1,826.0 million in September, 2022 compared to a similar period in 2021. This was mainly on account of an increase in receipts from transportation and tourism as international travel continues to improve. Net Secondary income remained resilient and increased by USD 667.5 million during the review period owing to an increase in remittances. The balance on the primary account widened by USD 316.2 million to a deficit of USD 1,707.0 million in September , 2022, from a deficit of USD 1,390.9 million in the same period last year, reflecting higher interest related payments on other investments. 47. The capital account balance declined by USD 39.0 million to register a surplus of USD 165.7 million in September, 2022 compared to a surplus of USD 204.8 million in the same period in 2021. Net financial Kwale County Treasury, 2023 Page 17 2023 County Fiscal Strategy Paper inflows improved to USD 6,838.5 million in September, 2022 compared to USD 6,105.0 million in September 2021. The net financial inflows were mainly in the form of other investments, financial derivatives and direct investments. Table 4: Balance of Payments (USD Million) Source: Central Bank of Kenya Foreign Exchange Reserves 48. The banking system’s foreign exchange holdings remained strong at USD 11,337.4 million in September, 2022 from USD 14,089.1 million in September 2021. The official foreign exchange reserves held by the Central Bank stood at USD 7,787.5 million comparedt o USD 9,632.2 million over the same period. The official reserves held by the Central Bank in September, 2022 represented 4.4 months of import cover as compared to the 5.9 months of import cover in September 2021. It, therefore, fulfilled the requirement to maintain it at a minimum of 4.0 months of imports cover to provide adequate buffer against short term shocks in the foreign exchange market. Commercial banks holdings decreased to USD 3,549.9 million in September, 2022 from USD 4,457.0 million in September 2021. Kwale County Treasury, 2023 Page 18 2023 County Fiscal Strategy Paper Figure 11: Foreign Exchange Reserves by September, 2022 Source: Central Bank of Kenya Capital Markets Development 49. Activity in the capital markets slowed down in September, 2022 compared to September 2021 due to the outflow of investors as the U.S. Federal Reserve Bank raised interest rates. The NSE 20 Share Index was at 1,718 points by end of September, 2022 compared with 2,131 points by end September 2021 while market capitalization declined to KSh. 2,001 billion from KSh. 2,779 billion over the same period. Figure 12: Performance at the NSE by end September, 2022. Source: Nairobi securities Exchange Kwale County Treasury, 2023 Page 19 2023 County Fiscal Strategy Paper County Government Revenue performance 50. During the first quarter period ending 30th September 2022, Kwale county government’s effort to collect her own source revenue saw a decline in the overall collection compared to the same period during the previous financial year 2020/2021. The county collected a total of Kshs.47, 585,417.65 from all her revenue streams internally which accounted to a decline of 23% from the previous period. Hospital Revenue fees and Advertisement fees had a significant reduction of 54% and 27% respectively compared to the performance of the same period in the previous year FY 2020/2021. The decline is attributed to the fact that during FY 2020/2021 in the first quarter under review, there were arrears that were paid on the two sources mentioned above. Table 5: Budget Execution Highlight for the period ending 30th September 2022 Details Annual Final Approved Actual Cumulative as Utilization (%) Budget at 30th Sept 2022 Kshs. Kshs Receipts 315,000,000.00 47,585,417.65 15.11% Payments 315,000,000.00 44,291,295.35 14.06% Surplus/ Deficit - 3,294,122.30 1.05% Source: County Treasury 51. The first quarter revenue performance was very slow with the August 8th 2022 general elections affecting key revenue generating activities. The Cess revenue collection dropped mainly because of slowing down of building and construction activities during the period. Due to harsh climatic and weather Conditions in most agricultural areas of the county, agricultural output was derailed thereby affecting the county revenues from agricultural activities. 52. Liquor License fees is projected to increase in the forthcoming quarters when the implementation of the Liquor policy starts, as the sub county committees has been formed. During the first quarter, there was a court case against H Young concerning collection of murram Cess which was finalized at the end of the quarter. Therefore, cess collection was expected to rise during the second quarter since a court order to pay was imposed on the company. 53. Revenue collection improved significantly during the second quarter of the review period, a total cumulative collection of Kshs.116, 107,417.00 being County own revenue achieved. The county received Kshs.2, 025,068,452.00 from the national exchequer as at the end of the second quarter FY 2022/2023.Total revenue collected for the county amounts to Kshs.2,141,175,869.00 as at 31st December 2022 which include county own source Revenue(Kshs.116,107,417.00) and equitable share from the national treasury (Kshs.2,025,068,452.00). Kwale County Treasury, 2023 Page 20 2023 County Fiscal Strategy Paper Table 6: Statement of Receipts and Payments for the Period Ended 31st December 2022 Annual Revised Actual Revenue Variance No Revenue Stream Targeted Revenue (Kshs.) (Kshs.) (Kshs.) 1 Cess 37,430,000.00 13,244,387.00 24,185,613.00 2 Land/Poll Rate 53,452,800.00 11,738,304.35 41,714,495.65 3 Single/Business Permits 69,518,100.00 4,505,880.00 65,012,220.00 4 Property Rent 7,631,600.00 2,277,707.00 5,353,893.00 5 Parking Fees 19,300,000.00 7,123,868.00 12,176,132.00 6 Market Fees 10,700,000.00 4,504,436.00 6,195,564.00 7 Advertising 16,630,000.00 2,923,601.00 13,706,399.00 8 Hospital Fees 138,800,000.00 59,445,004.00 79,354,996.00 9 Public Health Service Fees 7,850,000.00 1,072,209.00 6,777,791.00 10 Physical Planning and Development 50,400,000.00 1,771,423.25 48,628,576.75 11 Hire Of County Assets 1,560,000.00 486,000.00 1,074,000.00 12 Conservancy Administration 1,750,000.00 1,609,100.00 140,900.00 13 Administration Control Fees and Charges 23,837,500.00 1,437,980.00 22,399,520.00 14 Park Fees - 200,000.00 -200,000.00 15 Other Fines, Penalties, And Forfeiture Fees 60,000.00 40,000.00 20,000.00 16 Miscellaneous receipts 118,196,564.00 3,727,517.40 114,469,046.60 SUB TOTAL OSR 557,116,564.00 116,107,417.00 441,009,147.00 Equitable Share of Revenue from National 17 8,265,585,516.00 2,025,068,452.00 6,240,517,064.00 Government 18 Compensation for User Fees Forgone 14,814,598.00 - 14,814,598.00 19 Leasing of Medical Equipment 0.00 - 0.00 20 Road Maintenance Levy 257,663,634.00 - 228,285,028.00 21 Development of Youth Polytechnics 54,838,548.00 - 54,837,777.00 World Bank Grant on Kenya Devolution 22 91,452,573.00 - 73,052,239.00 Support Programme 23 KDSP (Level II Grant) 102,491,953.00 102,491,953.00 24 Urban Development Grant (UDG) 31,055,373.00 25 Urban Institutional Grant (UIG) 11,426,233.00 26 DANIDA Grant 33,726,199.00 - 33,726,199.00 World Bank Grant for Universal Health Care 27 22,171,888.00 - 22,171,888.00 Project World Bank Loan for National Agricultural and 28 278,050,578.00 - 278,050,578.00 Rural Inclusive Growth Project Water and Sanitation Development Project 29 600,000,000.00 - 600,000,000.00 (WSDP) Kenya Informal Settlement Improvement 30 50,000,000.00 50,000,000.00 Project KISIP II 31 EU-IDEAS Tranche III 11,000,000.00 11,000,000.00 32 EU-IDEAS Grant balance 3,726,052.00 3,726,052.00 33 COVID - 19 Grant 3,778,038.00 3,778,038.00 Agricultural Sector Development Support 34 40,883,786.00 - 40,883,786.00 Programme SUB TOTAL LOANS AND GRANTS 1,607,079,453.00 0.00 1,516,818,136.00 Income brought forward from FY2021/2022 35 Budget 1,299,888,249.27 1,299,888,249.27 TOTAL REVENUE 11,729,669,782.27 2,141,175,869.00 9,498,232,596.27 Source: County Treasury Kwale County Treasury, 2023 Page 21 2023 County Fiscal Strategy Paper County Government Expenditure performance Development Expenditure 54. Majority of Kwale County departments had meagre performance on development activities during the time under review. Most of them registered nil expenses on development budgets due to delays in release of Funds from the National Exchequer as well as the disruptions in the economy caused by the August 8th General elections of 2022. The county spent a total of Kshs.72, 643,548.00 out of the Kshs.4, 838,293,711.12 allocated for development purposes, attaining only 1.5% absorption rate. Only three of the County departments posted positive absorption capacities; Agriculture, Livestock and Fisheries spent Kshs.5, 000,000.00 (1%), Education Services posted a total of Kshs.60, 189,348.00 (8.66%), while the department of water Services spent Kshs.7, 454,200.00 (0.63) on development activities. The table below shows actual development expenditures against the approved revised development budget FY 2022/2023 as at 31st December 2022. Table 7: Analysis of development Expenditure FY 2022/2023 ANALYSIS OF DEVELOPMENT EXPENDITURE FY 2022/2023 ACTUAL EXPENDITURE AS AT REVISED ESTIMATES FY 2022- ABSORPTION RATE CODE VOTE 31ST DEC 2022 2023 (%) 3061 Finance and Economic Planning 63,810,290.00 3062 Agriculture, Livestock and Fisheries 5,000,000.00 498,368,901.00 1.00 3063 Environment and Natural Resources 162,138,944.00 3064 Health Services 647,452,902.25 3065 County Assembly 293,280,661.58 3066 Trade, Investment and Cooperatives 190,322,424.90 3067 Social Services & Talent Management 141,030,444.47 3068 Executive Services 40,921,795.00 3069 Education 60,189,348.00 695,191,695.77 8.66 3070 Water Services 7,454,200.00 1,188,286,271.50 0.63 3071 Roads and Public Works 745,490,039.50 3072 Tourism and ICT 45,413,613.05 3073 County Public Service Board 3074 Public Service and Administration 20,936,933.10 3075 Kwale Municipality 69,260,304.00 3076 Diani Municipality 36,388,491.00 GRAND TOTAL 72,643,548.00 4,838,293,711.12 1.50 Source: Kwale County Treasury Recurrent Expenditure 55. During the first two quarters of the financial year, Kwale county departments had a total of Kshs.3, 089,735,407.00 actual expenditure on recurrent programs representing 44.83% of total recurrent expenditure for the FY 2022/2023. The department of Health services and Education Services posted the highest expenditures on recurrent expenses at Kshs.1, 356,054,253.00 and Kshs.743, 919,349.00 respectively as shown in the graph chart below: Kwale County Treasury, 2023 Page 22 2023 County Fiscal Strategy Paper Figure 13: Kwale County Recurrent Budget Expenditures as at 31st December 2022 ANALYSIS OF RECURRENT EXPENDITURE FY 2022/2023 ACTUAL EXPENDITURE AS AT 31ST DEC 2022 ANALYSIS OF RECURRENT EXPENDITURE FY 2022/2023 REVISED ESTIMATES FY 2022-2023 ANALYSIS OF RECURRENT EXPENDITURE FY 2022/2023 ABSORPTION RATE(%) 3,000,000,000 90.00 2,500,000,000 80.00 70.00 2,000,000,000 60.00 1,500,000,000 50.00 40.00 1,000,000,000 30.00 500,000,000 20.00 10.00 0 - VOTE Source: County Treasury 56. The Municipalities of Kwale and Diani registered the lowest recurrent expenditures at Kshs.2, 694,968.00 and Kshs.1, 043,550.00 respectively. Education services had the highest absorption capacity of her recurrent budget (80.26%) , while the County assembly posted the lowest absorption rate (8.34%) as shown in the table below; Table 8: Analysis of recurrent Expenditure As At 31st December 2022. ACTUAL EXPENDITURE REVISED ESTIMATES FY CODE VOTE AS AT 31ST DEC 2022 2022-2023 ABSORPTION RATE (%) 3061 Finance and Economic Planning 340,916,711 1,049,419,053.00 32.49 3062 Agriculture, Livestock and Fisheries 81,902,701 209,501,570 39.09 3063 Environment and Natural Resources 31,991,498 81,972,326 39.03 3064 Health Services 1,356,054,253 2,758,006,810 49.17 3065 County Assembly 73,025,857 875,860,410 8.34 3066 Trade, Investment and Cooperatives 28,814,858 58,459,543 49.29 3067 Social Services & Talent Management 43,376,127 102,903,530 42.15 3068 Executive Services 96,301,430 152,607,331 63.10 3069 Education 743,919,349 926,935,809 80.26 3070 Water Services 43,809,888 96,726,735 45.29 3071 Roads and Public Works 51,310,010 172,164,050 29.80 3072 Tourism and ICT 22,263,201 50,660,847 43.95 3073 County Public Service Board 23,350,129 55,293,983 42.23 3074 Public Service and Administration 148,960,877 281,079,433 53.00 3075 Kwale Municipality 2,694,968 9,848,894 27.36 3076 Diani Municipality 1,043,550 9,935,747 10.50 GRAND TOTAL 3,089,735,407.00 6,891,376,071.32 44.83 Source: County Treasury Kwale County Treasury, 2023 Page 23 AMOUNT (KSHS) RATE(%) 2023 County Fiscal Strategy Paper Personnel Emoluments 57. Actual County Expenditure on Salaries and wages as at 31st December 2022 stood at Kshs.1, 824, 192,300.50 representing 53.61% of the total annual budget allocated for personnel and Emoluments in FY 2022/2023 period. Executive services and the office of the county governor registered the highest absorption rate on her Personnel Emoluments budget at 95.90% while the county Assembly had the lowest absorption capacity at 32.88% as shown in the table below. Table 9: Analysis of Personnel Emoluments Expenditure as at 31st December 2022. ACTUAL EXPENDITURE REVISED ESTIMATES ABSORPTION CODE VOTE AS AT 31ST DEC 2022 FY 2022-2023 RATE (%) 3061 Finance and Economic Planning 127,880,097 174,155,265 73.43 3062 Agriculture ,Livestock and Fisheries 71,542,294 141,827,365 50.44 3063 Environment and Natural Resources 19,192,933 26,941,639 71.24 3064 Health Services 892,063,649 1,852,248,939 48.16 3065 County Assembly 99,077,801 301,291,321 32.88 3066 Trade ,Investment and Cooperatives 20,266,404 32,127,589 63.08 3067 Social Services & Talent Management 15,584,783 30,276,605 51.47 3068 Executive Services 68,781,695 71,721,870 95.90 3069 Education 327,782,365 432,083,678 75.86 3070 Water Services 18,208,375 35,426,928 51.40 3071 Roads and Public Works 32,035,261 67,225,905 47.65 3072 Tourism and ICT 12,387,585 20,921,809 59.21 3073 County Public Service Board 11,885,706 29,298,166 40.57 3074 Public Service and Administration 107,503,352 183,229,195 58.67 3075 Kwale Municipality - 1,749,685 0.00 3076 Diani Municipality - 2,099,622 0.00 GRAND TOTAL 1,824,192,300.50 3,402,625,581.00 53.61 Source: County Treasury 58. The department of Health services had the highest expenditure on personnel emoluments at Kshs.892, 063,649.00 (48.16% absorption rate) while the County Public Service Board had the least expenditure at Kshs.11, 885,706.00 (40.57% absorption rate) as shown in the chart below; Kwale County Treasury, 2023 Page 24 2023 County Fiscal Strategy Paper Figure 14: Analysis of Personnel Emoluments Expenditure as at 31st December 2022 2,000,000,000 120.00 1,800,000,000 1,600,000,000 100.00 1,400,000,000 80.00 1,200,000,000 1,000,000,000 60.00 800,000,000 600,000,000 40.00 400,000,000 20.00 200,000,000 - 0.00 ACTUAL EXPENDITURE AS AT 31ST DEC 2022 REVISED ESTIMATES FY 2022-2023 ABSORPTION RATE(%) Source: County treasury 2.3 Fiscal Policy 59. Over the medium –term planning period, the fiscal policy intends to revamp revenue generation and rationalize public expenditures and economic risks and explore external funding to finance mega county development flagship projects. The county will strive to create checks and balances on the recurrent expenditures and put more effort in mobilizing county own source revenue. The government shall curtail spending on non-priority programmes and curb wastage in order to avail resources to implement the core priorities. 60. In implementation of its public investment projects, the county government will take into account the requirements of the Public Investment Management (PIM) regulation under the PFM Act 2012. The PIM regulations will ensure there is increased efficiency, effectiveness, transparency and accountability in public spending. In particular, the implementation of PIM regulations will streamline the initiation, execution and delivery of public investment projects. It will also curtail runaway project costs, eliminate duplications and improve working synergy among implementation actors for timely delivery of development projects. 61. Revenue performance will be underpinned by the expected increase in the shareable revenue to the county, continuous improvement of the Kwale Pay Revenue Management System, operationalization of the various revenue raising measures , updating of the County Finance Act, introduction of Health management Information System and the implementation of the National Economic Recovery Strategy, the National Government Transformative flagship projects and other priority programmes outlined in MTP III of Vision 2030. In particular, the reversal of tax cut measures by the National treasury and waivers on some county levies by the County treasury and updating of the valuation roll and asset register will enhance revenue collection. Kwale County Treasury, 2023 Page 25 AMOUNT (KSHS) ABSORPTION RATE (%) 2023 County Fiscal Strategy Paper 2.4 Economic Outlook Global growth Outlook 62. According to the IMF World Economic Outlook (WEO) October 2022 update, the global economy is expected to grow by 1.7 percent in the fourth quarter of 2022 and 2.7 percent in the fourth quarter of 2023. Annual global output growth is expected to slow down to 3.2 percent in 2022 and moderate to 2.7 percent in 2023, down from 6.0 percent in 2021. The growth forecast for 2023 is lower by 0.2 percentage points than in the July WEO update. This reflects significant weakness in the economic activities in the US, Euro Area and China, due to ongoing war in Ukraine, lingering inflation pressures, subdued external demand and prolonged COVID-19 infections. Advanced economies are expected to grow by 0.9 percent and 1.3 percent in the fourth quarters of 2022 and 2023, respectively. 63. Growth in the advanced economies is projected at 2.4 percent in 2022 and is expected to moderate to 1.1 percent in 2023, reflecting weaker economic activity in the first two quarters of 2022 combined with slow growth in private consumption on account of monetary policy tightening arising from elevated inflation. 64. Growth in Emerging Market and Developing Economies (EMDEs) is projected at 2.5 percent in the fourth quarter of 2022 and 3.9 percent in the fourth quarter of 2023. On an annual basis, growth of EMDEs is expected at 3.6 percent in 2022, largely affected by limited fiscal space and dependence on energy and food imports for basic consumption. The growth is anticipated to improve in 2023 to 3.9 percent. Growth in China is expected at 4.3 percent in 2022, a downgrade of 0.2 percentage points from the July 2022 WEO update, reflecting weaker demand due to increased COVID-19 outbreaks and lockdowns as well as the worsening property market crisis. Economic activity in Sub- Saharan Africa (SSA) is expected to grow by 3.8 percent in 2022 and 4.0 percent in 2023. Domestic Growth Outlook 65. Domestically, the economy continued to expand, albeit at a slower pace than the 7.5 percent recorded in 2021. Real GDP grew by 5.5 percent in the first three quarters of 2022 (6.7 percent in quarter one, 5.2 percent in quarter two and 4.7 percent in quarter three) supported by the ongoing recovery in the services sector, driven by accommodation and food services, wholesale and retail trade, finance and insurance, education and transport and storage. The economy is expected to grow by 5.5 percent in 2022 and recover in 2023 to 6.1 percent and maintain that momentum over the medium-term (in terms of fiscal years the economic growth is projected at 5.8 percent in the FY 2022/23 and 6.1 percent in the FY 2023/24). 66. This growth will be supported by a broad-based private sector growth, including recoveries in agriculture while the public sector consolidates. From an expenditure perspective, private consumption is expected to support aggregate demand, supported by the ongoing labour market recovery, improved consumer confidence, and resilient remittances. 67. The growth outlook will be reinforced by the Government’s development agenda geared towards economic turnaround and inclusive growth. Special focus will be placed on increased employment, more equitable distribution of income, social security while also expanding the tax revenue base, and increased foreign exchange earnings. The economic turnaround programme will seek to increase investments in at least five sectors envisaged to have the biggest impact on the economy as well as on household welfare. These include Agriculture; Micro, Small and Medium Enterprise (MSME); Housing and Settlement; Healthcare; and Digital Superhighway and Creative Industry. Kwale County Treasury, 2023 Page 26 2023 County Fiscal Strategy Paper 2.5 Risks to the Economic Outlook 68. There are down side risks to this Economic outlook emanating from domestic as well as external sources. On the domestic front, the emergence of new COVID-19 variants may occasion restrictive measures. Other risks emanate from unfavorable weather conditions that could affect agricultural production, the rising inflationary pressures and market failures that restrict access to credit. 69. On the external front, uncertainties in the global economic outlook have also increased which could impact on the domestic economy. These risks include: the possible worsening of the Russia - Ukraine conflict which could heighten the risk of oil and commodity price volatility and elevated inflationary pressures; the continued COVID-19 restrictions in China could further disrupt the global supply chains; and global monetary policy tightening, especially in the United States, could increase volatility in the financial markets. 70. The Government continues to respond to the adverse impact of these emerging issues through fiscal measures, among them fertilizer subsidies to lower the cost of production, targeted intervention to persons and communities affected by the ongoing drought and establishment of the Hustler Fund to support growth of MSMEs and individual traders that will correct the market failures of the vast majority of Kenya's at the bottom of the pyramid. The upside risk to the domestic economy relate to faster than projected rebound in economic activities that would result in higher Government revenues providing fiscal space that would support fiscal consolidation. The Kenyan Government continues to monitor the domestic and external environment and will take appropriate policy measures to safeguard the economy against the adverse effects of the risks if they were to materialize. County Recent Economic Developments & Outlook Overview 71. The main economic activities driving the Gross County Product (GCP) in Kwale County are agriculture, forestry and fishing (46.0 per cent); accommodation and food service activities (8.0 per cent); and Real estate activities (7.0 per cent). The National Spatial Plan 2015-2045 identified Kwale as a key less developed coastal region with potential in tourism, large scale livestock, mining and irrigation. Geographically, Diani offers access to beach amenities and kitesurfing, skydiving and deep-sea fishing activities, access to dolphin watching at Kisite, access to Shimba Hills National Reserve and Mwaluganje Elephant Sanctuary, and it is within 2 hours access to Tsavo Game Park. Diani Beach has been awarded the best beach destination in Africa for 5 years running, and in 2021, Diani Beach was declared the winner of Africa’s Leading Beach Destination by the World Travel. Gross County Product -GCP 72. GCP is conceptually equivalent to the county share of GDP. GDP is a measure of newly created value through production by resident economic agents (in this case individuals, households, businesses, establishments, and enterprises resident in Kenya). On the other hand, GCP measures newly created value through production by economic agents resident in a specific region, in this case a county. Therefore, the GCPs for the 47 counties should sum up to Kenya’s GDP. Kwale County’s GCP show a gradual growth from the onset of the devolution process in 2013 as shown in the chart below: Kwale County Treasury, 2023 Page 27 2023 County Fiscal Strategy Paper Figure 15: Kwale County GCP growth. 140 120 100 80 60 40 20 0 2013 2014 2015 2016 2017 2018 2019 2020 2021* 2022* PERIOD Source: National Bureau of statistics County Major Contributors to GCP 73. Casual labour contributes 31.1 per cent to the Gross County product for Kwale County since majority of her population are semi-illiterate and are mostly hired on casual terms. The Agricultural sector contributes to 11.6 per cent to the overall county GCP while formal employment and personal businesses amount to 3.6 and 8.3 per cent contribution to GCP respectively. Table 10: Kwale County Sectoral Contribution to Real GCP, 2018-2020, Ksh million Sector 2020 2019 2018 Agriculture, Forestry and Fishing 42,219 34,614 31,329 Mining and quarrying 10,253 9,888 9,787 Manufacturing 6,699 6,162 6,413 Electricity supply 435 413 393 Water supply; waste collection 601 590 595 Construction 5,094 4,159 3,697 Wholesale and retail trade; repair of motor vehicles 1,790 1,762 1,685 Transport and storage 10,117 10,185 9,067 Accommodation and food service activities 2,741 4,196 3,513 Information and communication 2,252 2,094 1,935 Financial and insurance activities 1,155 913 953 Real estate activities 9,788 9,262 8,669 Professional and technical services 1,583 1,785 1,662 Administrative support services 835 979 877 Public administration and defense 12,759 10,737 9,322 Education 5,309 5,578 4,923 Human health and social work activities 3,593 2,594 2,697 Other service activities 2,900 3,232 3,024 Financial services indirectly measured -457 -486 -455 GCP 119,666 108,657 100,086 Source: Kenya National Bureau of Statistics (KNBS) Kwale County Treasury, 2023 Page 28 AOUNT (MILLION KSHS) 2023 County Fiscal Strategy Paper County Economic Activities and Recent Developments Agriculture 74. The main economic activity in the county is agriculture which includes fruits production, livestock and crop farming. Agriculture employs about 70 percent of the of the county’s population. The main cash crops grown include cashewnuts, sugarcane, cotton, simsim, bixa and tobacco. The county is also endowed with natural resources such as wildlife, pastures and forests. The agricultural sector plays a crucial role in guaranteeing food security, employment generation, wealth creation and poverty reduction in the county. 75. The County Government has embarked on efforts to commercialize agriculture through value addition of agricultural products. The county government has started the promotion of agro processing through the establishment of a fruit processing plant in Shimba hills area of Kubo south ward. Already the county government has acquired land and construction of factory buildings have started. The fruit processing is intended to produce four main products including juices of various types, fruit puree, fruit jam and marmalade and tomato ketchup. The fruit processing plants especially the one producing fruit puree will have a high potential for export to the international markets. 76. The factory will have the potential to add value by over 50 percent to the local raw fruits. The capacity of the fruit processing plant is projected to be 3,000,000 litres of fruit juice per annum apart from the production of fruit puree and other fruit value added products. The fruit industrial project will bring immense benefits to the county in terms of robust local economic development. The industry will generate employment opportunities to over 3,000 local farmers in the county. Direct benefits will be to the over 1000 people who will be gainfully employed as extension service providers, technical services providers including plumbers, electricians among others Protection of Marine Ecosystems 77. The Mikoko Pamoja project is a local economic development activity located in Gazi Bay involving the Gazi and Makongeni communities. It involves nearly 500 members who participate in the regular protection and planting of about 4,000 new mangroves every rainy season. This intervention has created job opportunities for the locals. Through this project mangroves covering 117 ha of land in Gazi Bay have been protected from illegal deforestation. The locals have benefitted through the sale of carbon credits, which are created from the carbon dioxide (CO2) emissions awarded by the project. The credits are then generated through PES (Payment for Ecosystem Services). The group has sold more than 12,000 tons of carbon credits, which generated more that Ksh. 6.2 Million. There is huge potential to earn more than USD 200,000 annually from carbon markets besides expanding energy access, creating jobs, protecting diversity and increasing climate change resilience. Kwale County Treasury, 2023 Page 29 2023 County Fiscal Strategy Paper Mikoko Pamoja community based organization members at Gazi and Makongeni in Msambweni Kwale planting mangrove plants at the shores of Indian Ocean as they conserve the plant to trap carbon dioxide for climate change mitigation. Sea weed farming 78. Sea weed farming in Lungalunga Sub County is one of the emerging economic activity which can generate jobs, create wealth, reduce poverty and uplift the quality of life of the local community. Sea weed has become the new cash crop for all seasons. The crop is grown in Kibuyuni, Mkwiro, Mwazaro bay and Gazi. Recently the Kibuyuni sea weed farmers have started doing value addition through soap and shampoo making. There is huge potential for commercialization of sea weed farming. 79. The sea weed has many industrial uses such as making gels, fertilizers and pharmaceuticals which have not been exploited in the East African region. Unlike in the East African region where production is still low, countries in Asia produce millions of tonnes a year making sea weed a billion dollar industry. The county government can exploit locally sea weed processing to add more value to the crop and thus generate jobs, create wealth and reduce poverty in the local communities. The county government will enhance the production of sea weed through government funding, capacity building of the farmers and explore more access to markets. Kwale County Treasury, 2023 Page 30 2023 County Fiscal Strategy Paper Shimoni Fishing Port Marine Transport 80. The Shimoni Fishing Port whose construction works has begun will generate employment opportunities estimated at over 3,000 jobs both directly and indirectly. It is expected that the facility will enhance the development of Blue Economy. Blue Economy is the next frontier of economic development in Kwale County after the tourism and mining sectors. The National Government has tarmacked the Shimoni road from the Likoni-Lungalunga junction at Kanana in Pongwe-Kidimu. The county government has positioned itself to take advantage of this development through capacity building of fishermen on modern methods of fishing, sponsoring training on marine technologies and provision of fishing boats and fish accessories through the Beach Management Units (BMUs). Manufacturing 81. Another key economic development in the county is the construction of the Mega Steel plant in the Samburu-Gora area off the Nairobi-Mombasa highway. The mega investment by Devki Steel Mills Limited is projected to produce half a million tonnes of steel annually once it becomes operational. The plant will produce steel sufficient for Kenya and the whole of East African region. This plant is expected to generate about 1,600 direct jobs especially for youth who will be employed as industrial workers. In addition about 9,000 indirect opportunities will be created in related activities such as iron-ore mining and transportation. This will significantly address the problem of youth unemployment. Mining 82. Mining operations started in late 2013 and account for almost 65 percent of Kenya’s mining industry by the mineral output value. The Kwale Mine owned by Base Titanium is currently producing 455,000 tonnes of limonite, 85,000 tonnes of rutile and 32,000 tonnes of zircon each year. These minerals are worth Kwale County Treasury, 2023 Page 31 2023 County Fiscal Strategy Paper Kshs 16 billion annually. The Base Titanium exports the mineral deposits to different parts of the world earning millions each year. Under the mining deal with the Kenyan Government, Base Titanium is supposed to pay royalties from its after tax revenues to the government. The Kwale Mine provides significant revenues in tax and royalty payments. Tourism 83. Tourism is the main foreign exchange earner for the country. It is also an important source of revenue, job creation and overall county economic growth due to its multiplier effect on other sectors. Kwale pride itself as a popular tourist destination due to its pristine sand beaches along the south coastline. International as well as domestic tourists flock the south coast area to savour the beautiful sandy beaches and tropical ambience. Diani beach has been voted for seven consecutive years as the Africa’s leading beach destination. Other tourists’ attraction sites include the Mwaluganje sanctuary, Shimba Hills National reserve, Kisite- Mpunguti Marine Park, Shimoni slave caves among others. There still exist untapped cultural resources, nascent tourist sites, eco-tourism and sports tourism. Special Economic Zone 84. The Dongo Kundu Bypass highway, also known as Southern Bypass Highway will feature a road that will branch from the main Mombasa to Nairobi highway (A109) .It will then transverse southward through Mwache to the Dongo Kundu industrial area before joining the Likoni-Lungalunga road at Shikaadabu (Kibundani Exchange terminal).Upon its completion, the road will significantly decongest Mombasa and offer an alternative option to the Likoni ferry. This will enhance tourism development as tourists will have a direct route to Diani beach and other tourist attraction sites in Kwale. Blue Economy 85. Blue Economy is the next frontier of economic development in Kwale County after the tourism and mining sectors. Blue Economy has the potential to inject up to 4.8 Billion US dollars to the Kenya’s economy and can create over 52,000 jobs in the next ten years. Kwale County is a beneficiary of vast marine resources from Kenya’s 12 nautical miles of territorial waters, 12 nautical miles of contiguous zone and 200 nautical miles of exclusive economic zone within the Indian Ocean. The benefits of the blue economy in the county can be derived from the following themes: fishing; Oil, gas and Offshore minerals; maritime transport; coastal tourism; Energy and Marine ecosystem services. The National Government through the Ministry of Mining, Blue Economy and Maritime Affairs is constructing a state of the art training facility in the county in Kombani area of Waa-Ng’ombeni ward. The institute which will cost the National Government Ksh 1.2 Billion will train a new generation of mariners in port logistics and marine transport. The County will gain in terms of increased job opportunities and commercial activities. Risks to the County Economic Outlook 86. Exceptional Service delivery highly depends on timely release of the equitable share from the national exchequer. A delay in disbursement of the same will lead to delay in program/project execution by the county departments. At the county level, when there are revenue collection shortfalls against the target, it normally causes budget cuts. This becomes more challenging with the high wage bill. Systems are being put in place to improve local revenue performance following revenue collection reforms and rationalization in recurrent expenditures to realize savings which can be used to finance the spending priorities. Kwale County Treasury, 2023 Page 32 2023 County Fiscal Strategy Paper 87. Adverse weather conditions such as prolonged drought and excessive flooding can disrupt County economic activities, thereby posing a greater economic risk. 88. Insecurity is another risk which the county government will have to contend with to ensure a positive economic outlook. Insecurity can hamper tourism growth and investment in other sectors. Kwale County is a world tourist destination and thus calls for security attention to guard the safety of the international and domestic visitors who come to sample the beaches and other tourists’ attraction sites. Tourism remains the backbone of the county’s economy which has created significant employment opportunities. The main insecurity risk come from terrorism. The effects of terrorist attack are immense and devastating to the economy. Tourism once affected it triggers shocks in other sectors including agriculture, transport, entertainment and trade resulting in a general loss of revenues and employment opportunities. 89. Local Inflation is likely to rise significantly, largely driven by increase in food prices as a result of constrained domestic production in 2022. This could worsen if the magnitude of the expected rise in fuel prices ends up being substantial. The Kenyan Shilling exchange rate against major trading currencies is expected to remain stable supported by diaspora remittances and a significant level of reserves. 90. The County will monitor the above risks and take appropriate measures to safeguard the implementation of the strategic priorities including preparation of supplementary budgets to regularize and align any emerging issues. Kwale County Treasury, 2023 Page 33 2023 County Fiscal Strategy Paper CHAPTER THREE: STRATEGIES AND POLICIES FOR ECONOMIC RECOVERY AGENDA TO PROMOTE INCLUSIVE GROWTH 3.0 Preamble 91. The County Fiscal Strategy Paper (C-FSP), 2023 is anchored on the County Government’s commitment to implementation of policies, programmes and promote investment in five core thematic areas aimed at economic recovery and inclusive growth. The agenda seeks to promote investment in thematic areas envisaged to have the largest impact and linkages to the economy as well as on household welfare. These are i) Agriculture Productivity; ii) Micro, Small and Medium Enterprise (MSME) Economy; iii) Housing and Settlement; iv) Healthcare; and v) Digital Superhighway and Creative Economy. 92. To make these programmes feasible, the Government will implement strategic interventions under the following key enablers: infrastructure; Manufacturing; Blue Economy; the Services Economy. Environment and Climate Change; Education and Training; Women Agenda; Social Protection; Sports, Culture and Arts; and Governance. The priority programmes and strategies highlighted in this 2023 C – FSP have been informed by and aligned to the objectives and priorities contained in the National Government’s Budget Policy Statement (BPS). Further, the citizens aspirations as captured in the latest County Annual Development Plan (C – ADP) FY2023 – 2024 and the Governor’s manifesto for the new County Administration have also been incorporated in the compilation of this paper. 93. The National Government through the 2023 BPS has outlined priority programmes and policies towards economic turnaround and inclusive growth. Special focus is on increased employment, more equitable distribution of income, social security while also expanding the tax revenue base, and increased foreign exchange earnings. Further, the BPS has captured the programmes and policies contained in the Fourth Medium – Term Plan (MTP) 2023 – 2027, of the Kenya Vision 2030. The Fourth MTP prioritizes the implementation of economic recovery strategies of the new Kenya Kwanza Administration to re – position the economy on a steady and sustainable growth trajectory. 94. The 2023 C – FSP comes at a time when the County Government is finalizing the preparation of the sectoral plans 2023 – 2032 which outline the sectoral programmes and policies for implementation over the next ten – year planning period. The sectoral plans is a component part of the County Integrated Development Plan 2023 – 2027. Further, the CIDP 2023 – 2027 is aligned to the Kenya Vision 2030 and the Fourth MTP. The County Government is committed to supporting the implementation of the strategic interventions contained in these plans through deliberate expenditure plans to have the economy on the desired growth trajectory. 95. This 2023 C – FSP is framed against a backdrop of global economic slowdown underpinned by the ongoing Russia – Ukraine conflict, hyperinflation rates and recurrent drought affecting agricultural productivity. Nevertheless, the County Government will seek to bolster resilience while building on the successes achieved overtime through the implementation of a revamped socio – economic strategy aimed at re – positioning the county economy achieve its full potential. The programmes and strategic interventions outlined in the latest approved C – ADP FY2023 – 2024 reaffirms this commitment. Kwale County Treasury, 2023 Page 34 2023 County Fiscal Strategy Paper 3.1 Policies and Strategies Towards Economic Recovery 96. This 2023 C – FSP sets out the priority programs and policies that will be implemented in the Medium – Term Expenditure Framework (MTEF) to stimulate sustainable county economic recovery. These priority programmes are those that are espoused in the manifesto of the Achani-Chirema administration which are also included in the County Sectoral Plan 2023-2032.Emphasis will be on consolidating the gains already made while enhancing efficiency in service delivery as part of the strategy for socio – economic transformation and inclusive growth. 97. The Kenyan economy continues to suffer from the supply side disruptions occasioned by external shocks. For the first time in five years, the inflation rate in Kenya is above the National Government target range mainly driven by these shocks. However, in spite of these disruptions, the county economy has remained resilient. In this regard, the County Government’s expenditure plans for FY2023 – 2024 have been scrutinized carefully to ensure quality and alignment to the County Government economic recovery agenda as outlined in this 2023 C – FSP, the CIDP and other strategic interventions of county interest. 3.1.1 Agricultural Transformation and Inclusive Growth 98. The agriculture sector continue to play a critical role in Kenya’s economy accounting for 25 percent of the Gross Domestic Product (GDP) and about 27 percent indirectly through its linkages with other sectors. The sector also employs over 40 percent of the total population and more than 70 percent of the rural populace. The sector performance was depressed in 2022 following the unfavorable weather conditions experienced in the country. It contracted by 0.2 percent in 2021 compared to a growth of 4.6 percent in 2020 and contributed -0.1 percentage points to growth. The unfavorable weather conditions persisted into the first quarter of 2022, resulting in a contraction of 0.7 percent compared to a growth of 0.4 percent in a similar quarter of 2021. Figure 16: Factors Affecting Agricultural Production, 2022 Source: MPC Agriculture Sector Survey, July 2022 Kwale County Treasury, 2023 Page 35 2023 County Fiscal Strategy Paper 99. Transport costs, weather conditions and input costs had significant impact on agricultural productivity in the year 2022. Equally, market availability, labour costs and the war in Ukraine hampered productivity, consequently affecting market supplies in the same period. Generally, uptake of technology remains low despite availability of improved technologies and farmer – led innovations. 100. Over the medium term, the County Government will seek to enhance agricultural productivity to make food security a reality. In particular, the Government will: a) Develop agricultural mechanization bill to promote use of technology in farming; b) Support farmers to access quality inputs such as seeds and seedlings and also ensure that farmers have access to extension services in order to improve farming skills; c) Increase the land under irrigation from the current 41 acres to 61acres. The strategy will involve construction of medium dams to provide water for irrigation and domestic use. This will guarantee food security and move the county from the dependency on rain fed agriculture and vulnerability to drought and the effects of climate change; d) Enhance agricultural market linkages and access through the completion and operationalization of Ukunda and Kombani wholesale markets. 3.1.2 Transforming the Micro, Small and Medium Enterprises (MSME) Economy 101. The Micro, Small and Medium Enterprise (MSME) Economy contribute very significantly to the economy, employing about 85 percent of the non – farm jobs. During the second quarter of 2022, the manufacturing sector’s growth declined to 3.6 percent compared to a growth of11.3 percent in a similar period in 2021. This can be attributed to the high prices of raw materials resulting from high inflation rates. Going forward, to realize the full potential of this sector, the County Government will:- a) Improve market access by construction and operationalization of modern wholesale and retail markets at Ukunda and Kombani respectively; b) Improve business environment through electrification of markets; c) Strengthen consumer protection programs to improve value for money; d) MSME mechanization; e) Enhance access to cheap credit through the Kwale County Trade Revolving Fund (KCOTRF); f) Equip the Biashara centres to offer quality and relevant training to entrepreneurs; and g) Strengthen the cooperative movement for better returns to investment. 3.1.3 HealthCare 102. Access to quality and affordable healthcare is critical for socio – economic development. The Universal Healthcare Coverage (UHC) strategy which aims at providing equitable, affordable and quality healthcare to all citizens, is very instrumental in this strategy. Specifically, the County Government will: a) Mainstream community health workers and make them the foundation of the county’s healthcare system; b) Promote investment to expand existing health infrastructure and improve efficiency in service provision; c) Equipping of county hospitals and the referral hospital to improve diagnostics and treatment; d) Strengthening emergency and response services; and e) Installation of solar panels to improve patient outcomes in the primary healthcare facilities. Kwale County Treasury, 2023 Page 36 2023 County Fiscal Strategy Paper 3.1.4 Digital Superhighway and Creative Economy 103 .Information, Communication and Technology (ICT) is an important enabler for county socio – economic development. Kenya is a strong leader in the ICT space, with appropriate policy framework, constitutionally protected freedom of expression, media, information and communication cementing the country’s position as a regional and continental hub of innovation. To ensure universal broadband availability, the County Government will support national government’s extension of the National Optic Fibre Backbone infrastructure works. This will boost e – commerce especially for MSMEs. The laying out of additional 100,000Km of the national fibre – optic network is expected to deliver this target. Specifically, the County Government will:- a) Develop an integrated health operations services and revenue management system for the health sector; b) Develop human resource information system to improve efficiency in the human resource operations; c) Enhance the county website with an interactive web portal and mobile based applications to offer e – services to the public; d) Build the capacity of the ICT personnel and the public on matters i-sourcing, e – procurement and the county revenue management information system. 104. In the creative economy, the county boasts of a highly talented youth on a diverse spectrum of creative work in the fields of music, sports, culture among others. To further boost and fully realize the benefits of the creative economy, the County Government will enhance the services of the Kwale recording studio to achieve the intended objective. Further, to identify and nurture upcoming talents in sports the county will establish a talent academy at the Kwale Stadium. The main aim is to promote sports as an income generating enterprise. Kwale County Treasury, 2023 Page 37 2023 County Fiscal Strategy Paper CHAPTER FOUR: BUDGET FOR FY 2022/2023 AND THE MEDIUM TERM 4.1 Fiscal Framework Overview 105. Preparation of this FY 2023/2024 budget and medium term framework shall be anchored on the County Government’s effort to improve on the declined economy courtesy of the Russian-Ukraine conflict. The County Government shall continue to curb non-priority spending and mobilize more revenue resources. The fiscal framework for the FY2023/24 and the medium-term budget is based on the County Government’s policy priorities and macroeconomic policy framework set out in Chapter I and Chapter II. 106. The County Treasury will ensure there is efficiency and effectiveness when departments are allocating resources in their programmes in order to achieve optimality in resource utilization. In the implementation of programmes, departments shall adhere to measures put in place by the County Treasury to avoid wastage of resources while also ensuring priority programmes are undertaken efficiently. Revenue Projections 107. The county revenue for FY2023/24 is projected to increase to Kshs. 10,547,073,518 up from the projected Kshs.9,759,536,856 in the current FY2022/2023. The revenue performance of the county shall be pegged on the ongoing revenue automation and subsequent adoption of the approved revenue/finance amendment bills and reforms by the county assembly. The resource envelope depicting each source and the amount of revenues expected is given below in Table below; Table 11: Resources envelope for MTEF period 2022/2023-2024/2025 FY 2022-2023 FY 2023-2024 FY 2024-2025 Source (Kshs Million) (Kshs Million) (Kshs Million) Equitable Share of Revenue from National Government 8,265,585,516 8,580,238,742 9,438,262,616 Own Source Revenue 557,116,564 600,000,000 660,000,000 Royalties 0 330,000,000 363,000,000 Grants 936,834,776 1,036,834,776 1,140,518,254 GRAND TOTAL 9,759,536,856 10,547,073,518 11,601,780,870 Source: County Treasury Expenditure Projections 108 .Total county expenditure in the FY 2023/24 is projected at Kshs.10,547,073,518 an increase from Kshs. 9,759,536,856 allocated in the current FY2022/2023 period. This is an increase of about 8.7 percent. The own source revenue target has increased to Ksh 600,000,000.The county government will prepare a balanced budget since the anticipated revenues equal the projected expenditures. 109. The total recurrent expenditure will amount to Kshs. 6,340,444,691 an increase of 1.1 percent from Kshs. 6,273,628,895 allocated in the current FY2022/23.The provisional ceiling for development expenditure amounts to Kshs.4,206,628,827.00 which depicts 22.1 per cent decrease from the Kshs. 3,445,512,618.00 allocation in the FY2022/2023. In terms of expenditure ratios, this 2023 CFSP projects 39.9 per cent of the budget to be allocated to development programmes while the balance of 60.1 percent to be allocated to recurrent expenditure. Kwale County Treasury, 2023 Page 38 2023 County Fiscal Strategy Paper 110. Expenditure ceilings on operations and maintenance (O&M) for the various county departments are based on funding allocation in the FY2022/23 budget as the starting point. The ceilings are then adjusted to take in to account one-off expenditure in FY2022/23 budget and then an adjustment factor is applied to take into account the general inflationary rates. Personnel emoluments (P.E) will be allocated 34.9 per cent of the total budget while 24.95 per cent will cover operations and maintenance. The total county allocations Ceilings for FY 2023/24 is summarised in the table below. Table 12: Summary of Allocations by Vote and Economic Classification PROPOSED 2023 C-FSP CEILINGS O&M CODE VOTE P.E NON- RECURRENT DEVELOPMENT TOTAL CRUCIAL CRUCIAL 3061 Finance and 200,689,942 520,000,000 110,600,000 831,289,942 110,000,000 941,289,942 Economic Planning 3062 Agriculture, Livestock and 151,065,170 - 34,333,081 185,398,251 270,785,250 456,183,501 Fisheries 3063 Environment and 35,933,072 - 32,121,800 68,054,872 154,000,000 222,054,872 Natural Resources 3064 Medical and 1,842,329,957 500,000,000 300,000,000 2,642,329,957 298,424,775 2,940,754,731 Health Services 3065 County 310,330,061 304,834,227 615,164,288 193,310,567 808,474,854 Assembly - 3066 Trade, Investment and 38,516,535 - 33,358,962 71,875,496 341,500,000 413,375,496 Cooperatives 3067 Social Services 34,419,957 - 36,845,739 71,265,696 139,372,725 210,638,421 & Talent Management 3068 Executive 100,510,951 - 41,035,533 141,546,484 - 141,546,484 Services 3069 Education 564,840,502 400,000,000 108,121,228 1,072,961,730 346,900,200 1,419,861,930 3070 Water Services 37,489,736 - 31,099,164 68,588,900 539,653,150 608,242,050 3071 Roads and Public 69,242,682 - 53,238,155 122,480,837 560,233,175 682,714,012 Works 3072 Tourism and ICT 27,500,616 - 15,087,474 42,588,090 27,000,000 69,588,090 3073 County Public 30,177,111 - 30,000,000 60,177,111 - 60,177,111 Service Board 3074 Public Service 228,372,461 - 45,000,000 273,372,461 26,000,000 299,372,461 and Administration 3075 Kwale 1,802,176 - 5,000,000 6,802,176 50,000,000 56,802,176 Municipality 3076 Diani 2,162,611 - 5,000,000 7,162,611 40,000,000 47,162,611 Municipality Lunga Lunga 1,500,000 - 3,000,000 4,500,000 50,000,000 54,500,000 Municipality Kinango Municipality 1,500,000 - 3,000,000 4,500,000 50,000,000 54,500,000 Office of the Attorney 3,000,000 - 20,000,000 23,000,000 - 23,000,000 TOTAL 3,681,383,539 1,724,834,227 906,841,135 6,313,058,901 3,197,179,841 9,510,238,742 CONDITIONAL 1,009,448,986 1,036,834,776 GRANTS 27,385,790 GRAND TOTAL 3,681,383,539 1,724,834,227 906,841,135 6,340,444,691 4,206,628,827 10,547,073,518 PERCENT 34.9 60.1 39.9 100.00 ALLOCATION Source: County Treasury P & E…………………Personnel Emoluments (Salaries) O &M……………….Operations and Maintenance Kwale County Treasury, 2023 Page 39 2023 County Fiscal Strategy Paper 4.1 FY 2023/24 and Medium Term Budget Priorities 111.The FY 2023/24 and the Medium Term Budget framework builds up on the County Government’s efforts to stimulate and sustain economic activity, mitigate the adverse impact of COVID-19 pandemic on the economy and re-position the economy on a sustainable and inclusive growth trajectory. This will be achieved through implementation of programmes supporting economic recovery and additional priority programs of the Government. 112. Further, this CFSP emphasizes on the completion of implementation of the flagship projects to provide a conducive environment for faster growth and realization of the transformation agenda. This CFSP also emphasizes building of strong partnership with the private sector by providing an enabling environment for investment especially medium term enterprises and manufacturing. This will guarantee generation of employment opportunities, creation of wealth, poverty reduction and improvement in quality of life of the people. 113. Additionally, public spending will be directed towards the most critical needs of the county with the aim of achieving quality outputs and outcomes with optimum utilization of resources. Further, the County Departments will be encouraged to adopt efficiency in allocation of resources through cost budgeting and reviewing the portfolio of externally funded projects to restructure and re-align with the Government priority programmes and reduce non-priority spending. Allocation of Baseline Ceilings 114. In order to ensure that all the strategic priorities laid out in this 2023 CFSP are adequately funded, prudent allocation of resources for departments/sectors is necessary. This will be guided by the strategic objectives mentioned in the County Integrated Development Plan 2018-2022. This 2023 CFSP has therefore proposed sector ceilings in conformity with the priorities in the CIDP 2018-2022 and departments are expected to strictly adhere to them when preparing the FY2023/24 budget and the medium-term framework. 115. The baseline estimates utilized in this 2023 CFSP depicts the average county departments spending levels over the last three years of budget execution. In the recurrent expenditure, personnel emoluments will take first charge. This will account for 34.9 percent of the budgetary resources available. Other recurrent expenditures will be scrutinized and those non-essential items will be curtailed and wastage of resources reduced. The operations and maintenance expenditure bracket will not exceed 24.95 percent of our resource envelop. 116. Development expenditures will account for 39.9 percent of the budget and have allocated on the basis of the strategic priorities outlined in this 2022 CFSP and the policy goals envisaged in the County Integrated Development Plan (2018-2022). The following criteria was used in allocating the development budget:- i. On-going projects: Greater emphasis was given to completion of on-going infrastructural projects/flagship projects with high impact on equity and creation of employment. ii. Counterpart funds: Projects such as the donor funded infrastructural projects will be highly prioritized since such projects have a great impact /benefit to the country citizens. iii. Post-Covid 19 recovery: The post-Covid 19 recovery strategies and interventions were also given high consideration. This is to ensure the county implements Programmes aimed at building back better the economy. Kwale County Treasury, 2023 Page 40 2023 County Fiscal Strategy Paper Criteria for Resource Allocation 117. The approval of the FY 2023/24 budget by the County Assembly and assent to of the Appropriation Bill by H.E Governor will mark the end of the preparation of the budget and therefore subsequent commencement of its implementation by the respective departments. During the approval stage of the budget FY 2023/24 at the county executive committee level headed by the Governor thorough scrutiny of the budget will be done in order to avoid expenditures on non-productive expenses and ensure resource allocation is geared towards priority programmes. The following criteria will serve as a guide for allocating resources -: a) Linkage of Programmes that support Economic Recovery Agenda b) Linkage of the programme with the priorities of Medium-Term Plan IV of the Vision 2030; c) Degree to which a programme addresses job creation and poverty reduction; d) Degree to which a programme addresses the core mandate of the County Department; e) Cost effectiveness and sustainability of the programme; f) Extent to which the Programme seeks to address viable stalled projects and verified pending bills. 118. As the budgets are carefully analyzed and the resources available are consolidated, savings could be made. In the event savings are realized, the county will redirect them to those core sectors and priority programmes which are inadequately funded. Details of Sector Priorities 119. This medium term expenditure framework for 2023/24-2025/26 ensures continuity in resource allocation based on policy programmes envisioned in the CSP 2023-2032, CIDP -2023-2027 and the CADP 2023/2024. Specific strategy policy initiatives have been considered in the resource allocation, which are geared towards accelerating economic growth and poverty reduction. The framework has also outlined key policy interventions related to post-Covid 19 economic recovery strategy. The table below shows the projected baseline ceilings for the FY2023/24 and the medium-term classified by sector. Kwale County Treasury, 2023 Page 41 2023 County Fiscal Strategy Paper Table 13: Summary of Budget Allocations for the MTEF FY2022/23-2024/25 by sector Revised Ceiling FY PROJECTIONS SECTOR Estimates FY 2023/24 2022/2023 FY 2024/25 FY 2025/26 AGRICULTURE, RURAL AND URBAN TOTAL DEVELOPMENT 1,077,415,177 1,142,353,762 1,199,471,450 1,259,445,023 Agriculture, Livestock and Fisheries Sub Total 707,870,471 682,994,189 717,143,898 753,001,093 Environment and Natural Resources Sub Total Management 244,111,270 246,394,787 258,714,527 271,650,253 Kwale Municipality Sub Total 79,109,198 56,802,176 59,642,284 62,624,399 Diani Municipality Sub Total 46,324,238 47,162,611 49,520,741 51,996,778 Lunga Lunga Municipality Sub Total 0 54,500,000 57,225,000 60,086,250 Kinango Municipality Sub Total 0 54,500,000 57,225,000 60,086,250 ENERGY, INFRASTRUCTURE AND ICT TOTAL 917,654,090 682,714,012 716,849,713 752,692,198 Roads and Public Works Sub Total 917,654,090 682,714,012 716,849,713 752,692,198 GENERAL ECONOMIC, COMMERCIAL AND TOTAL LABOUR AFFAIRS 344,856,428 582,963,586 612,111,766 642,717,354 Trade, Investment and cooperative Sub Total development 248,781,968 513,375,496 539,044,271 565,996,485 Tourism and ICT Sub Total 96,074,460 69,588,090 73,067,495 76,720,869 HEALTH SERVICES TOTAL 3,405,459,712 3,076,438,904 3,230,260,850 3,391,773,892 EDUCATION TOTAL 1,622,127,505 1,419,861,930 1,490,855,027 1,565,397,778 PUBLIC ADMINISTRATION AND TOTAL INTERNATIONAL RELATIONS 2,833,209,890 2,273,860,852 2,387,553,895 2,506,931,589 County Assembly Sub Total 1,169,141,072 808,474,854 848,898,597 891,343,527 County Executive Services Sub Total 193,529,126 141,546,484 148,623,808 156,054,998 Public Service and Administration Sub Total 302,016,366 299,372,461 314,341,084 330,058,138 Finance and Economic Planning Sub Total 1,113,229,343 941,289,942 988,354,439 1,037,772,161 County Public Service Board Sub Total 55,293,983 60,177,111 63,185,967 66,345,265 County Attorney Sub Total 0 23,000,000 24,150,000 25,357,500 SOCIAL SERVICES AND TALENT TOTAL MANAGEMENT 243,933,974 210,638,421 221,170,342 232,228,859 WATER SERVICES TOTAL 1,285,013,007 1,158,242,050 1,216,154,153 1,276,961,860 SUB TOTAL TOTAL 11,729,669,783 10,547,073,518 11,074,427,194 11,628,148,553 Source: County Treasury Kwale County Treasury, 2023 Page 42 2023 County Fiscal Strategy Paper 120. The recurrent expenditure ceilings for each sector are as shown below Table 14: Summary of Recurrent expenditure allocations for the MTEF FY2022/23-2024/25 by sector Revised PROJECTIONS Ceiling FY SECTOR Estimates FY 2023/24 FY 2024/25 FY 2025/26 2022/2023 AGRICULTURE, RURAL AND URBAN TOTAL DEVELOPMENT 1,077,415,177 278,757,824 292,695,715 307,330,501 Agriculture, Livestock and Fisheries Sub Total 707,870,471 185,398,251 194,668,163 204,401,571 Environment and Natural Resources Sub Total Management 244,111,270 70,394,787 73,914,527 77,610,253 Kwale Municipality Sub Total 79,109,198 6,802,176 7,142,284 7,499,399 Diani Municipality Sub Total 46,324,238 7,162,611 7,520,741 7,896,778 Lunga Lunga Municipality Sub Total 0 4,500,000 4,725,000 4,961,250 Kinango Municipality Sub Total 0 4,500,000 4,725,000 4,961,250 ENERGY, INFRASTRUCTURE AND ICT TOTAL 917,654,090 122,480,837 128,604,879 752,692,198 Roads and Public Works Sub Total 917,654,090 122,480,837 128,604,879 752,692,198 GENERAL ECONOMIC, COMMERCIAL AND TOTAL LABOUR AFFAIRS 344,856,428 114,463,586 148,536,766 155,963,604 Trade, Investment and cooperative 75,4 Sub Total development 248,781,968 71,875,496 69,271 79,242,735 Tourism and ICT Sub Total 96,074,460 42,588,090 73,067,495 76,720,869 HEALTH SERVICES TOTAL 3,405,459,712 2,667,375,832 2,800,744,624 2,940,781,855 EDUCATION TOTAL 1,622,127,505 1,072,961,730 1,126,609,817 1,182,940,308 PUBLIC ADMINISTRATION AND TOTAL INTERNATIONAL RELATIONS 2,833,209,890 1,944,550,285 2,041,777,800 2,143,866,690 County Assembly Sub Total 1,169,141,072 615,164,288 645,922,502 678,218,627 County Executive Services Sub Total 193,529,126 141,546,484 148,623,808 156,054,998 Public Service and Administration Sub Total 302,016,366 273,372,461 287,041,084 301,393,138 Finance and Economic Planning Sub Total 1,113,229,343 831,289,942 872,854,439 916,497,161 County Public Service Board Sub Total 55,293,983 60,177,111 63,185,967 66,345,265 County Attorney Sub Total 0 23,000,000 24,150,000 25,357,500 SOCIAL SERVICES AND TALENT TOTAL MANAGEMENT 243,933,974 71,265,696 74,828,981 78,570,430 WATER SERVICES TOTAL 1,285,013,007 68,588,900 72,018,345 75,619,262 SUB TOTAL TOTAL 11,729,669,783 6,340,444,691 6,685,816,926 7,637,764,847 Source: Kwale County Treasury Kwale County Treasury, 2023 Page 43 2023 County Fiscal Strategy Paper 121. The development expenditure ceilings for each sector are as shown below. Table 15: Summary of Development Allocations for the MTEF FY2022/23-2024/25 by sector Revised PROJECTIONS Ceiling FY SECTOR Estimates FY 2023/24 FY 2024/25 FY 2025/26 2022/2023 AGRICULTURE, RURAL AND URBAN TOTAL DEVELOPMENT 1,077,415,177 863,595,938 906,775,735 952,114,522 Agriculture, Livestock and Fisheries Sub Total 707,870,471 497,595,938 522,475,735 548,599,522 Environment and Natural Resources Sub Total Management 244,111,270 176,000,000 184,800,000 194,040,000 Kwale Municipality Sub Total 79,109,198 50,000,000 52,500,000 55,125,000 Diani Municipality Sub Total 46,324,238 40,000,000 42,000,000 44,100,000 Lunga Lunga Municipality Sub Total 0 50,000,000 52,500,000 55,125,000 Kinango Municipality Sub Total 0 50,000,000 52,500,000 55,125,000 ENERGY, INFRASTRUCTURE AND ICT TOTAL 917,654,090 560,233,175 588,244,834 752,692,198 Roads and Public Works Sub Total 917,654,090 560,233,175 588,244,834 752,692,198 GENERAL ECONOMIC, COMMERCIAL AND TOTAL LABOUR AFFAIRS 344,856,428 468,500,000 536,642,495 563,474,619 Trade, Investment and cooperative 463, Sub Total development 248,781,968 441,500,000 575,000 486,753,750 Tourism and ICT Sub Total 96,074,460 27,000,000 73,067,495 76,720,869 HEALTH SERVICES TOTAL 3,405,459,712 409,063,073 429,516,226 450,992,037 EDUCATION TOTAL 1,622,127,505 346,900,200 364,245,210 382,457,471 PUBLIC ADMINISTRATION AND TOTAL INTERNATIONAL RELATIONS 2,833,209,890 329,310,567 345,776,095 363,064,900 County Assembly Sub Total 1,169,141,072 193,310,567 202,976,095 213,124,900 County Executive Services Sub Total 193,529,126 0 0 0 Public Service and Administration Sub Total 302,016,366 26,000,000 27,300,000 28,665,000 Finance and Economic Planning Sub Total 1,113,229,343 110,000,000 115,500,000 121,275,000 County Public Service Board Sub Total 55,293,983 0 0 0 County Attorney Sub Total 0 0 0 0 SOCIAL SERVICES AND TALENT TOTAL MANAGEMENT 243,933,974 139,372,725 146,341,361 153,658,429 WATER SERVICES TOTAL 1,285,013,007 1,089,653,150 1,144,135,808 1,201,342,598 SUB TOTAL TOTAL 11,729,669,783 4,206,628,827 4,461,677,763 4,819,796,773 Source: Kwale County Treasury Agriculture Rural and Urban Development (ARUD) Sector. 122. The sector forms a major integral subject of the county since majority of her citizens depends on it for subsistence and survival. The sector is comprised of four main departments namely, Agriculture, Livestock and Fisheries, Environments and Natural resources Management, the Kwale Municipality and Diani Municipality. 123. During the 2019/20-2021/22 MTEF period, this sector has attained the following achievements: At least 300 acres have been cultivated using county machinery in each of the 20 wards, provision of farm inputs and micro-irrigation kits, farm productivity for maize ,cow peas and green grams increased to 268,965 and 30,950 tonnes respectively. The Kwale Municipality has improved the urban access roads and urban planning. This include the Cabro-laying of Kwale Judiciary –Post office –Kwale Methodist road, development of zoning plan for Kwale town and development of the Kwale county Spatial Plan. The Diani Municipality has done cabro- paving of Blue Jay to the junction of beach at Bahari Dhow. Kwale County Treasury, 2023 Page 44 2023 County Fiscal Strategy Paper 124. In the MTEF period 2023/24 -2025/26 the sector will undertake the following: Enhance agricultural productivity for food security and nutrition through provision of agricultural mechanization services, provision of certified seeds, fertilizers and other farm inputs .The sector will also aim at promoting micro- irrigation, agro-processing and extension services, reduce post-harvest losses, strengthen extension services, improve livestock breeds and enhance marine fisheries development. The sector will also enhance appropriate land use through investing on proper planning and zoning, promotion of development of climate change financing schemes and enhancement of waste management system in the county in the plan period. The sector has a budgetary allocation of Kshs.1,142.35 Million, Kshs.1,199.47 Million and Kshs.1,259.45 Million in the FY 2023/24, FY 2024/25 and FY 2025/26 respectively for implementation of her programmes. Energy, Infrastructure and ICT 125. This sector in the county is mainly comprised of the department of roads and public works. This sector is responsible for the provision of efficient, affordable and reliable physical infrastructure for sustainable socio-economic growth through the construction, modernization, rehabilitation and effective management of county infrastructural facilities. 126.During FY 2019/20-2021/22, the sector made significant achievements which included : Upgrading of 7.37Km of roads to bitumen standards, a total of 198.99 Km of county access roads were opened, a total of 974.66 Km of roads were graded i.e. light grading and heavy grading, 60.90 Km of road graveled, 1.7kms cabro-paved across the entire county, 11 drifts were constructed, 1 box culvert was installed at Mkilo-Kalalani road, 440 lines of culverts were installed, 10Km of county access were demarcated to safeguard them from encroachment, 5 staff houses were renovated, 1 loader procured, 1 motor-grader procured and 10 floodlights were installed throughout the county. 127. The sector intends to achieve the following during the FY 2023/24-2025/26 period: 4Kms of roads projected to be tarmacked, 176.67Kms of roads to be opened, 668.78 Km of access roads to be demarcated, 2 trucks to be procured, 9 streetlights to be installed and 14 floodlights erected in major center towns. To achieve the above mentioned Programmes this sector has been allocated a total of budget of Kshs. 682.7Million, Kshs.716.8Million and Kshs.752.7 Million in 2023/24, FY2024/25 and FY 2025/26 respectively. General Economic and Commercial Affairs (GECA) Sector 128. GECA is significant sector in driving the county economy towards transformation and industrial development .The sector consist of the departments of trade, Investment and cooperative development as well as the department of tourism and ICT. 129. During 2019/2020-2021/22 MTEF period this sector made the following achievements: Construction and rehabilitation of modern trade/retail market, 3 markets were connected with electricity, Kombani market shed was constructed to completion, development of eco-tourism site at Majimoto, construction of one beach washroom at Bidi Badu beach, Installation of 2 local area networks and expansion of 3 wide area networks. Kwale County Treasury, 2023 Page 45 2023 County Fiscal Strategy Paper 130. In the MTEF 2023/24-2025/26 plan period, this sector intends to undertake programmes which will harness the creation of wealth, increase employment opportunities, reduce poverty and foster socio- economic growth. To achieve this, the sector will implement the following projects; construction and completion of the modern market in Ukunda township, electrification of 6 market stalls construction of 10 new market stalls and water towers, construction of 2 Bodaboda sheds in Mackinnon Road ward, completion of the fruit processing plant (phase III) in Kubo south ward and provision of trade revolving fund to county traders. 131. The sector will also aim at diversifying and development new tourism attraction sites and activities in the county in order to increase the number of tourists visiting the county. To achieve this, the county through the department of tourism and ICT will construct beach access roads, develop eco-tourism sites and rehabilitate the existing Wasini-women Board walk. In the FY2023/24-2025/26 plan, the sector has been allocated Kshs.582.96 Million, Kshs. 612.11 Million and Kshs. 642.72 Million for FY 2O23/24, 2024/25 and 2025/26 respectively. Health Sector 132.This sector is mandated to provide equitable and affordable healthcare at the highest quality standards to the citizens. One of its strategic objective is to provide quality, acceptable and affordable health care services for sustainable development .This is through strengthening UHC by improving uptake of healthcare insurance, expansion of health facilities including hospitals, health centers and dispensaries, strengthening referral, emergency and ambulance services and ensuring adequate staffing of health facilities to enhance service delivery. 133.The major achievements realized during the FY 2018/19-2021/22 period include: construction & equipping of nine (9) staff houses to improve on service delivery and ensure 24 hours patient attendance, operationalization of 20 mobile clinics on a monthly basis to increase access to medical care, provision of medical supplies both pharmaceutical and non-pharmaceuticals to 134 health units across the county, establishment of 167 community health units ,recruitment of 49 more health workers including 14 medical officers and construction of the oncology center at Kwale Sub-County hospital among others. 134.The key sector priorities for the FY 2023/24-2025/26 MTEF period include: Human resource and capacity development through recruiting of 60 healthcare staff, 4 new maternities to be constructed, improve family planning services by 100%, establishment of four (4) pediatric ICU cots, purchase of 4 ultra-sound machines provision of adequate medicines and medical supplies, construction of five (5) dispensaries and 4 health centers, construction of 5 medical laboratories, construction of nine (9) more staff houses and establishment of one (1) dental unit. To undertake these programmes, the sector has been allocated Kshs.3, 076.44 Million, Ksh.3,230.26 Million and Kshs.3,391.77 Million for FY 2023/2024, 2024/25 and 2025/26 respectively. Education sector 135. This sector is mainly tasked with the provision, promotion and coordination of quality education and training through the integration of research, technology and innovation for rapid and sustainable socio- economic development in the county. The sector is also envisioned with improving access to quality ECDE Kwale County Treasury, 2023 Page 46 2023 County Fiscal Strategy Paper education through the construction and equipping of ECDE centers, establishment of conducive learning environment for vocational training through infrastructural development, provision of tools and equipment in VTCs and recruitment of instructors and human capital development in the county by the provision of bursaries to bright students from needy families and subsidizing VTC Support Grant. 136.During the FY 2020/21-2022/23 MTEF period, the sector registered the following key notable achievements: Construction of 30 child friendly ECDE centers, construction of Phase II of the Teacher Training College (Flagship Project)in Bang’a to 70%, supply and delivery of Uji/millet flour done to all (914) ECDE centers, energy saving Jikos installed to 80 ECDE centers, Art & Play equipment installed in 45 ECDE centers, furnishing of TTC done to completion, Construction of 6 twin workshops, construction of 1 boy’s hostel to completion, rehabilitation of Kamale VTC twin workshop, Installation of floodlight and generator, equipping of the production center, installation of water harvesting system installed in all VTCs and three computer labs roofed. For the Bursary and scholarship program, 31,280 bright and needy students were issued with the county bursary, and VTC support grant issued to 3,753 trainees across the county. 137. Major Programmes to be implemented during the FY 2023/24 budget will include: Extension of the “Elimu ni Sasa Initiative” through provision of bursary and scholarships to needy and bright students across the county, Construction of more ECDE and VTC centers to enhance conducive learning environment to learners, Construction of VTCs hostels and provision of playing and or teaching equipment to learners in our ECDE centers and VTCs. During the MTEF period FY 2022/23-2024/25 the sector has been allocated Kshs.1,419.86 Million, Ksh.1,490.86 Million and Kshs.1,565.40 Million for FY 20232024, 2024/25 and 2025/26 respectively Public Administration and International Relations Sector (PAIR) 138. This sector is composed of the following departments: the County Assembly, the county Executive services, Public Service and administration, Finance and Economic Planning and the County public service board. The sector plays a pivotal role in the county by: providing leadership for county harmony, ensuring optimal Public Finance management and accountability, ensuring county resources are equitably mobilized and distributed, ensuring an effective and efficient Public Service, promoting inter-county relations and youth empowerment and mainstreaming. 139. During the period under review, this sector had the following success stories: Held public participation forums at the ward and Sub – County level in accordance with the provisions of Article 201 (a) of the Constitution of Kenya and Section 125 (2) of the Public Finance Management (PFM) Act, 2012, Prepared county policy documents which include the County Annual Development Plan (C – ADP), County Budget Review and Outlook Paper (C – BROP). 140.The sector also successfully prepared County Fiscal Strategy Paper (C – FSP) and the Budget Estimates, Coordinated and prepared the County Annual Progress Report (C – APR) for the period FY2019/2020 in accordance with the provisions of the County Government Act, 2012. For revenue mobilization, the revenue division fully automated revenue management under the RMS and realized local revenue collection of Kshs. 250 Million against a target of Kshs. 365.6 Million in the year under review. The underperformance was due to the negative effects of COVID-19 pandemic, the imposition of containment measures and the suspension and waivers on fees and charges during the pandemic. The suspension and waivers were necessary to help cushion traders from the negative effects of the pandemic. Kwale County Treasury, 2023 Page 47 2023 County Fiscal Strategy Paper Under expenditure, the department of Finance and Economic Planning achieved an absorption rate of 96.57 percent against a target of 95 percent during the period under review. 141. Under the department of Public Service and Administration, the notable achievements were: construction of nineteen (19) ward offices, fencing and rehabilitation of the Kinondo dumping site, construction of Kinango Bus Park, provision of skip bins for all major towns and trading centres and the provision of motorcycles to village administrators to enhance supervision of county programmes and service delivery. 142. In the FY2023/24 and the Medium Term the sector intends to undertake the following programmes: Construction of the Trailer park, finalizing the assets valuation roll, fully rolling out of the Revenue Management System (RMS), development of policy and legal framework for revenue mobilization, recruitment of more revenue officers, institutionalizing M & E through the development of M & E policy and the creation of an M&E unit among others. To implement the aforementioned programmes, the sector has been allocated of Ksh 2,273.86 Million, Ksh 2,387.55 Million and Ksh 2,506.93 Million for the financial years 2023/24, 2024/25 and 2025/26 respectively. Social Protection, Culture and Recreation Sector 143. This sector envisions enhancing socio-cultural integration and economic empowerment amongst communities by 2022- through the “Utamaduni wetu Utajiri wetu” initiative. The sector has the sole mandate of providing and promoting appropriate social and cultural services, community empowerment, and nurture and develop sports, arts and talent to foster sustainable development. The strategic roles played by the sector in the county’s transformation and socio-economic development include: Provision of equitable social amenities for sustainable development; Enhance women, youth and PWD empowerment; Ensure equitable distribution of resources; Capacity building for community institutions at the 20 wards and strengthening them towards perception change; Enhance meaningful public participation in all aspects of development for all county Programmes; Enhance youth empowerment in sports within the County; Gender mainstreaming within the County and Integrate marginalized groups in the County. 144.Major achievements during the plan period FY 2018/19-2021/22 include: Construction of Kwale Cultural Museum, Construction of Kinango Library, Construction of Kwale Sports Stadium in its second phase, Construction of new open Amphitheatre and audio recording studio, Establishment of a youth, women and PWD empowerment fund, Establishment of a Kombani Drugs Rehabilitation Centre, Community Livelihood Programmes (Mwache Dam Project, NARIGP) in conjunction with the department of Agriculture, Livestock and Fisheries and Construction and equipping of two social halls. 145.In the FY 2023/24-2025/26 MTEF period, the sector will prioritize on the completion of the county stadium phase 3, Provision of youth, Women and PWD revolving fund, Rehabilitate 10 (Ten) sports fields across the county, offer financial support to county sports teams, Construct 2 (Two) sports academies, hold 100 (hundred) sports and cultural competitions starting from the village unit level to the county level. To implement these Programmes, the Sector has been allocated Kshs.210.6Million, Kshs.221.2 Million and Kshs.232.2 Million in the financial years 2023/24, 2024/25 and 2025/26 respectively. Kwale County Treasury, 2023 Page 48 2023 County Fiscal Strategy Paper Water Services 146. The sole aim of the sector is to promote safe and sustainable water services for all residents of Kwale County. Strategic roles played by the sector towards county’s transformation agenda include: To increase access to safe and clean water to residents of Kwale from 35% to 50%, to develop additional water harvesting, storage and distribution infrastructure, to conserve and protect the water source and to engage communities in sustainable water resource utilization and management. 147. During the FY 2018/19-2021/22 MTEF period the sector had the following significant achievements: A total of 50 kilometers of pipeline has been laid benefiting a total of 262,000 people. These pipelines were also fitted with storage water tanks of various capacities ranging from 50m3 to 1500m3 as well as communal watering points (which include water kiosks, stand pipes ), 20 water Pans and 5 medium sized dams were constructed. This development facilitated water harvesting of up to 840,000 M3 by the Pans and Dams developed by the department and hence benefiting a total of 172,300 people across the county and about 258,000 livestock and drilling of 30 boreholes. 148. The sector intends to accomplish the following Programmes in FY 2023/24 period: construction of 20kms of water pipelines across the county, drilling and rehabilitation of 14 boreholes, construction of 12 small dams and water pans especially on the upper side of Kinango sub-county region and some parts of Lunga-Lunga sub county, construction of 3 medium sized dams, purchase of 1 water Dozer and improvement of 3 Urban and Rural water schemes among others. In order to implement the above Programmes, the sector will require Kshs.1,158.2 Million, Kshs.1,216.2 Million, and Kshs.1,277.0 Million in the FY 2023/24, FY 2024/25 and FY 2025/26 respectively. Kwale County Treasury, 2023 Page 49 2023 County Fiscal Strategy Paper CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS 149. This 2023 County Fiscal Strategy Paper (CFSP) will inform the MTEF budget for FY 2023/2024 and the medium term. It will guide departments and sector working groups in the preparation of their budgets. The revenue and expenditure projections once firmed up by the County Assembly will be binding for the FY 2022/2023 budget. The provisional sector expenditure ceilings have taken into performance of departments for the last two years and two quarters of FY 2022/2023, the recent economic developments, the expected revenues and the need to adequately fund the county strategic priorities to guarantee their completion. It is expected that during the preparation of their budgets, departments will adhere to the set ceilings once they have been firmed up by the County Assembly. 150. The latest 2021 County Budget Review and Outlook paper made a number of recommendations and conclusions to enhance revenue collection and promote prudent expenditure management .Among the measures that this 2023 CFSP emphasizes include intensifying enforcement and compliance efforts, developing new sources of revenue, fully implementation of the revenue management system, acquisition of the Health Operations management system and the enactment of laws and regulations including the Finance Act and other revenue raising measures. On the expenditure side, fiscal discipline shall be held and the growth of recurrent expenditures curtailed. Kwale County Treasury, 2023 Page 50 2023 County Fiscal Strategy Paper ANNEX 1: STATEMENT OF SPECIFIC FISCAL RISKS Introduction 1. The Fiscal strategy paper is prepared against a background of improved economy and greater prospects for growth. However risks which may derail smooth implementation still remain. The Public Finance Management Act 2012 requires that counties prepare “Statement of Fiscal Risks" as a way to mitigate and manage risks prudently. 2. This “Statement of Specific Fiscal Risks" for the county will give an assessment of the risks that will potentially affect budget execution and the attainment of strategic priorities and financial objectives set out in this 2023 County Fiscal Strategy Paper. Potential risks to our fiscal strategy will emanate from expenditure pressures, revenue underperformance, and changes in the macroeconomic environment, weather / climatic conditions and potential insecurity. The County Government will craft measures to mitigate these risks. Risks in Changes in Macroeconomic Assumptions 3. The underlying assumptions in macroeconomic environment may adversely change and pose risks to the domestic economy which may in turn affect the county economy. Macroeconomic variables changes such as reduced real GDP growth rates, increased inflation, depreciated exchange rate and the volatility of commodity prices on imports will have an effect on revenues to be generated. 4. An unfavorable macroeconomic environment will result in reduced growth and incomes which will have downward effect of revenues both at the national level and county level. Unexpected changes in in macroeconomic variables create risks to both revenue and expenditure projections in this 2023 CFSP as they play a key role in the formulation of the budget. Risks associated with slow execution of development budget 5. The execution of development budget has been slow due to lower absorption rates by departments. Some of the reasons for the slow implementation of the development budget include delays in the release of funds, lengthy procurement procedures, and inadequate capacity and contractor issues. 6. The County Government is fully aware of the reasons causing slow execution of development projects. The County Government will lobby for faster release from the National Treasury, ensure prompt procurement processes and strengthen capacity as well as evaluate and act appropriately on contractor issues. Risks related to Underperformance of Own Source Revenue (OSR) 7. Underperformance in OSR has been caused by a number of factors including inappropriate forecasting, inefficiencies in revenue collection, lack of relevant legislative framework and inadequate enforcement. The underperformance will impact negatively on the total revenues against the planned expenditures. More so, some expenditures like wages are non-discretionary and such cannot be reduced or deferred. This necessitates budget cuts on development expenditure and staggering or non-completion of the development programmes/projects. Kwale County Treasury, 2023 Page 51 2023 County Fiscal Strategy Paper 8. The County Government will mitigate this risk by lobbying for faster enactment of the Finance Bill, implementation of the revenue raising acts which have been passed by the County Assembly, intensifying compliance and enforcement efforts in revenue collection. Risks associated with Wages Expenditures 9. Regulation 25(1) (b) of the Public Finance Management 2012 for County Governments requires that a county wage bill shall not exceed 35 percent of the total revenue. In this 2022 CFSP ,wages are equal to 35 percent of the total expected revenues. Thus our fiscal objectives on wages meet the threshold set. However there are risks emerging from increase employment in essential services which may in the long run increase the wage bill. 10. There is a strong inverse correlation between development expenditures and wage bill. The higher the wage bill the less will be the development expenditure. Therefore higher wage bill will retard development in the county. The County Government will mitigate this risk by establishing an optimal staffing structure to ensure the wage bill is sustainable and does not affect the development agenda. Risks inherent in financial reporting and expenditure arrears 11. Lack of reconciliation between financial statements and balances in the IFMIS has led to misrepresentation in financial reporting. This risk has been caused by the lack of capacity and also connectivity. The County Government will ensure these challenges are addressed and all transactions are captured on IFMIS. 12. Management of pending bills has been a concern over the period and has adverse effect on budget execution. In general, pending payments older than 90 days constitute a fiscal risk with major potential consequences to the economy .The escalation in pending bills is caused mainly by: i) underperformance of OSR; ii) technical challenges with cash flow management; and, iii) violation of laid down procurement regulations. This risk is being mitigated through the ongoing audit of County Governments’ pending bills. The audit will lead to a better understanding of the extent of the risk and thereafter inform the design of specific mitigation measures. 13. Meanwhile, the cash accounting method currently applied by County Governments presents challenges in terms of monthly and annual financial reporting on pending bills and other liabilities (as well as assets). This is due to the fact that cash accounting does not require recognition of liabilities as well as assets; rather, only their associated cash inflows and outflows. 14. To deal with this challenge, the National Treasury and the Public Sector Accounting Standards Board (PSASB) have initiated a review of the Standard Chart of Accounts as well as development of policy guidelines on management of assets and liabilities. These are preparatory steps for a possible future migration to accrual accounting. This will further enhance closer monitoring of County Governments’ pending bills as they will have to be recognized on the face of financial statements. Risks due to effects of Climate Change and Natural Disasters 15. Climate change effects include extreme weather conditions such as drought, storms and floods, potential sea rise and beach erosion, effects on biodiversity, fragile ecosystems, water supply systems damage. Climate change will have a negative impact on food production. The fiscal implications of climate change Kwale County Treasury, 2023 Page 52 2023 County Fiscal Strategy Paper to our plan will be serious and immediate. It will directly affect our revenues and expenditures. Reduced revenues and increased expenditures will distort the county budget formulation. 16. In addition, food production will also be affected by natural disasters such as severe and prolonged drought, heavy rains as well as floods. Heavy rains can also lead to damage of essential infrastructure including buildings, roads, bridges, electricity poles and transformers. Apart from causing lower food production, natural disasters and climate change have the fiscal implications of reduced revenues and increased expenditures which will distort the county budget implementation. 17. The County Government will monitor the situation and adopt appropriate measures such as allocation money for such emergencies to help restore situation and sustain social welfare. Risks associated with Insecurity and the advent of terrorist attacks and the “Al-Shabaab” Menace. 18. Terrorist attacks have become real and have had an adverse on recovery of tourism. In the past, European nations have been issuing travel advisories to their citizens to be cautious when visiting the country particularly the tourist towns at the coast .This has been escalated by the emergence of the “Al- Shabaab” group who claim responsibility of most of the terrorist attacks in the country. 19. The effects of terrorist attack are immense and devastating to the economy. Tourism which is the main stay of our local economy once affected it triggers shocks in other sectors including agriculture, transport, entertainment and trade. Insecurity leads to a general loss of revenues and employment opportunities. 20. The County Government in conjunction with non-state organizations is working on programmes to curb violent extremism among the youth. Kwale County Treasury, 2023 Page 53 2023 County Fiscal Strategy Paper ANNEX II: PUBLIC PARTICIPATION REPORT Introduction This section gives the summary of views from the public on the Draft County Fiscal Strategy Paper. These views influenced the decisions reached on the programmes to be implemented by the departments and the final expenditure ceilings approved by the County Assembly. The public views have been recorded by Sub County. SUB – COUNTY: MATUGA DEPARTMENT STRATEGIES PUBLIC /PROGRAMME VIEWS/COMMENTS EDUCATION  Extension of the  Amendment of the “Elimu ni Sasa Existing Kwale County Initiative” through bursary Act to cater for provision of bursary equitable distribution of and scholarships to bursaries. needy and bright  Provision of Special students across the needs ECDE care giver. county,  Construction of more  Construction of boarding ECDE and VTC facilities in Vocational centers to enhance Training Centres. conducive learning  Provision of sanitary environment to towels in all schools. learners,  Feeding program in  Construction of ECDEs VTCs hostels and provision of playing and or teaching equipment to learners in our ECDE centers and VTCs, and  The school feeding program. HEALTH  Mainstream  Provision of more fully community health equipped Ambulances workers and make and more drivers in sub- them the foundation of county level. the county’s healthcare  Equipping of three system; health centers with  Promote investment to scanning machines. expand existing health infrastructure and improve efficiency in service provision; Kwale County Treasury, 2023 Page 54 2023 County Fiscal Strategy Paper  Equipping of county hospitals and the referral hospital to improve diagnostics and treatment;  Strengthening emergency and response services; and  Installation of solar panels to improve patient outcomes in the primary healthcare facilities. AGRICULTURE,LIVESTOCK  Develop agricultural  Addition of more & FISHERIES mechanization bill to subsidized fertilizer. promote use of  Provision of silos in technology in farming; every ward for storage  Support farmers to of cereals. access quality inputs  Addition of acres to 100 such as seeds and for irrigation instead of seedlings; 61.  Enhance farmers’ access to extension  Establishment of farmers services in order to exchange programmes improve farming with other counties. skills;  Include Fisheries in the  Increase the land under sector priorities irrigation from the  Provision of more current 41 acres to tractors. 61acres. The strategy  Establishment of Kwale will involve meat processing plant. construction of  Rehabilitation of medium dams to provide water for existing fish ponds. irrigation and domestic  Establishment of an use hence increased agricultural fund for productivity and youth and women. guarantee food  Construction of several security. cattle dips.  Provision of acaricides should be increased in areas where livestock are highly affected such as Shimba hills.  Enhancement of timely services for tractors. Kwale County Treasury, 2023 Page 55 2023 County Fiscal Strategy Paper ROADS AND PUBLIC  Tarmacking of 4Kms  Rehabilitation of WORKS of roads, existing streetlights and  Opening of floodlights. 176.67Kms of roads,  Addition of kilometers  Demarcation of of road tarmacking from 668.78 Km of access 4km’s to 10km. roads,  Introduction of a  Procurement of motivation program for equipment - 2 trucks, PMCs.  Installation of 9 streetlights and 14  Construction of more floodlights in major bridges in sub-counties. towns and trading centers. WATER  Construction of 20kms  Water harvesting of water pipelines through obstruction of across the county, seasonal rivers.  Drilling and  Addition of pipeline rehabilitation of 14 km’s to at least 500km. boreholes,  Addition of water  Construction of 12 boozers to at least 2 per small dams and water sub-county. pans especially on the upper side of Kinango  Adoption of new ways sub-county region and and technologies for some parts of Lunga- borehole drilling. Lunga sub county,  Modifying and use of  Construction of 3 springs as water source. medium sized dams,  Repairing of water  Procurement of 1 pumps and purchasing water Dozer and pumps with high voltage  Improvement of 3 power. Urban and Rural water  Monitoring and schemes evaluation of all water projects.  Mkomaza (Eucalyptus) plantation should be put on hold. INFORMATION,  Develop an integrated COMMUNICATION AND health operations TECHNOLOGY (ICT) services and revenue management system for the health sector;  Develop human resource information system to improve efficiency in the Kwale County Treasury, 2023 Page 56 2023 County Fiscal Strategy Paper human resource operations;  Enhance the county website with an interactive web portal and mobile based applications to offer e – services to the public;  Capacity development of the ICT personnel and the public on matters i-sourcing, e – procurement and the county revenue management information system. TOURISM AND  Improve market access  More emphasis on ENTERPRISE by construction and reviving the heritage and DEVELOPMENT operationalization of culture of Kwale modern wholesale and  Construction and retail markets at rehabilitation of market Ukunda and Kombani stalls in sub county respectively; level.  Electrification of market stalls;  Annual cultural day to  Construction of new be revived. market stalls and water towers;  Construction of Bodaboda sheds ,  Completion of the fruit processing plant (phase III) in Kubo south ward and;  Provision of trade revolving fund to county traders;  Equip the Biashara centers to offer quality and relevant training to entrepreneurs;  Strengthen the cooperative movement for better returns to investment;  Strengthen consumer protection programs to improve value for money. Kwale County Treasury, 2023 Page 57 2023 County Fiscal Strategy Paper SOCIAL SERVICES &  Completion of the  Construction of modern TALENT MANAGEMENT county stadium phase stadium at sub county 3, level.  Provision of Youth,  Establishment of GBV Women and PWD fund kitty to help revolving fund, victims.  Rehabilitate 10 (Ten)  Construction of modern sports fields across the social halls at village county, level.  Offer financial support to county sports teams,  Construct 2 (Two) sports academies,  Organize 100 (hundred) sports and cultural competitions starting from the village unit level to the county level. PUBLIC SERVICE AND  Finalizing the assets  Construction of village INTERNATIONAL valuation roll, administrators offices RELATIONS  Fully rolling out of the  Completion of county Revenue Management administrative structure System (RMS), (village Councils)  Development of policy and legal framework,  Recruitment of more revenue officers,  Institutionalizing M & E through the development of M & E policy and the creation of an M&E unit among others. SUB – COUNTY: KINANGO DEPARTMENT STRATEGIES PUBLIC /PROGRAMME VIEWS/COMMENTS EDUCATION  Extension of the  Monitoring and “Elimu ni Sasa evaluation to students Initiative” through who are under the provision of bursary sponsorship program. and scholarships to  Perimeter walls to be needy and bright constructed in every students across the ECDE Centers. county, Kwale County Treasury, 2023 Page 58 2023 County Fiscal Strategy Paper  Construction of more  Career guidance to ECDE and VTC students. centers to enhance  Consistency of the conducive learning school feeding program. environment to  ECDE’s offices should learners, be well equipped with  Construction of teaching materials. VTCs hostels and provision of playing  Recruitment of more and or teaching ECDE Caregivers equipment to learners  Regular Maintenance of in our ECDE centers ECDE centers and VTCs, and  The school feeding program. HEALTH  Mainstream  Provision of more community health laboratories in sub- workers and make county level. them the foundation of  Ensure every house hold the county’s healthcare has a pit latrine. system;  Operationalization of CT  Promote investment to scan in kinango sub- expand existing health infrastructure and county hospital. improve efficiency in  Sufficient supply of service provision; drugs in hospitals.  Equipping of county  More mortuaries to be hospitals and the built in every sub- referral hospital to county. improve diagnostics  Establishment of a and treatment; special unit that will be  Strengthening responsible for emergency and monitoring the response services; and distribution of medical  Installation of solar drugs throughout the panels to improve County. patient outcomes in the primary healthcare  Cancer awareness and facilities. health insurance cover to be provided with ease.  Supply of sunglasses, sunscreen lotion and other materials for those suffering from Albinism. AGRICULTURE,LIVESTOCK  Develop agricultural  Increase land under & FISHERIES mechanization bill to irrigation to at least 120 promote use of technology in farming; Kwale County Treasury, 2023 Page 59 2023 County Fiscal Strategy Paper  Support farmers to acres i.e. 20 acres in access quality inputs each sub-county. such as seeds and  Establishment of county seedlings; cereal storage in each  Enhance farmers’ ward. access to extension  Establishment of soil services in order to testing laboratory. improve farming skills;  Inclusion of Fisheries  Increase the land under Program in the CFSP irrigation from the 2023. current 41 acres to  Water obstruction in 61acres. The strategy rivers to ease water will involve harvesting for irrigation. construction of  Addition of tractors in medium dams to each sub-county. provide water for  Capacity building for irrigation and domestic farmers to help in water use hence increased harvesting. productivity and guarantee food  Establishment of security. training centers for farmers.  Exchange programs for farmers with those in others areas.  Provision of more seedlings.  Research to be conducted on the fertilizers and seedlings given to match the soil available.  Provision of Hay / Napier grass to livestock farmers.  Addition of more agricultural extension officers.  Areas to be set aside as grazing fields for livestock farmers.  Promotion of bee keeping. ROADS AND PUBLIC  Tarmacking of 4Kms  Monitoring of WORKS of roads, contractors throughout  Opening of the assigned projects. 176.67Kms of roads, Kwale County Treasury, 2023 Page 60 2023 County Fiscal Strategy Paper  Demarcation of 668.78 Km of access roads,  Procurement of equipment - 2 trucks,  Installation of 9 streetlights and 14 floodlights in major towns and trading centers. WATER  Construction of 20kms  Provision of clean water of water pipelines in all village units. across the county,  Drilling and rehabilitation of 14 boreholes,  Construction of 12 small dams and water pans especially on the upper side of Kinango sub-county region and some parts of Lunga- Lunga sub county,  Construction of 3 medium sized dams,  Procurement of 1 water Dozer and  Improvement of 3 Urban and Rural water schemes INFORMATION,  Develop an integrated  Agreed with department COMMUNICATION AND health operations proposals TECHNOLOGY (ICT) services and revenue management system for the health sector;  Develop human resource information system to improve efficiency in the human resource operations;  Enhance the county website with an interactive web portal and mobile based applications to offer e – services to the public; Kwale County Treasury, 2023 Page 61 2023 County Fiscal Strategy Paper  Capacity development of the ICT personnel and the public on matters i-sourcing, e – procurement and the county revenue management information system. TOURISM AND  Improve market access  Promotion of Galana ENTERPRISE by construction and tiles through DEVELOPMENT operationalization of introduction of specific modern wholesale and clause in BQs requiring retail markets at engineers to use them. Ukunda and Kombani  Construction of a large respectively; modern livestock market  Electrification of in Kinango sub-county. market stalls;  Construction of new  Re-introduction of the market stalls and Kwale county driving water towers; program for Youths.  Construction of  Open up new tourism Bodaboda sheds , center to enhance our  Completion of the fruit culture and market processing plant Kwale as tourist (phase III) in Kubo destination south ward and;  Provision of trade revolving fund to county traders;  Equip the Biashara centers to offer quality and relevant training to entrepreneurs;  Strengthen the cooperative movement for better returns to investment;  Strengthen consumer protection programs to improve value for money. SOCIAL SERVICES &  Completion of the  Establishment of market TALENT MANAGEMENT county stadium phase for the PWD’S with 3, their workshops and  Provision of Youth, their handcrafted Women and PWD products. revolving fund,  Consideration of other sports disciplines such as Kwale County Treasury, 2023 Page 62 2023 County Fiscal Strategy Paper  Rehabilitate 10 (Ten) Basketball, Para sports sports fields across the etc. county,  Offer financial support to county sports teams,  Construct 2 (Two) sports academies,  Organize 100 (hundred) sports and cultural competitions starting from the village unit level to the county level. PUBLIC SERVICE AND  Finalizing the assets  Agreed with Department INTERNATIONAL valuation roll, Proposals RELATIONS  Fully rolling out of the Revenue Management System (RMS),  Development of policy and legal framework,  Recruitment of more revenue officers,  Institutionalizing M & E through the development of M & E policy and the creation of an M&E unit among others. Kwale County Treasury, 2023 Page 63 2023 County Fiscal Strategy Paper SUB – COUNTY: LUNGA-LUNGA DEPARTMENT/ STRATEGIES PUBLIC PROGRAMM VIEWS/COMMENTS EDUCATION  Extension of the “Elimu ni  Addition of both teachers Sasa Initiative” through and special care givers in provision of bursary and all ECDE’S. scholarships to needy and  Increment of bursaries bright students across the from 20M to 40M. county,  Amendments of basic  Construction of more education act 2013, to ECDE and VTC centers to suit the current CBC. enhance conducive learning  Addition of VTC’S environment to learners, personnel’s.  Construction of VTCs  Construction of hostels hostels and provision of and accommodation playing and or teaching facilities in VTC’S. equipment to learners in  Introduction of bursary our ECDE centers and monitoring and VTCs, and evaluation committee in  The school feeding ward level. program. HEALTH  Mainstream community  Fencing of all health health workers and make facilities. them the foundation of the  NHIF to be improved to county’s healthcare system; all Kwale residents.  Promote investment to  Free health care card to expand existing health PWD’S. infrastructure and improve  Addition of ambulances efficiency in service to all health centers and provision; referral centers including  Equipping of county an Ambulance boat to hospitals and the referral cater for citizens living hospital to improve in island. diagnostics and treatment;  Increase number of  Strengthening emergency toilets in health centers and response services; and  Establishment of more  Installation of solar panels health centers in every to improve patient Ward to decongest the outcomes in the primary referral hospital healthcare facilities.  Construction of staff houses in each health facility  Construction of pathways within Lungalunga SC hospital.  Permanent water supply in all health facilities. Kwale County Treasury, 2023 Page 64 2023 County Fiscal Strategy Paper  Construction of Mortuary in each Sub County.  Training of CHWs to provide youth friendly SRH services  Establishment of Youth friendly Centers within each health facility. AGRICULTURE,  Develop agricultural  Supply of 7 fiber boats to LIVESTOCK AND mechanization bill to serve the 7 BMUs. FISHERIES promote use of technology  Provision of market and in farming; value addition to exports  Introduction of enough  Support farmers to access and modernized fishing quality inputs such as seeds equipment’s and seedlings;  Sensitization and  Enhance farmers’ access to trainings to local extension services in order fishermen to improve farming skills;  Construction of cold storage facilities for  Increase the land under fishermen irrigation from the current  Timely distribution of 41 acres to 61acres. The Farm inputs strategy will involve  Research to be done construction of medium before allocation and dams to provide water for distribution of farm irrigation and domestic use inputs, fishing hence increased accessories and livestock  Introduction of large productivity and guarantee scale production and food security. storage of Hay to be distributed to Livestock farmers during dry season.  Construction of Silos for storage of cereals in each sub County Kwale County Treasury, 2023 Page 65 2023 County Fiscal Strategy Paper ROADS AND PUBLIC  Tarmacking of 4Kms of  Tarmacking of roads to WORKS roads, be increased from 4km to  Opening of 176.67Kms of 20km  Floodlights in every roads, village trading center and  Demarcation of 668.78 Km roads connecting the of access roads, centers  Procurement of  Surveying and opening equipment - 2 trucks, of beach access roads  Installation of 9  Increase street lights from 14 to 30 streetlights and 14  Procurement of Five floodlights in major towns trucks and trading centers. WATER  Construction of 20kms of  Research and survey to water pipelines across the be done before water county, pans and boreholes are drilled/constructed.  Drilling and rehabilitation  Boreholes to be of 14 boreholes, increased from 14 to 40  Construction of 12 small  Dams to be increased dams and water pans from 12 to 20 especially on the upper side  Construction of 5 of Kinango sub-county medium-sized dams region and some parts of  Purchase of 3 water Lunga-Lunga sub county, boozers  Improvement of 5 urban  Construction of 3 medium and rural water schemes sized dams,  Marere water to be  Procurement of 1 water supplied to Kwale Dozer and County before being  Improvement of 3 Urban supplied to other and Rural water schemes counties by improving water pipeline INFORMATION,  Develop an integrated health  WIFI installation in COMMUNICATION operations services and every Ward and county AND TECHNOLOGY revenue management offices (ICT) system for the health sector;  Develop human resource information system to improve efficiency in the human resource operations;  Enhance the county website with an interactive web portal and mobile based Kwale County Treasury, 2023 Page 66 2023 County Fiscal Strategy Paper applications to offer e – services to the public;  Capacity development of the ICT personnel and the public on matters i-sourcing, e – procurement and the county revenue management information system. TOURISM AND  Improve market access by  Construction of Kwale ENTERPRISE construction and Utalii college DEVELOPMENT operationalization of modern  Advertisement of wholesale and retail markets at tourism through billboards, TV programs, Ukunda and Kombani radios respectively;  Tourist attraction sites to  Electrification of market stalls; be identified and  Construction of new market marketed stalls and water towers;  Establishment of a fruit  Construction of Bodaboda processing plant in Lunga-lunga Sub County sheds ,  Provision of business  Completion of the fruit training and funds for the processing plant (phase III) in Youths Kubo south ward and;  Provision of trade revolving fund to county traders;  Equip the Biashara centers to offer quality and relevant training to entrepreneurs;  Strengthen the cooperative movement for better returns to investment;  Strengthen consumer protection programs to improve value for money. Kwale County Treasury, 2023 Page 67 2023 County Fiscal Strategy Paper SOCIAL SERVICES &  Completion of the county  Construction of social TALENT stadium phase 3, halls in at least every MANAGEMENT  Provision of Youth, Women village unit  Establishment of and PWD revolving fund, rehabilitation centers at  Rehabilitate 10 (Ten) sports least one in every Ward fields across the county,  Support village and FKF  Offer financial support to registered teams with county sports teams, equipment’s  Construct 2 (Two) sports  Construction of modern and FIFA standard academies, stadium in every Sub Organize 100 (hundred) sports and county cultural competitions starting from  Rehabilitation of at least the village unit level to the county 15 sport fields across the level. county.  Construction of GBV centers in each sub county.  Construction of social halls which are user friendly to PWDs. PUBLIC SERVICE AND  Finalizing the assets valuation  Establishment of offices INTERNATIONAL roll, for village administrators RELATIONS  Fully rolling out of the  Public participation process to be conducted Revenue Management System from the village unit (RMS), level.  Development of policy and legal framework,  Recruitment of more revenue officers,  Institutionalizing M & E through the development of M & E policy and the creation of an M&E unit among others. Kwale County Treasury, 2023 Page 68 2023 County Fiscal Strategy Paper SUB – COUNTY: MSAMBWENI DEPARTMENT STRATEGIES PUBLIC /PROGRAMME VIEWS/COMMENTS EDUCATION  Extension of the  Introduction of non- “Elimu ni Sasa formal education in Initiative” through schools. provision of bursary  Amendment of the Basic and scholarships to Education Act 2013. needy and bright  Policies to govern students across the bursary distribution and county, allocation.  Construction of more  Introduction of Diploma ECDE and VTC courses in VTCs. centers to enhance  Erection of walls in conducive learning VTCs. environment to  VTCs and ECDEs to be learners, modernized and well-  Construction of equipped VTCs hostels and provision of playing and or teaching equipment to learners in our ECDE centers and VTCs, and  The school feeding program. HEALTH  Mainstream  Training and well community health payment of CHWs workers and make  Establishment of fully them the foundation of equipped health centers the county’s healthcare in every Ward to system; decongest the referral  Promote investment to hospital. expand existing health  Specialized equipment’s infrastructure and for diagnosis improve efficiency in  Hiring of Specialized service provision; personnel to the  Equipping of county hospitals and the referral hospitals and the (neurosurgeon, referral hospital to opticians, dentists, improve diagnostics psycho-support and and treatment; mental health)  Strengthening emergency and response services; and  Installation of solar panels to improve patient outcomes in the primary healthcare facilities. Kwale County Treasury, 2023 Page 69 2023 County Fiscal Strategy Paper AGRICULTURE,LIVESTOCK  Develop agricultural  Research to be done & FISHERIES mechanization bill to before farm inputs and promote use of livestock distribution is technology in farming; done  Support farmers to  Demarcation of landing access quality inputs sites such as seeds and  Value addition to seedlings; farmers  Enhance farmers’  Farm inputs to be access to extension distributed equally and services in order to on timely basis. improve farming  Farming tractors to be skills; increased and be  Increase the land under provided on timely basis irrigation from the  Provision of cold storage current 41 acres to facilities to all BMUs. 61acres. The strategy will involve construction of medium dams to provide water for irrigation and domestic use hence increased productivity and guarantee food security. ROADS AND PUBLIC  Tarmacking of 4Kms  The 4 km budget of WORKS of roads, tarmacking to be  Opening of increased to 20km 176.67Kms of roads,  Surveying and opening  Demarcation of of beach access roads 668.78 Km of access roads,  Procurement of equipment - 2 trucks,  Installation of 9 streetlights and 14 floodlights in major towns and trading centers. WATER  Construction of 20kms  Rehabilitation of of water pipelines existing boreholes. across the county,  Establishment of more  Drilling and dams at sub-county rehabilitation of 14 level. boreholes,  Improve water  Construction of 12 catchment systems. small dams and water  Obstruction of rivers for pans especially on the domestication purposes. upper side of Kinango  Improve water pipelines sub-county region and systems. Kwale County Treasury, 2023 Page 70 2023 County Fiscal Strategy Paper some parts of Lunga-  Using springs as a Lunga sub county, source of water supply  Construction of 3 to villages. medium sized dams,  Procurement of 1 water Dozer and  Improvement of 3 Urban and Rural water schemes INFORMATION,  Develop an integrated  Agreed with the COMMUNICATION AND health operations proposals TECHNOLOGY (ICT) services and revenue management system for the health sector;  Develop human resource information system to improve efficiency in the human resource operations;  Enhance the county website with an interactive web portal and mobile based applications to offer e – services to the public;  Capacity development of the ICT personnel and the public on matters i-sourcing, e – procurement and the county revenue management information system. TOURISM AND  Improve market access by  Allocation and ENTERPRISE construction and improvement of DEVELOPMENT operationalization of historic sites. modern wholesale and  Online marketing of retail markets at Ukunda tourism sites. and Kombani  Introduction of respectively; Annual Tourism  Electrification of market expos. stalls;  Improve tourist  Construction of new security. market stalls and water  Beautification of towers; beach Access roads.  Construction of  Land banking for Bodaboda sheds , markets. Kwale County Treasury, 2023 Page 71 2023 County Fiscal Strategy Paper  Completion of the fruit  Improve Kwale processing plant (phase tourism trade affairs. III) in Kubo south ward  Establish policies in and; tourism sector.  Provision of trade  Purchase of revolving fund to county passenger cruise traders; boats.  Equip the Biashara centers to offer quality and relevant training to entrepreneurs;  Strengthen the cooperative movement for better returns to investment;  Strengthen consumer protection programs to improve value for money. SOCIAL SERVICES &  Completion of the county  Introduction of Kwale TALENT MANAGEMENT stadium phase 3, annual Sports  Provision of Youth, competition including Women and PWD Marathon, Paralympics, revolving fund, Swimming etc.  Rehabilitate 10 (Ten)  Scouting and sports fields across the empowerment of the county, best Kwale sportsmen  Offer financial support to and women to county sports teams, international level.  Construct 2 (Two) sports  Creation of Sport and academies, talent Fund  Organize 100 (hundred) sports and cultural competitions starting from the village unit level to the county level. PUBLIC ADMINISTRATION  Finalizing the assets  Establishment of county AND INTERNATIONAL valuation roll, youth service. RELATIONS  Fully rolling out of the  Establishment of county Revenue Management traffic unit. System (RMS),  County auction on  Development of policy public assets. and legal framework,  Supplementary budgets  Recruitment of more should be subjected to revenue officers, public participation  Institutionalizing M & E  County to adopt a paid through the development internship program. of M & E policy and the creation of an M&E unit among others. Kwale County Treasury, 2023 Page 72 2023 County Fiscal Strategy Paper SUMMARY REPORT OF THE COMMITTEE ON FINANCE, BUDGET AND APPROPRIATIONS OF THE KWALE COUNTY ASSEMBLY 1. COMMITTEE OBSERVATIONS Mr. Speaker sir the Committee observed the following; 1. That the County Executive conducted public participation on the proposed County Fiscal strategy paper 2023/2024 as required by section 117 of the Public Finance Management Act, 2012. 2. The 2023/2024 CFSP projects a budget of Ksh 10,547,073,520 which includes a recurrent expenditure of Ksh 6,340,444,692 at 60.1% while development expenditure is pegged at Ksh 4,206,628,828 representing 39.9%. 3. The highest beneficiary of the projected budget for FY 2023/2024 are the departments of Health at Ksh 3,076,438,904, Education at Ksh 1,419,861,930 and water services at 1,158,242,050. 4. The Lowest beneficiaries of the projected budget for FY 2023/2024 are the departments of County attorney at Ksh 23,000,000, Diani Municipality at Ksh 47,162,611, Kinango and Lungalunga municipalities at Ksh 54,500,000 each. 5. The 2023/2024 CFSP projects an improvement of resources envelope of 8% compared to last FY 2022/2023 from Ksh 9,759,536,856 to 10,547,073,518 6. That there is an increase of Own Source Revenue from Ksh 420,000,000 as per the approved ADP 2023/2024 to Ksh 600,000,000 as per the CFSP 2023/2024 resulting to a variance of Ksh 180,000,000 which has been projected to be collected from Universal Health Care through Linda Mama programme @ 80,000,000 and selling of Revenue Management system to 10 Counties resulting to an estimated collection of Ksh 100,000,000. 7. That there is an introduction of royalties of Ksh 330,000,000 as per the approved Mining Act,2016 8. That the increase of resources of Ksh 510,000,000 from Own Source Revenue and Royalties have been distributed as follows; i. Contribution to the Industrial Park Program @Ksh 100,000,000 ii. Allocation for land banking (Acquire land for development) @Ksh 20,000,000 iii. Salary increment of 3% annual, recruitment, operations and maintenance for the new municipalities and office of the County Attorney @Ksh 240,000,000 iv. Increment for the procurement of medical drugs @Ksh 100,000,000 v. Increment for staff medical cover @ Ksh 50,000,000 9. That there is an introduction of Conditional Grants of Ksh 1,036,834,776 as indicated in the Budget Policy statement compared to the approved ADP 2023/2024 which has been distributed as follows; Kwale County Treasury, 2023 Page 73 2023 County Fiscal Strategy Paper i. Leasing of Medical Equipment @ Ksh 110,638,298 ii. DANIDA Grant to Supplement Financing of County Health facilities @ Ksh 25,045,875 iii. Urban Institutional Grant @ 2,339,915 iv. World Bank Loan for National Agricultural and Rural Inclusive Growth Project @ Ksh 151,305, 671 v. Water and Sanitation Development Project (WSDP) @ Ksh 550,000,000 vi. Agricultural Sector Development Support Programme @ Ksh 5,505,017 vii. National Agricultural Value Chain Development Project (NAVCDP) @ Ksh 70,000,000 viii. Financing Locally - Led Climate Action (FLLoCA) Program, County Climate Institutional Support @ Ksh 22,000,000 ix. Grant for Aggregated Industrial Park @ Ksh 100,000,000 10. That the Personnel Emoluments for Public service and Administration has been overstated by Ksh 28,207,200. 11. That the Personnel Emoluments for Executive Services has been Overstated by 9,032,100 12. That the Personnel Emoluments for Diani Municipality, Kwale Municipality and the Office of the County Attorney has been understated by Ksh 14,207,200, Ksh 14,000,000 and Ksh 9,032,100 respectively. 2. COMMITTEE RECOMMENDATIONS Mr. Speaker sir the Committee recommends as follows; 1. That the report of the Public participation on CFSP 2023/2024 by the County Executive be adopted. 2. Deduct Ksh 10,000,000 from procurement of drugs under Health services and the sum be reallocated to the County Assembly for drilling of boreholes under development programs. 3. Deduct Ksh 28,207,200 from Personnel Emoluments under the department of Public service and Administration and reallocate it as follows; i. Ksh 14,207,200 for Personnel Emoluments to Diani Municipality ii. Ksh 14,000,000 for Personnel Emoluments to Kwale Municipality 4. Deduct Ksh 9,032,100 from Personnel Emoluments under the department of Executive services and reallocate it to the Office of County Attorney for Personnel Emoluments. 5. That the County Assembly projected budget be approved at Ksh 818,474,855 including a recurrent budget of Ksh 615,164,288 and Development budget of Ksh 203,310,567. 6. That CFSP for 2023/2024 be approved with a total budget of Ksh. 10,547,073,518 including a Recurrent Budget Ksh. 6,330,444,690 and development budget of Ksh. 4,216,628,828. 7. The total ceiling for the County Government shall be adopted as follows; Kwale County Treasury, 2023 Page 74 2023 County Fiscal Strategy Paper ADOPTED CEILINGS FOR CFSP 2023/2024 APPROVED DEPARTMENTAL 2023 C-FSP CEILINGS O&M P.E RECURRENT DEVELOPMENT TOTAL CRUCIAL NON-CRUCIAL TOTAL O&M 3061 Finance and Economic Planning 200,689,942 520,000,000 110,600,000 630,600,000 831,289,942 110,000,000 941,289,942 3062 Agriculture, Livestock and Fisheries 151,065,170 34,333,081 34,333,081 185,398,251 497,595,938 682,994,189 3063 Environment and Natural Resources 35,933,072 32,121,800 32,121,800 68,054,872 176,000,000 244,054,872 3064 Medical and Health Services 1,842,329,957 490,000,000 325,045,872 815,045,872 2,657,375,829 405,063,073 3,062,438,902 3065 County Assembly 310,330,061 304,834,227 0 304,834,227 615,164,288 203,310,567 818,474,855 3066 Trade, Investment and Cooperatives 38,516,535 33,358,962 33,358,962 71,875,497 436,500,000 508,375,497 3067 Social Services & Talent Management 34,419,957 36,845,739 36,845,739 71,265,696 137,372,725 208,638,421 3068 Executive Services 91,478,851 41,035,533 41,035,533 132,514,384 0 132,514,384 3069 Education 564,840,502 400,000,000 108,121,228 508,121,228 1,072,961,730 348,900,200 1,421,861,930 3070 Water Services 37,489,736 31,099,164 31,099,164 68,588,900 1,094,653,150 1,163,242,050 3071 Roads and Public Works 69,242,682 53,238,155 53,238,155 122,480,837 555,233,175 677,714,012 3072 Tourism and ICT 27,500,616 15,087,474 15,087,474 42,588,090 27,000,000 69,588,090 3073 County Public Service Board 30,177,111 30,000,000 30,000,000 60,177,111 0 60,177,111 3074 Public Service and Administration 200,165,261 45,000,000 45,000,000 245,165,261 35,000,000 280,165,261 3075 Kwale Municipality 15,802,176 7,339,915 7,339,915 23,142,091 50,000,000 73,142,091 3076 Diani Municipality 16,369,811 5,000,000 5,000,000 21,369,811 40,000,000 61,369,811 Lunga Lunga Municipality 1,500,000 3,000,000 3,000,000 4,500,000 50,000,000 54,500,000 Kinango Municipality 1,500,000 3,000,000 3,000,000 4,500,000 50,000,000 54,500,000 Office of the Attorney 12,032,100 20,000,000 20,000,000 32,032,100 0 32,032,100 TOTAL 3,681,383,540 1,714,834,227 934,226,923 2,649,061,150 6,330,444,690 4,216,628,828 10,547,073,518 PERCENT ALLOCATION 34.90 25.12 60.02 39.98 100.00 Kwale County Treasury, 2023 Page 75 2023 County Fiscal Strategy Paper Kwale County Treasury, 2023 Page 76