REPUBLIC OF KENYA COUNTY GOVERNMENT OF KILIFI THE TREASURY 2021 COUNTY BUDGET REVIEW AND OUTLOOK PAPER SEPTEMBER, 2021 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 0 © 2021 County Government of Kilifi This 2021 Kilifi County Budget Review and Outlook Paper has been compiled using latest information, some of which is unaudited or subject to revision. To obtain copies of the document, please contact: The County Treasury P. O. Box 519 KILIFI, KENYA The document is also available on the website at: www.kilifi.go.ke 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 1 FOREWORD The 2021 Kilifi County Budget Review Outlook Paper (CBROP) is prepared in line with Section 118 of the Public Finance Management (PFM) Act, 2012. The 2021 CBROP presents updated economic and financial forecasts with sufficient information to inform the budget proposals for the next financial year. It also reviews previous year’s budget and provides an outlook for the forthcoming budget year. The paper examines recent economic developments and fiscal performance in FY 2020/21 against corresponding appropriations. This entails analysis of total revenue collected versus projected revenue and highlighting the causes for deviations. The analysis also includes expenditure performance of county departments with highlights on actual performance of FY 2020/21 and its compliance with the fiscal responsibility principles in the PFM Act of 2012. Additionally, the paper provides an overview of how the actual performance of the FY 2020/21 affected the financial objectives as detailed in the 2020 County Fiscal Strategy Paper (CFSP). HON. SAMUEL KOMBE NZAI COUNTY EXECUTIVE COMMITTEE MEMBER FINANCE AND ECONOMIC PLANNING 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 2 LEGAL BASIS FOR THE PUBLICATION OF THE COUNTY BUDGET REVIEW AND OUTLOOK PAPER The Kilifi County Budget Review and Outlook Paper is prepared in accordance with Section 118 of the Public Finance Management (PFM) Act, 2012 which states that: 1) A County Treasury shall; a) Prepare a County Budget Review and Outlook Paper (CBROP) in respect of the county for each financial year; and b) Submit the paper to the County Executive Committee by 30th September of that year. 2) In preparing the County Budget Review and Outlook Paper, the County Treasury shall specify: a) The details of actual fiscal performance in the previous financial year compared to the budget appropriation for that year; b) The updated economic and financial forecasts with sufficient information to show changes from the forecasts in the most recent County Fiscal Strategy Paper (CFSP); c) Information on- i. any changes in the forecasts compared with the CFSP or; ii. how actual financial performance for the previous financial year may have affected compliance with the fiscal responsibility principles or the financial objectives in the CFSP for that year; and d) Reasons for any deviation from the financial objectives in the CFSP together with proposals to address the deviation and the time estimated for doing so. 3) The County Executive Committee shall consider the CBROP with a view to approving it, with or without amendments, within fourteen days after its submission. 4) Not later than seven days after the CBROP is approved by County Executive Committee, the County Treasury shall: (a) Arrange for the CBROP to be laid before the County Assembly; and (b) As soon as practicable after having done so, publish and publicize the paper. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 3 FISCAL RESPONSIBILITY PRINCIPLES The fiscal responsibility principles are set out in Section 107(2) of the Public Finance Management (PFM) Act, 2012, and Regulation 25 of PFM (County Government) Regulations, 2015 to ensure prudence and transparency in the management of county public resources. Thus, Section 107(2) of the PFM Act 2012 provides that: (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 expenditures on wages and benefits shall not exceed a percentage of the county government’s total revenue as prescribed by the County Executive Member for finance in regulations and approved by the County Assembly (d) Over the medium term, the county government’s borrowings shall be used only for the purpose for financing development expenditure and not for recurrent expenditure; (e) The county debt shall be maintained at a sustainable level as approved by the County Assembly. (f) The fiscal risks shall be managed prudently; and (g) A reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future. Further, Regulation 25 of the PFM (County Government) Regulations of 2015 specifically provides that: a) the County Executive Committee Member with the approval of the County Assembly shall set a limit on the county government’s expenditure on wages and benefits for its public officers pursuant to section 107(2) of the Act; b) the limit set under paragraph (a) above, shall not exceed thirty five (35) percent of the county government’s total revenue; c) for the avoidance of doubt, the revenue referred to in paragraph (b) shall not include revenues that accrue from extractive natural resources including as oil and coal; d) the county public debt shall never exceed twenty (20%) percent of the county governments total revenue at any one time; 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 4 e) the county annual fiscal primary balance shall be consistent with the debt target in paragraph (d); f) the approved expenditures of a county assembly shall not exceed seven per cent of the total revenues of the county government or twice the personnel emoluments of that county assembly, whichever is lower; g) pursuant to section 107(5) of the Act, the county government actual expenditure on development shall be at least thirty percent in conformity with the requirement under section 107(2)(a) of the Act; h) if the county government does not achieve the requirement of regulation 25(1)(f) above at the end of the financial year, the county executive committee member for finance shall submit a responsibility statement to county assembly explaining the reasons for the deviation and provide a plan on how to ensure annual actual expenditure outturns as well as medium term allocation comply with the provisions of Section 107 (2) (a) of the Act and these regulations in the subsequent years; and i) the compliance plan above shall be binding and the county executive committee member for finance shall ensure implementation 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 5 TABLE OF CONTENTS FOREWORD ............................................................................................................................................................... 2 LEGAL BASIS FOR THE PUBLICATION OF THE COUNTY BUDGET REVIEW AND OUTLOOK PAPER .......................................................................................................................................................................... 3 FISCAL RESPONSIBILITY PRINCIPLES ............................................................................................................. 4 TABLE OF CONTENTS ............................................................................................................................................ 6 LIST OF TABLES ....................................................................................................................................................... 7 ABBREVIATIONS AND ACRONYMS .................................................................................................................... 9 GLOSSARY OF COMMONLY USED TERMS .................................................................................................... 10 1.1 CHAPTER ONE: INTRODUCTION ......................................................................................................... 11 1.1 INTRODUCTION ................................................................................................................................................... 11 1.2 OBJECTIVE OF CBROP ....................................................................................................................................... 11 1.3 ORGANIZATION OF THE CBROP ........................................................................................................................ 12 2.0 CHAPTER TWO: FISCAL PERFORMANCE FOR FY 2020/21 AND ITS IMPLICATION ON FINANCIAL OBJECTIVES .................................................................................................................................... 13 2.1 OVERVIEW ...................................................................................................................................................... 13 2.2 FY2020/21 FISCAL PERFORMANCE ............................................................................................................ 15 2.2.1 REVENUE PERFORMANCE .................................................................................................................... 15 2.2.2 EXPENDITURE PERFORMANCE ........................................................................................................... 21 2.5 AGGREGATE EXPENDITURE ........................................................................................................................ 24 2.6 RECURRENT AND DEVELOPMENT EXPENDITURES ...................................................................... 25 2.7 EXPENDITURE ANALYSIS ACCORDING TO ECONOMIC CLASSIFICATION ...................................... 26 2.7.1 COMPENSATION OF EMPLOYEES ........................................................................................................... 27 2.7.2 OPERATIONS AND MAINTENANCE (O&M) .......................................................................................... 27 2.7.3 DEVELOPMENT EXPENDITURE PERFORMANCE FY2020/21 ............................................................ 28 3.0 CHAPTER THREE: RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK PERFORMANCE 32 3.1 OVERVIEW ...................................................................................................................................................... 32 3.2 RECENT ECONOMIC DEVELOPMENTS ..................................................................................................... 32 3.3 GROSS DOMESTIC PRODUCT ...................................................................................................................... 33 3.4 INFLATION RATE .......................................................................................................................................... 36 3.5 INTEREST RATES ........................................................................................................................................... 37 3.6 EXCHANGE RATES ........................................................................................................................................ 38 3.7 MEDIUM TERM FISCAL FRAMEWORK ..................................................................................................... 39 3.8 RISKS TO ECONOMIC AND FISCAL OUTLOOK ........................................................................................ 40 4.0 CHAPTER FOUR: RESOURCE ALLOCATION FRAMEWORK .............................................................. 42 4.1 OVERVIEW ...................................................................................................................................................... 42 4.2 ADJUSTMENTS TO THE FY 2021/22 BUDGET ........................................................................................... 42 4.3 BUDGET FRAMEWORK FY 2021/22 ............................................................................................................ 43 4.4 MEDIUM TERM EXPENDITURE FRAMEWORK ........................................................................................ 45 5.0 CHAPTER FIVE: CONCLUSION .................................................................................................................... 50 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 6 LIST OF TABLES Table 1: Approved and Revised Estimates for FY 2020/21 ....................................................................... 13 Table 2: Disbursement of Equitable Share of Revenue Raised Nationally FY 2020/21 ............................ 15 Table 3: Conditional Grants and Their Disbursement for FY 2020/21....................................................... 16 Table 4: Own Source Revenue Streams Performance FY 2020/21 ............................................................ 18 Table 5: Revenue Projection for FY 2021/22 ............................................................................................. 19 Table 6: Withdrawals from the County Revenue Fund Account FY 2020/21 ............................................ 21 Table 7: Expenditure Performance FY 2020/21 ......................................................................................... 22 Table 8: Aggregate Expenditures FY2020/21 ............................................................................................ 24 Table 9: Recurrent Vs Development Expenditure FY2020/21 ................................................................... 25 Table 10: Expenditure Performance on Economic Classification FY 2020/21 .......................................... 26 Table 11: Expenditure on Compensation to Employees FY 2020/21 ......................................................... 27 Table 12: Expenditure Performance on Operations and Maintenance FY 2020/21 ................................... 27 Table 13: Development Expenditure Performance FY2020/21 .................................................................. 28 Table 14: Overall Fiscal Balance FY2020/21 ............................................................................................. 30 Table 15: Projections for Equitable Share and Own Source Revenue for FY 2022/23 to FY 2024/25 ...... 44 Table 16: Medium Term Expenditure Framework ..................................................................................... 47 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 7 LIST OF FIGURES Figure 1: Expected Sources to budget Financing in FY 2020/2021 ........................................................... 14 Figure 2: Annual Trend in Own Source Revenue ...................................................................................... 20 Figure 3: Departmental Expenditure FY 2019/20 Vs FY 2020/21 ............................................................. 23 Figure 4: Expenditure Performance on Economic Classification FY2019/20 Vs FY2020/21 ................... 26 Figure 5: Actual Expenditure FY2020/21 ................................................................................................... 29 Figure 6: Expenditure Proportions FY2020/21 ........................................................................................... 31 Figure 7: Annual GDP Growth (%), 1986-2020 ......................................................................................... 34 Figure 8: GDP Q3 % Change, 2015-2020 .................................................................................................. 34 Figure 9: Overall Inflation Rate (%), FY 2020/2021 .................................................................................. 37 Figure 10: Analysis of Trends in Interest Rates (%), FY 2017/18, 2018/19, 2019/20, 2020/2021 ............ 38 Figure 11: Average exchange rates for 2020 and 2021 ............................................................................... 39 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 8 ABBREVIATIONS AND ACRONYMS AMS Agricultural Mechanization Servicers ATC Agricultural Training College BPS Budget Policy Statement CBR Central Bank Rate CBROP County Budget Review and Outlook Paper CFSP County Fiscal Strategy Paper CIDP County Integrated Development Plan CPI Consumer Price Index CRA Commission on Revenue Allocation CRF County Revenue Fund FY Financial Year GDP Gross domestic product IFMIS Integrated Financial Management Information System IMF International Monetary Fund Kilifi eDAMS Kilifi Electronic Development Applications Management System KNBS Kenya National Bureau of Statistics MTEF Medium Term Expenditure Framework O&M Operations and Maintenance OSR Own source revenue PFMA Public Finance Management Act SWGs Sector Working Groups 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 9 GLOSSARY OF COMMONLY USED TERMS Budget Framework: Fiscal arrangements that allow government to extend the horizon for fiscal policy making beyond the annual budgetary calendar. Conditional Grants: Monetary transfers from one level of government to another, either through competitive project grants or through more general block grants, which place conditions on the use of the transferred funds by the recipient government. Development Expenditure: Expenditure of the government which helps in economic development by increasing production and real income of the country. Some people call it productive expenditure because it helps in increasing production and productivity of the economy. Economic Development: Creation of wealth from which community benefits are realized. It is more than a jobs program, it’s an investment in growing your economy and enhancing the prosperity and quality of life for all residents Economic Growth: Economic growth is an increase in the production of economic goods and services, compared from one period of time to another. Equitable Share: The equitable share is the money parliament shares vertically between the national and the county governments. The money comes from the ordinary tax revenue the national government collects at the national level. Exchange Rate: An exchange rate is the value of one nation's currency versus the currency of another nation or economic zone. Inflation Rate: Decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. Interest Rate: An interest rate refers to the amount charged by a lender to a borrower for any form of debt given, generally expressed as a percentage of the principal. Medium Term Expenditure Framework (MTEF): The MTEF sets out three-year spending plans of the government. It aims to ensure that budgets reflect Government's social and economic priorities and give substance to Government's reconstruction and development commitments. Own Source Revenue: Revenue generated by county. governments from local sources in the form of taxes, charges and fees. Recurrent Expenditure: Expenditure, which does not result in the creation or acquisition of fixed assets (new or second-hand). It consists mainly of expenditure on wages, salaries and supplements, purchases of goods and services and consumption of fixed capital (depreciation). Revenue: All receipts the government gets, including taxes, custom duties, revenue from state- owned enterprises, capital revenues and foreign aid. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 10 1.1 CHAPTER ONE: INTRODUCTION 1.1 Introduction 1. The 2021 County Budget Review and Outlook Paper (CBROP) is set out at a time of economic contraction due to the novel Corona Virus (COVID-19) pandemic. As such, the macroeconomic conditions are unstable and the fiscal space contractionary, in response to the economic shock. 2. On the same vein, the prevailing drought conditions as well as the prolonged rains in the early part of the year, there is a significant impact on most revenue streams given that the County and the country’s economy is agro-based. The limited revenue streams and the harsh weather patterns have thus contributed significantly to the environment on which the budget was implemented and executed. 1.2 Objective of CBROP 3. The objectives of the CBROP are anchored in the legal provisions of the PFM Act, Section 118. The CBROP provides a review of the previous fiscal performance and how these impacts on the financial objectives and fiscal responsibility principles to be set out in the subsequent County Fiscal Strategy Paper (CFSP). As such, it amalgamates fiscal policy to the policy direction of the County thus significantly impacting on the development and performance matrix of the County in the various sectors. 4. These, together with macroeconomic outlook provides a basis for revision of the current budget in the context of the broad fiscal parameters underpinning the next budget and the medium term. Details of the fiscal framework and the medium-term policy priorities will be firmed up in the CFSP 2021. Specifically, the CBROP provides: • Review of the previous fiscal year in terms of revenue and expenditure performance across the County departments • Analysis of the prevailing macroeconomic conditions and their impact to the subsequent financial years • Updated economic and financial forecasts in relation to the changes from the forecasts in the most recent County Fiscal Strategy Paper (CFSP); • Indication on how actual financial performance for the previous financial year may have affected compliance with the fiscal responsibility principles, or the financial objectives in the CFSP for that financial year; and • Reasons for any deviation from the financial objectives in the CFSP together with proposed measures to address the deviation and the time estimated for doing so. 5. The CBROP endeavors to examine the attainment of the economic priorities and strategic intervention areas set out in CFSP 2021, as well as the finalization of the County Integrated Development Plan (CIDP) 2018-22; in terms of programs and projects. The paper also checks 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 11 on the attainment of the fiscal responsibility principles as per Section 107 of the PFM Act, 2012. In addition, the updated macroeconomic and financial outlook provides a basis for any budget revision and sets out broad fiscal parameters for the next budget. Further, the paper is expected to provide indicative sector expenditure projections for the FY 2022/2023 budget and in the medium term to guide Sector Working Groups (SWGs). These will be firmed up in the CFSP 2022. 1.3 Organization of the CBROP 6. This paper has four sections. Chapter One provides a comprehensive introduction to the CBROP. Chapter Two reviews the county’s fiscal performance for the previous year as per the revenues and expenditures as well as economic classifications of the entries. Chapter three reviews recent economic developments in terms of the macroeconomic indicators. Chapter Four sets out how the county government intends to operate within its means. It establishes the resources envelope (total revenues) it expects then allocates these across departments by setting expenditure ceilings for each department. Lastly, Chapter Five gives a conclusion of the entire paper. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 12 2.0 CHAPTER TWO: FISCAL PERFORMANCE FOR FY 2020/21 AND ITS IMPLICATION ON FINANCIAL OBJECTIVES 2.1 OVERVIEW 7. This chapter provides an overview of the performance and the implementation of the budget for the financial year 2020/21 and how it affected the compliance during the implementation of the Kilifi County CFSP 2020. The county’s FY2020/21 approved supplementary II estimates was at Ksh.14,661,031,386, comprising of Ksh.9,351,560,742 (64%) and 5,309,470,644 (36%) allocation for the recurrent and development expenditure respectively. In the year under review, the county thus met the fiscal responsibility requirement in the PFM Act, 2012 (Section 107) that requires at least 30% of the overall county budget be dedicated to development expenditure, which was distributed as follows within the county departments; Table 1: Approved and Revised Estimates for FY 2020/21 DEPARTMENT APPROVED ESTIMATES FY2020/21 REVISED ESTIMATES II FY2020/21 RECURENT DEVELOPMENT RECURENT DEVELOPMENT COUNTY ASSEMBLY 817,588,616 118,500,000 817,588,616 118,500,000 OFFICE OF THE GOVERNOR 280,395,858 349,665,821 - - COUNTY ATTORNEY 90,000,000 94,264,529 - - FINANCE 639,388,652 66,033,455 652,932,303 31,533,455 ECONOMIC. PLANNING 87,424,782 121,424,782 - - AGRICULTURE 362,084,348 376,091,614 370,766,426 306,043,701 LIVESTOCK 51,415,764 157,425,737 53,115,764 95,474,567 FISHERIES 51,009,179 101,033,176 43,009,179 51,641,475 WATER AND SANITATION 193,077,617 1,255,258,137 195,276,631 1,126,690,191 ENVIRONMENT 117,269,353 55,763,912 135,966,161 52,503,793 EDUCATION 1,018,108,438 665,266,007 1,028,836,230 472,497,849 ICT 81,855,754 81,855,754 - - MEDICAL SERVICES 2,728,128,585 1,187,744,033 3,046,142,640 747,174,152 PUBLIC HEALTH 496,781,345 33,000,000 457,781,345 38,000,000 ROADS 299,028,294 1,114,263,261 390,810,265 1,205,455,408 LANDS ENERGY 149,257,539 337,159,582 202,819,283 320,408,876 PHYSICAL PLANNING 38,216,386 172,995,072 38,216,386 120,169,014 GENDER 131,218,446 183,103,440 187,497,460 87,016,053 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 13 DEPARTMENT APPROVED ESTIMATES FY2020/21 REVISED ESTIMATES II FY2020/21 RECURENT DEVELOPMENT RECURENT DEVELOPMENT TRADE 129,801,235 303,142,414 137,628,379 225,795,737 COOPERATIVES 14,350,000 14,350,000 - - CPSB 65,158,201 66,158,201 - - PUBLIC SERVICE 224,290,041 234,899,055 MANAGEMENT - - DEVOLUTION & DISASTER 309,189,070 79,960,041 474,970,010 50,960,041 MANAGEMENT KILIFI MUNICIPALITY 25,000,000 121,593,668 - - MALINDI MUNICIPALITY 35,000,000 36,000,000 33,991,854 259,606,332 TOTAL 8,435,037,503 6,242,739,881 9,351,560,742 5,309,470,644 Source: Kilifi County Treasury 8. In order to finance the budget, the county’s revenue basket was Ksh.10,444,500,000 (71%) as equitable share, Ksh.629,445,023 (4%) as unspent revenue from FY2019/20, 2,381,470,206 (16%) as conditional allocations and Ksh.1,205,616,156 (8%) that the county had targeted to raise as local revenue. The revenue sources are as shown below; Figure 1: Expected Sources to budget Financing in FY 2020/2021 Source: Kilifi County Treasury 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 14 2.2 FY2020/21 FISCAL PERFORMANCE 9. FY 2020/21 fiscal performance is classified into: • Revenue Performance • Expenditure Performance • Overall Fiscal Balance Each of these is presented in detail in the sub-sections that follows. 2.2.1 REVENUE PERFORMANCE 10. The County government’s revenue basket comprises of the following sources: a) Equitable share of revenue raised nationally b) Conditional grants and c) Own source revenue (OSR) The performance of each category is discussed below. 2.2.1.1 Equitable Share of Revenue Raised Nationally 11. The County’s equitable share of revenue raised nationally in FY2020/21 was Ksh.10,444,500, 000. There was a lag in the disbursement of funds at the start of the financial year which culminated to delays in the disbursement of the entire allocation as shown in the table below. Table 2: Disbursement of Equitable Share of Revenue Raised Nationally FY 2020/21 Date Source Description Amount 13-Oct-20 National Exchequer release for Equitable share for July & Treasury August 2020 1,723,342,500 22-Dec-20 National Exchequer release for Equitable share for Sept Treasury 2020 887,782,500 19-Jan-21 National Exchequer release for Equitable share for Treasury October 2020 835,560,000 26-Feb-21 National Exchequer release for Equitable share for Treasury November 2020 887,782,500 25-Mar-21 National Exchequer Equitable share for December 2020 Treasury 835,560,000 16-Apr-21 National Exchequer Equitable share for January 2021 Treasury 887,782,500 11-May-21 National Exchequer Equitable share for February 2021 Treasury 887,782,500 23-Jun-21 National Exchequer Equitable share March 2021 Treasury 740,005,000 23-Jun-21 National Exchequer Equitable share April 2021 Treasury 200,000,000 23-Jun-21 National Exchequer Equitable share May 2021 Treasury 835,560,000 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 15 30-Jun-21 National Exchequer Equitable share June 2021 Treasury 835,560,000 National Exchequer Equitable share June 2021 30-Jun-21 Treasury 887,782,500 Total 10,444,500,000 Source: Kilifi County Treasury 2.2.1.2 Conditional Grants 12. The revised conditional grants for FY2020/2021 increased to Ksh.2,381,470,206 from Ksh.1,807,240,143 on account of additional grants. The additional grants were KUSP Ksh. 330,534,500, Health staff allowance Ksh. 59895000, KDSP level 1 30,000, KDSP level II Ksh.153,800,563. In FY2020/21 the total disbursements of conditional grants stood at Ksh.1,822,573,783, falling short of the target by Ksh.558,896,422.6, representing 76.5% percent of the targeted conditional grants as shown in the table below. Table 3: Conditional Grants and Their Disbursement for FY 2020/21 DISBURSED ORIGINAL REVISED GRANT GRANT/APPROVE GRANT (SUPP (ACTUAL UNDISBURSE DESCRIPTION OF GRANTS D ESTIMATES II) RECEIVED) D GRANT Total Conditional Grants from the National Government Revenue 554,005,433 554,005,434 554,005,434 - Compensation for User Fee Foregone 25,969,864 25,969,864 25,969,864 - Leasing of Medical Equipment 132,021,277 132,021,277 132,021,277 - Road Maintenance Fuel Levy 316,014,398 316,014,399 316,014,399 - Rehabilitation of Village Polytechnic 79,999,894 79,999,894 79,999,894 - Total Conditional allocations to County Governments from Loans and Grants from Development Partners 1,253,234,710 1,827,464,773 1,268,568,349 558,896,424 Transforming Health Systems (THS) for Universal Health Project 265,111,481 265,111,481 264,848,909 262,572 National Agricultural and Rural Inclusive Growth Project (NARIGP) 198,440,766 198,440,766 198,129,567 311,199 Kenya Devolution Support Programme (KDSP) Level 1 Grant 45,000,000 75,000,000 75,000,000 - Kenya Urban Support Programme (KUSP)- Urban Development Grant 330,534,500 180,513,740 150,020,761 DANIDA Grant (Universal Healthcare in Devolved System Programme) 29,700,000 29,700,000 29,700,000 - Water & Sanitation Development Programme (WSDP) 700,000,000 700,000,000 347,093,108 352,906,892 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 16 Kenya Devolution Support Programme (KDSP) Level II Grant 153,800,563 153,800,563 - Agricultural Sector Development Support - Programme (ASDSP) II 14,982,463 14,982,463 19,482,463 4,500,000 Kenya Urban Support Programme (KUSP)- Urban Institutional Grant SlovakAid-Desktop Support for Vocational Training Health Staff Allowance 59,895,000 59,895,000 2.2.1.3 Own Source Revenue 13. By the end of June 2021, the total revenue generated from County Own Source Revenue (OSR) amounted to Ksh.832,361,953 against a target of Ksh.1,205,616,156 representing a shortfall of 31% (Ksh.373,254,202). This shortfall is attributed to the socio-economic effects of containment measures of COVID-19 pandemic which heavily weighed on key revenue streams due to the reduced economic hours imposed by the dusk to dawn curfew as well as the cessation of movement in and out of the County that led to significant reduction in economic activities. Despite the lifting of some of these measures in the period of post Covid 19 nothing much changed as the economy is struggling to recover from the setback. 14. Analysis of OSR by stream shows a significant increase in a number of revenue streams majorly being; building plan approval and inspection which surpassed its target by 796% by netting Ksh.45,461,799.75 against a target of Ksh.5,713,060 followed by, food hygiene fees surpassing target by 163% by netting Ksh.5,035,910 against a target of Ksh.1,912,780 and finally billboards and signage surpassing its target by 130% by netting Ksh.16,477,991 against a target of Ksh.12,699,431.This is a result of a number of factors being; enforcement of revenue collection, automation, boom in building during Covid period and lastly establishment of formal squatter scheme. The other revenue streams performed largely below their respective revenue targets as shown in the table below. In particular, the following streams netted less than 50% of their respective targets: • Cess on natural resources • Parking fees • Survey fees and plot rents • House rent 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 17 Table 4: Own Source Revenue Streams Performance FY 2020/21 ACTUAL ACTUAL REVENUE REVENUE CLASS REVENUE SUPP II VARIANCE % FIF & NHIF 162,517,034.20 150,000,000.00 12,517,034.20 108% - Land Rates and other Land Revenue 170,329,040.00 176,387,790.00 6,058,750.00 97% - Cess on natural resources 273,840,433.90 568,953,608.00 295,113,174.10 48% - Business Permit 57,731,023.00 110,777,250.00 53,046,227.00 52% - Parking fees 25,515,572.30 59,248,289.00 33,732,716.70 43% - Market fees 9,285,225.00 11,677,048.00 2,391,823.00 80% Billboards & Signage 29,147,422.00 12,669,431.00 16,477,991.00 230% Building Plan approval and Inspection 51,174,859.75 5,713,060.00 45,461,799.75 896% Rent/Stall rents 7,432,190.00 5,835,845.00 1,596,345.00 127% - Survey fees and plot rents 537,730.00 1,266,734.00 729,004.00 42% - Sale of Tender Documents - 21,000.00 21,000.00 0% - Plot ground rent 5,686,017.00 6,728,051.00 1,042,034.00 85% - House rent 2,677,814.00 54,873,993.00 52,196,179.00 5% Refuse Collection 2,267,500.00 1,262,806.00 1,004,694.00 180% Food Hygiene Fees 5,035,910.00 1,912,780.00 3,123,130.00 263% Slaughter House and Livestock sale - Yards 1,045,190.00 1,600,657.00 555,467.00 65% - Others 28,138,992.15 36,687,814.00 8,548,821.85 77% - TOTAL 832,361,953.30 1,205,616,156.00 373,254,202.70 69% Source: Kilifi County Treasury 15. Over the years, persistent shortfalls in OSR have led to budget implementation challenges resulting from adjustments of the budget to allow for payment of pending bills and ongoing projects that take up the allocations for respective programs and projects in the financial year under implementation. This calls for OSR projections that are conservative and in line with the prevailing macroeconomic conditions. The increase of own source revenue from Ksh.794,390,255 FY 2019/20 to Ksh.832,361,953 FY 2020/21 could be explained by the post covid recovery period when the economy tried to recover before the second wave hit. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 18 16. To increase own source revenue, the county has undertaken the following measures which also explains the increase in revenue in the pre and post covid era: - • Diversification of revenue streams • Establishment of prosecution system • Integration of Kilifi Electronic Data Management System with County-Pro • Fully automating revenue collection and establishing one-stop-shop payment and approval for all licenses • Waivers and subsidy on land rates 17. The table below shows the trend analysis for the period between 2019/20 and 2020/21 that has helped in prediction of the revenue expected to be collected in the next financial year. Table 5: Revenue Projection for FY 2021/22 FY 2020-2021 (Sup Revenue Streams FY 2019/20 II) FY 2021/22 Cess on natural resources 276,601,301 568,953,608 315,000,000 Land Rates and other Land Revenue 131,437,899 176,387,790 195,000,000 HSIF 179,400,631 150,000,000 0 Business Permit 42,495,339 110,777,250 105,000,000 Parking fees 29,805,584 59,248,289 50,000,000 Refuse Collection 4,384,327 54,873,993 1,262,000 AMS & ATCs 0 36,687,814 20,000,000 Billboards & Signage 24,837,467 12,669,431 30,000,000 Market fees 7,439,593 11,677,048 25,000,000 House rent 30,478,756 6,728,051 40,000,000 Rent/Stall rents 5,411,657 5,835,845 15,000,000 Building Plan approval and Inspection 6,817,100 5,713,060 25,000,000 Slaughter House and Livestock sale Yards 3,526,063 1,912,780 6,000,000 Liquor License 0 1,600,657 25,000,000 Survey fees and plot rents 1,179,405 1,266,734 1,266,000 Food Hygiene Fees/Sanitary inspection and medical certificate 4,152,351 1,262,806 10,000,000 Plot ground rent 7,292,635 21,000 10,000,000 Leasing of Plants and Equipment 0 0 10,000,000 Others 38,452,949 0 41,472,000 TOTAL 793,713,057 1,205,616,156 925,000,000 Source: Kilifi County Treasury 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 19 Figure 2: Annual Trend in Own Source Revenue Own Source of Revenue 900,000,000 800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 2013/20142014/20152015/20162016/20172017/20182018/20192019/2020 Own Source of Revenue Own Source Revenue has exhibited an annual growth of 60million since the start of devolution as shown in the figure 2 above. Withdrawal for the County Revenue Fund (CRF) Account 18. The withdrawals from the County Revenue Fund (CRF) Account for the FY 2020/21 amounted to Ksh.10,348,124,100 against a revised estimate of Ksh.10,444,500,000. This comprised of Ksh.7, 320,780,831 and Ksh.3, 027,343,269 for recurrent and development purposes, respectively. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 20 Table 6: Withdrawals from the County Revenue Fund Account FY 2020/21 APPROVED REVISED DESCRIPTION ESTIMATES ESTIMATES RECURRENT DEVELOPMENT Equitable Share and local revenue 11,502,750,000 11,650,116,156 7,320,780,831 3,027,343,269 Compensation for User Fee Foregone 25,969,864 25,969,864 25,969,864 Leasing of Medical Equipment 132,021,277 132,021,277 Road Maintenance Fuel Levy KRB 316,014,398 316,014,398 316,014,399 Rehabilitation of Village Polytechnic KCVPG 79,999,894 79,999,894 39,999,947 Transforming Health Systems (THS) for 265,111,481 265,111,481 264,848,909 Universal Health Project National Agricultural and Rural Inclusive 198,440,766 198,440,766 198,129,567 Growth Project (NARIGP) Kenya Devolution Support Programme (KDSP) 45,000,000 75,000,000 75,000,000 Level 1 Grant Kenya Urban Support Programme (KUSP)- 330,534,500 180,513,739 Urban Development Grant DANIDA Grant (Universal Healthcare in 29,700,000 29,700,000 29,700,000 Devolved System Programme) Water & Sanitation Development Programme 700,000,000 700,000,000 347,093,108 (WSDP) Kenya Devolution Support Programme (KDSP) 153,800,563 153,800,563 Level II Grant Agricultural Sector Development Support 14,982,463 14,982,463 19,482,463 Programme (ASDSP) II Source: Kilifi County Treasury 2.2.2 EXPENDITURE PERFORMANCE This sub-section gives an analysis of the county’s overall expenditure for the financial year 2020/21. In the period under review, the actual expenditure amounted to Ksh. 13,468,383,246, equivalent to an absorption rate of 92% of the total budget, comprising of Ksh. 8,627,596,850 (91%) recurrent expenditure and Ksh. 4,840,786,396 (92%) development expenditure. This is shown in the table below; 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 21 Table 7: Expenditure Performance FY 2020/21 ACTUAL EXPENDITURE ABSORPTION RATE DEPARTMENT REC DEV TOTAL REC DEV TOTAL COUNTY ASSEMBLY 716,068,874 93,265,945 809,334,819 88% 79% 86% OFFICE OF THE GOVERNOR 338,290,539 338,290,539 97% 0% 97% - COUNTY ATTORNEY 78,714,286 78,714,286 84% 0% 84% - FINANCE 614,126,659 17,989,473 632,116,132 94% 57% 92% ECONOMIC. PLANNING 79,290,028 79,290,028 65% 0% 65% - AGRICULTURE 347,585,458 306,537,026 654,122,484 94% 100% 97% LIVESTOCK 44,364,430 100,109,319 144,473,749 84% 105% 97% FISHERIES 38,936,485 54,012,597 92,949,082 91% 105% 98% WATER AND SANITATION 195,433,663 955,285,321 1,150,718,984 100% 85% 87% ENVIRONMENT 116,065,422 38,839,279 154,904,701 85% 74% 82% EDUCATION 962,155,346 431,505,882 1,393,661,228 94% 91% 93% ICT 70,297,764 70,297,764 86% 0% 86% - MEDICAL SERVICES 2,963,636,249 722,129,923 3,685,766,172 97% 97% 97% PUBLIC HEALTH 421,066,633 32,597,338 453,663,971 92% 86% 92% ROADS 406,493,415 1,203,951,926 1,610,445,341 104% 100% 101% LANDS ENERGY 134,883,814 285,249,261 420,133,075 67% 89% 80% PHYSICAL PLANNING 15,553,043 99,734,772 115,287,815 41% 83% 73% GENDER 168,867,077 75,151,766 244,018,843 90% 86% 89% TRADE 134,306,440 222,666,613 356,973,053 98% 99% 98% COOPERATIVES 12,215,743 12,215,743 85% 0% 85% - CPSB 58,019,350 58,019,350 88% 0% 88% - PUBLIC SERVICE MANAGEMENT 504,169,666 504,169,666 96% 0% 96% - DEVOLUTION & DISASTER 172,452,573 16,615,258 189,067,831 94% 33% 80% MANAGEMENT KILIFI MUNICIPALITY 17,129,705 53,378,947 70,508,652 14% 0% 58% MALINDI MUNICIPALITY 17,474,188 131,765,750 149,239,938 51% 51% 51% TOTAL 8,627,596,850 4,840,786,396 13,468,383,246 92% 91% 92% Source: Kilifi County Treasury 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 22 19. In the financial year 2019/20, the county department for Medical Services had the highest expenditure amounting to Ksh.3,306,451,626 whereas the division of Co-operatives had the lowest spending at Kshs. 25,684,746. This trend continues in the financial period under review with the county department for Medical Services having the highest spending at Ksh.3,092,694,635 (82%) of the total expenditure while the division of Co-operatives had the lowest expenditure at Ksh.4,788,177 (33%). The graph below presents comparison of the departmental expenditure performance for the financial years 2019/20 and 2020/21; Figure 3: Departmental Expenditure FY 2019/20 Vs FY 2020/21 DEPARTMENTAL EXPENDITURE FY2019/20 Vs FY2020/21 3,500,000,000 3,000,000,000 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000,000 500,000,000 0 CUMMULATIVE EXPENDITURE FY2019/20 ACTUAL EXPENDITURE FY 2020/21 Source: Kilifi County Treasury 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 23 COUNTY ASSEMBLY OFFICE OF THE GOVERNOR COUNTY ATTORNEY FINANCE ECONOMIC. PLANNING AGRICULTURE LIVESTOCK FISHERIES WATER AND SANITATION ENVIRONMENT EDUCATION ICT MEDICAL SERVICES PUBLIC HEALTH ROADS LANDS ENERGY PHYSICAL PLANNING GENDER TRADE COOPERATIVES CPSB DEVOLUTION & DISASTER… PUBLIC SERVICE MANAGEMENT KILIFI MUNICIPALITY MALINDI MUNICIPALITY 2.5 Aggregate Expenditure 20. The total expenditure for the county during FY 2020/21 was Ksh. 12,267,328,711 against a target of Ksh. 14,661,031,386. This is shown in the table below: Table 8: Aggregate Expenditures FY2020/21 ACTUAL EXPENDITURE ABSORPTION RATE DEPARTMENT REC DEV TOTAL REC DEV TOTAL COUNTY ASSEMBLY 696,260,287 93,870,823 790,131,110 85% 79% 84% OFFICE OF THE GOVERNOR 328,907,354 0 328,907,354 94% 0% 94% COUNTY ATTORNEY 68,909,288 0 68,909,288 73% 0% 73% FINANCE 369,756,291 22,103,104 391,859,395 57% 70% 57% ECONOMIC. PLANNING 66,443,856 0 66,443,856 55% 0% 55% AGRICULTURE 314,802,748 304,489,781 619,292,529 85% 99% 92% LIVESTOCK 42,521,913 75,252,518 117,774,431 80% 79% 79% FISHERIES 32,714,000 40,454,472 73,168,472 76% 78% 77% WATER AND SANITATION 196,640,901 967,995,750 1,164,636,651 101% 86% 88% ENVIRONMENT 117,657,274 38,839,266 156,496,540 87% 74% 83% EDUCATION 966,792,974 279,894,146 1,246,687,120 94% 59% 83% ICT 60,586,945 0 60,586,945 74% 0% 74% MEDICAL SERVICES 2,815,247,955 634,939,029 3,450,186,984 92% 85% 91% PUBLIC HEALTH 387,886,134 17,163,440 405,049,574 85% 45% 82% ROADS 366,863,392 996,200,647 1,363,064,039 94% 83% 85% LANDS ENERGY 134,881,422 275,684,344 410,565,766 67% 86% 78% PHYSICAL PLANNING 15,279,823 98,256,485 113,536,308 40% 82% 72% GENDER 125,026,542 52,257,227 177,283,769 67% 60% 65% TRADE 85,730,171 229,737,352 315,467,523 62% 102% 87% COOPERATIVES 4,682,880 0 4,682,880 33% 0% 33% CPSB 54,039,425 0 54,039,425 82% 0% 82% PUBLIC SERVICE MANAGEMENT 499,048,465 0 499,048,465 95% 0% 95% DEVOLUTION & DISASTER MANAGEMENT 172,902,596 0 172,902,596 94% 0% 74% KILIFI MUNICIPALITY 16,442,343 53,378,947 69,821,290 66% 55% 57% MALINDI MUNICIPALITY 17,770,652 129,015,749 146,786,401 52% 50% 50% TOTAL 7,957,795,631 4,309,533,080 12,267,328,711 86% 80% 84% Source: Kilifi County Treasury 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 24 2.6 RECURRENT AND DEVELOPMENT EXPENDITURES 21. The revised development and recurrent allocation were Kshs. 5,406,064,312 and Kshs 9,254,967,074 respectively. The bulk of the expenditure in FY2020/21 was recurrent in nature. The county spent Kshs. 4,309,533,080 and Kshs. 7,957,795,631 on development and recurrent outlays as shown in the table below. There has also been tendency of departments to initiate development projects late in the financial year due to delays in the exchequer release. Table 9: Recurrent Vs Development Expenditure FY2020/21 ACTUAL EXPENDITURE DEPARTMENT REC DEV TOTAL COUNTY ASSEMBLY 696,260,287 93,870,823 790,131,110 OFFICE OF THE GOVERNOR 328,907,354 0 328,907,354 COUNTY ATTORNEY 68,909,288 0 68,909,288 FINANCE 369,756,291 22,103,104 391,859,395 ECONOMIC. PLANNING 66,443,856 0 66,443,856 AGRICULTURE 314,802,748 304,489,781 619,292,529 LIVESTOCK 42,521,913 75,252,518 117,774,431 FISHERIES 32,714,000 40,454,472 73,168,472 WATER AND SANITATION 196,640,901 967,995,750 1,164,636,651 ENVIRONMENT 117,657,274 38,839,266 156,496,540 EDUCATION 966,792,974 279,894,146 1,246,687,120 ICT 60,586,945 0 60,586,945 MEDICAL SERVICES 2,815,247,955 634,939,029 3,450,186,984 PUBLIC HEALTH 387,886,134 17,163,440 405,049,574 ROADS 366,863,392 996,200,647 1,363,064,039 LANDS ENERGY 134,881,422 275,684,344 410,565,766 PHYSICAL PLANNING 15,279,823 98,256,485 113,536,308 GENDER 125,026,542 52,257,227 177,283,769 TRADE 85,730,171 229,737,352 315,467,523 COOPERATIVES 4,682,880 0 4,682,880 CPSB 54,039,425 0 54,039,425 PUBLIC SERVICE MANAGEMENT 499,048,465 0 499,048,465 DEVOLUTION & DISASTER 172,902,596 0 172,902,596 MANAGEMENT KILIFI MUNICIPALITY 16,442,343 53,378,947 69,821,290 MALINDI MUNICIPALITY 17,770,652 129,015,749 146,786,401 TOTAL 7,957,795,631 4,309,533,080 12,267,328,711 Source: Kilifi County Treasury 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 25 2.7 EXPENDITURE ANALYSIS ACCORDING TO ECONOMIC CLASSIFICATION 22. Of the total expenditure in FY2020/21, personnel emoluments stood at Kshs. 4,105,303,123 compared to Ksh.4,317,933,498 from the previous year. Operation and maintenance at Kshs. 4,522,293,727 which increased as compared to the previous financial year which was Kshs.4,247,867,764. There was an increase in development expenditure from Ksh.4,082,368,546 in FY2019/20 to Ksh. 4,840,786,396 in the year under review. Table 10: Expenditure Performance on Economic Classification FY 2020/21 ITEM FY2019/20 FY2020/21 Compensation of Employees 4,317,933,498 4,043,700,783 Operations & Maintenance 4,247,867,764 3,914,094,848 Development 4,082,368,546 4,309,533,080 TOTAL 12,648,169,808 12,267,328,711 Source: Kilifi County Treasury Figure 4: Expenditure Performance on Economic Classification FY2019/20 Vs FY2020/21 Expenditure by Economic Classification for FY2019/20 and FY2020/21 14,000,000,000 12,000,000,000 10,000,000,000 8,000,000,000 6,000,000,000 4,000,000,000 2,000,000,000 0 Compensation of Operations & Development TOTAL Employees Maintenance FY2019/20 FY2020/21 Source: Kilifi County Treasury 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 26 2.7.1 COMPENSATION OF EMPLOYEES 23. The approved estimates for compensation to employees in FY 2020/21 amounted to Kshs.4,043,700,783 which is 28% of the projected revenues of the respective financial year. This is in compliance to the fiscal responsibility principle where no more than 35% of the County’s total revenue is allocated to wages and benefits for its public officers. The analysis of compensation to employees is provided in the table below. Table 11: Expenditure on Compensation to Employees FY 2020/21 REVISED ESTIMATES FY2020/21 ACTUAL EXPENDITURE FY2020/21 DEPARTMENT COUNTY ASSEMBLY 265,528,294 333,143,036 OFFICE OF THE GOVERNOR 162,169,963 142,289,183 FINANCE 215,217,299 214,937,569 AGRICULTURE 243,487,337 219,437,266 WATER AND SANITATION 164,344,267 170,994,852 EDUCATION 534,258,890 466,665,528 MEDICAL SERVICES 2,033,697,373 2,018,902,145 ROADS 103,365,009 92,426,573 LANDS ENERGY 68,436,956 58,013,423 GENDER 49,397,929 48,870,835 TRADE 49,853,702 36,518,201 CPSB 31,005,963 30,842,798 PUBLIC SERVICE MANAGEMENT 197,379,937 196,666,039 KILIFI MUNICIPALITY 2,400,000 7,280,544 MALINDI MUNICIPALITY 15,776,000 6,712,791 TOTAL 4,136,318,919 4,043,700,783 Source: Kilifi County Treasury 2.7.2 OPERATIONS AND MAINTENANCE (O&M) 24. The expenditure on operations and maintenance (O&M) was at Ksh. 3,944,937,646, equivalent to 27% of the expected county revenue. This implies that use of good and services exerted negligible expenditure pressure on cash flow. The highest spender was the Department of Medical Services while the Division of Co-operatives had the lowest spending as at the end of the financial period under review. This is as shown in the table below; Table 12: Expenditure Performance on Operations and Maintenance FY 2020/21 REVISED ESTIMATES II ACTUAL EXPENDITURE DEPARTMENT FY2020/21 FY 2020/21 COUNTY ASSEMBLY 552,060,322 363,117,251 OFFICE OF THE GOVERNOR 187,795,858 186,618,171 COUNTY ATTORNEY 93,964,529 68,909,288 FINANCE 437,715,004 154,818,722 ECONOMIC. PLANNING 121,424,782 66,443,856 AGRICULTURE 127,279,089 95,365,482 LIVESTOCK 53,115,764 42,521,913 FISHERIES 43,009,179 32,714,000 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 27 WATER AND SANITATION 30,932,364 25,646,049 ENVIRONMENT 135,966,161 117,657,274 EDUCATION 494,577,340 500,127,446 ICT 81,855,754 60,586,945 MEDICAL SERVICES 1,012,445,267 796,345,810 PUBLIC HEALTH 457,781,345 387,886,134 ROADS 287,445,256 274,436,819 LANDS ENERGY 134,382,327 76,867,999 PHYSICAL PLANNING 38,216,386 15,279,823 GENDER 138,099,531 76,155,707 TRADE 87,774,677 49,211,970 COOPERATIVES 14,350,000 4,682,880 CPSB 35,152,238 54,039,425 PUBLIC SERVICE MANAGEMENT 328,550,114 302,382,426 DEVOLUTION & DISASTER 183,939,014 172,902,596 MANAGEMENT KILIFI MUNICIPALITY 119,193,668 9,161,799 MALINDI MUNICIPALITY 18,215,854 11,057,861 TOTAL 5,215,241,823 3,944,937,646 Source: Kilifi County Treasury 2.7.3 DEVELOPMENT EXPENDITURE PERFORMANCE FY2020/21 25. The County’s development expenditure was adversely affected by COVID-19 pandemic containment measures which delayed completion of projects as well as exacerbated delays in disbursements of the equitable share of revenue to the County and shortfall in Own Source Revenue collection. In FY 2020/21, the County’s development budget was 29% of the total budget. The total development expenditure was well within the fiscal responsibility development threshold at Kshs. 4,309,533,080. As at the end of the FY2020/21 the department with highest expenditure on development was the department of Roads while the lowest spender was the Department of Devolution and Disaster Management. Figure below provides development expenditure performance for each division in FY 2020/21. Table 13: Development Expenditure Performance FY2020/21 REVISED ACTUAL DEVELOPMENT DEPARTMENT DEVELOPMENT EXPENDITURE FY2020/21 ESTIMATES FY2020/21 COUNTY ASSEMBLY 118,500,000 93,870,823 OFFICE OF THE GOVERNOR 0 0 COUNTY ATTORNEY 0 0 FINANCE 31,533,455 22,103,104 ECONOMIC. PLANNING 0 0 AGRICULTURE 306,043,701 304,489,781 LIVESTOCK 95,474,567 75,252,518 FISHERIES 51,641,475 40,454,472 WATER AND SANITATION 1,126,690,191 967,995,750 ENVIRONMENT 52,503,793 38,839,266 EDUCATION 472,497,849 279,894,146 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 28 ICT 0 0 MEDICAL SERVICES 747,174,152 634,939,029 PUBLIC HEALTH 38,000,000 17,163,440 ROADS 1,205,455,408 996,200,647 LANDS ENERGY 320,408,876 275,684,344 PHYSICAL PLANNING 120,169,014 98,256,485 GENDER 87,016,053 52,257,227 TRADE 225,795,737 229,737,352 COOPERATIVES 0 0 CPSB 0 0 PUBLIC SERVICE MANAGEMENT 0 0 DEVOLUTION & DISASTER MANAGEMENT 50,960,041 0 KILIFI MUNICIPALITY 96,593,668 53,378,947 MALINDI MUNICIPALITY 259,606,332 129,015,749 TOTAL 5,406,064,312 4,309,533,080 Source: Kilifi County Treasury Figure 5: Actual Expenditure FY2020/21 ACTUAL DEVELOPMENT EXPENDITURE FY2020/21 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 ACTUAL DEVELOPMENT EXPENDITURE FY2020/21 Source: Kilifi County Treasury 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 29 2.7.4 OVERALL FISCAL BALANCE 26. The FY 2020/21, recorded a fiscal surplus of Kshs. 669,020,562 which is a decrease from the fiscal surplus in FY 2019/2020 of 814,878,042. This decrease is due to an increase in the FY 2020/2021 recurrent and development expenditures which rose by Ksh. 785, 759, 481 and Kshs 1, 227, 102, 098 respectively. The increased expenditure is attributed to the completion of the initially stalled and ongoing projects. Table 14: Overall Fiscal Balance FY2020/21 ACTUAL ACTUAL (REVENUE/EXPEN APPROVED REVISED (REVENUE/ ITEM DITURE) ESTIMATES ESTIMATES II EXPENDITURE) DESCRIPTION FY2019/20 FY2020/21 FY2020/21 FY 2020/21 Total Revenue 13,463,047,849 14,677,777,384 14,661,031,385 14,137,403,808 Equitable Share 10,444,500,000 10,602,750,000 10,444,500,000 10,444,500,000 Conditional Grants 1,287,636,530 1,807,240,143 2,381,470,206 2,231,096,832 Local Revenue 614,989,624 900,000,000 1,205,616,156 832,361,953 Health Services Improvement Fund (HSIF) 179,400,631 - - Unspent CRF (Revote of the Budget) 936,521,064 1,367,787,241 629,445,023 629,445,023 Unspent/Undisbursed Conditional Grants 0 - Total Expenditure 12,648,169,807 14,677,777,384 14,661,031,386 13,468,383,246 Recurrent 8,565,801,261 8,435,037,503 9,351,560,742 8,627,596,850 Development 4,082,368,546 6,242,739,881 5,309,470,644 4,840,786,396 Fiscal Balance 814,878,042 - -1 669,020,562 Source: Kilifi County Treasury FISCAL PERFORMANCE FOR THE FY 2020/21 IN RELATION TO FINANCIAL OBJECTIVES 27. The overall financial performance of the FY 2020/2021 modifies the financial objectives set in the 2020 County Fiscal Strategy Paper and the FY 2021/2022 Budget. All these are aligned with the 2021 Budget Policy Statement. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 30 1. The aggregate expenditure projected in the 2020 County Fiscal Strategy paper is Kshs. 12, 765, 796, 125 whereas the actual expenditure for FY 2020/2021 came to Kshs. 12,267,328,711. The actual spending will be used to adjust the FY 2021/2022 budget and inform the ceilings in the 2021 County Fiscal Strategy Paper. This ceiling was meant to ensure that there is maximum utilization of public resources so as to catalyze local economic growth and efficiency of service delivery. 2. The actual own source revenue for FY 2020/21, Kshs. 832,361,953, will be used to adjust, upwards, the FY 2021/2022 budget and to set the OSR ceilings in the next CFSP. This will reflect the anticipated increase in revenue collection from different revenue streams such as building plan approvals and inspection, food hygiene fees as well as billboard and signage. The revenue increase witnessed from these streams are as a result of factors such as enforcement of revenue collection, automation, establishment of formal squatter scheme as well as a boom in building during the COVID period. The Post- COVID recovery strategies will also lead to an increase in revenue. FISCAL PERFORMANCE AND COMPLIANCE TO FISCAL RESPONSIBILITY PRINCIPLES 28. The County Government’s expenditure for the FY 2020/21 adhered to the provisions stated in the PFM Act that guide; 1. Development Expenditure The development expenditure stands at Ksh. 4,309,533,080 equivalent to 35.1% the total expenditure. 2. Recurrent Expenditure The recurrent expenditure of Ksh. 7,957,795,631 representing 64.9% of the total expenditure. 3. Compensation to Employees This entry stands at 28% of the total expenditure; which is in compliance to the fiscal responsibility principle. Figure 6: Expenditure Proportions FY2020/21 Expenditure Proportions FY2020/21 RECURRENT DEVELOPMENT Source: Kilifi County Treasury 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 31 3.0 CHAPTER THREE: RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK PERFORMANCE 3.1 OVERVIEW 24. According to a consensus of forecasts, the economic downturn in 2020 was not as negative as initially estimated, due in part to the fiscal and monetary policies governments adopted in 2020. Generally, economic growth forecasts captured the decline and subsequent rebound in economic growth over the second and third quarters of 2020, but have been challenged since by the prolonged nature of the health crisis and its continuing impact on the global economy. As some developed economies start recovering, central banks and national governments are considering the impact of tapering off monetary and fiscal support as a result of concerns over potential inflationary pressures, weighed against the prospect of slowing the pace of the recovery 25. The economic impact of the pandemic is expected to lessen in developed economies where vaccinations are facilitating a return to pre-pandemic levels of activity. In developing countries, however, outbreaks of new viral variants could prolong the pandemic and dampen prospects of a recovery. 26. The pandemic has dealt a major blow to the economy, but the government’s quick policy responses have helped to cushion the impact, and a partial recovery is underway. The economy is expected to continue to recover and gradually return to growth of above 5 percent. Real GDP growth is projected to reach 4.5 percent in 2021 and to be over 5 percent on average in 2022- 23. The growth outlook is predicated on an upturn in industry supported by reopening of the economy and strong capital spending, a moderate recovery in services as vaccination rollout steadily progresses, and adequate agricultural harvests and sales, helped by rising external demand from the recovering global economy. 27. The county’s economic performance has been greatly affected by the pandemic too since its dependent on the country’s performance as a whole. But with the easing of the measures and an expected growth in the country’s economy then we expect a gradual recovery of our county’s economy. 3.2 RECENT ECONOMIC DEVELOPMENTS 28. According to the most recent IMF World Economic Outlook, global output growth will rebound strongly to 6 percent in 2021, before slowing to 4.9 percent in 2022. The projections for 2021 and 2022 are 0.8 and 0.2 percentage points higher, respectively, than in the October 2020 WEO, reflecting additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year. However, the global output growth path is expected to moderate to 3.3 percent in the medium term, reflecting projected damage to supply potential and pre-pandemic forces such as prolonged weakness in labor markets in advanced economies and some emerging market economies. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 32 29. Africa suffered its worst recession in more than 50 years in 2020 due to the COVID–19 pandemic, as its GDP declined by 2.4 percent. In 2021, the region’s economy is expected to resume expansion at 3.4 percent, weaker than the 6 percent for the rest of the world, amid a continued lack of access to vaccines and limited policy space to support the crisis response and recovery. Macroeconomic policies will in many countries entail some difficult choices. Saving lives remains the first priority, which will require access to affordable vaccines, ensuring that the logistical and administrative prerequisites of a vaccination rollout are in place, targeted containment efforts, and added spending to strengthen local health systems. The next priority is to unlock the region’s potential by creating more fiscal space and implementing transformative reforms. These include mobilizing domestic revenue, strengthening social protection, promoting digitalization, and improving transparency and governance. Countries will also have to consolidate their fiscal positions to bring debt back on a sustainable footing. 30. The COVID-19 shock has hit Kenya’s economy hard through supply and demand shocks on both the external and domestic fronts and caused activity to slow sharply in 2020. Agricultural output grew robustly, but manufacturing and many services subsectors (e.g., tourism, education) were severely disrupted. As Kenya looks to stage a recovery from the market disruption wrought by COVID-19, it finds itself at an especially challenging moment as presidential elections loom in 2022. Nevertheless, a significant economic recovery has been underway, although it remains highly uneven across sectors (with some, such as tourism, remaining under severe pressure), and there continues to be elevated uncertainty regarding the outlook. A sectoral analysis of Kenya’s economy is done through an analysis of the domestic output, which is comprehensively done in the Gross Domestic Product as follows: 3.3 GROSS DOMESTIC PRODUCT 31. Kenya’s Real GDP declined by 0.3% during the review period (2020) compared to 5.4 per cent growth in 2019. Though Kenya was somewhat spared the brunt of the COVID-19 pandemic in the first quarter of 2020, the economy was affected by the resultant uncertainty that was already slowing economic activity in some of the country’s major trading partners. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 33 Figure 7: Annual GDP Growth (%), 1986-2020 ANNUAL GDP GROWTH % 10 8 6 4 2 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 -2 Year Source: Kenya National Bureau of Statistics 32. Economic performance in the third quarter of 2020 remained depressed but relatively better compared to the second quarter of 2020. Real GDP is estimated to have contracted by 1.1% in the quarter compared to a growth of 5.8 per cent in the corresponding quarter of 2019. Looking at the details of the release, growth rate was identified according to years as represented below. Figure 8: GDP Q3 % Change, 2015-2020 GDP Q3 % CHANGE 8 7 6 5 4 3 2 1 0 -12014 2015 2016 2017 2018 2019 2020 2021 -2 Year Source: Kenya National Bureau of Statistics 33. According to Kenya’s Statistical Institute, GDP shrank 1.1% year-on-year (yoy) in Q3 of 2020, moderating from Q2’s 5.5% contraction, which had been the first in at least a decade (previously reported: -5.7% year-on-year). 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 34 GDP Growth Rate (%) GDP Change (%) 34. A sectoral analysis of the economic output is as follows: • The mining and quarrying sector where in Q3 there was an increase of 18.2% and in Q2 an increase of 10.0% was experienced. • The construction sector had an increase of 16% in Q3 compared to 3.9% in Q2. The growth was evidenced in the volume of cement consumed which increased by 23.5 per cent • The information and communication sector (Q3: +7.3%; Q2: +4.6%) accelerated in the quarter. Moreover, the transport and storage sector clocked 2.9% annual growth, swinging from the previous quarter’s 11.4% dive, likely due to the easing of Covid-19 restrictions in July–September before the second wave emerged. • The manufacturing (Q3: -3.2% ; Q2: -3.9%), The contraction was shown in the various food sub-sectors such as; manufacture of meat and meat products, manufacture of liquid milk, manufacture of wheat flour, manufacture of beverages and manufacture of grain mill products. • The sector expanded by 4.7 per cent in the period under review compared to 6.4 per cent growth in the third quarter of 2019. Total volume of electricity produced increased marginally by 0.8 per cent in the third quarter of 2020 compared to 2.1 per cent growth the third quarter of 2019. • Accommodation and restaurants (Q3: -57.9%; Q2: -83.2%). Activities related to accommodation and food service were adversely affected by COVID-19 pandemic which saw implementation of containment measures. This led to either complete closure of businesses in accommodation and food service sector or significantly scaled down operations. • Retail and trade (Q3: -2.5%; Q2: -7.0%) while education (Q3: -41.9%; Q2: -56.2%). These sectors all decreased at softer rates in the third quarter, due to the gradual resumption of economic activity as restrictions were lifted. However, tourism-related activities remained depressed as restrictions abroad continued to curb foreign arrivals. • Lastly, growth in the all-important agricultural sector slowed in the quarter (Q3: +6.3%; Q2: +7.3%). While it was supported by good weather and an increase in tea and sugarcane production, coffee and vegetable exports declined, hampering the sector’s overall performance. Meanwhile, the health sector grew at a more moderate rate in the period (Q3: +5.6%; Q2: +10.3%). • Economic performance should have improved further in the final stretch of last year. However, looking ahead, the tourism sector will remain downbeat as renewed restrictions to curb further waves and new variants of the virus continue to inhibit international travel. Nevertheless, the continuity of accommodative monetary policy should support activity and cushion the downturn somewhat. • Kenya’s GDP is estimated to contract by 0.5% in 2021, as an effect of the COVID-19 pandemic. The projection assumed that the corona-virus crisis weakens during the first half of 2021, with the emergence of vaccines. Considering the same scenario, the forecasts pointed out a strong rebound for the Kenyan economy in 2021, with an expected 6.8 percent growth of the Gross Domestic Product. Besides being an economic powerhouse in East 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 35 Africa, Kenya is also one of the countries with more COVID-19 cases in the region. As of May 27, 2021, more than 169.7 thousand people were already infected by the virus in the country. • According to governmental data, the strongest impact of the corona-virus crisis on the Kenyan economy was felt in the second quarter of 2020. Within this period, the country’s GDP decreased by 5.5 percent, the first negative growth in recent years. The third quarter of 2020 followed the negative tendency but already showed a recovery, with the GDP growth rate measured at minus 1.1 percent. A sectoral strong performance contributed to the rebound. Mining and quarrying, and construction grew by 18 % and 16 %, respectively, while favorable weather conditions supported robust growth in agricultural activities. Other macroeconomic indicators performed as follows: 3.4 INFLATION RATE 35. Overall annual growth in inflation was by 17.85 per cent. In August, inflation was recorded at 6.57 percent compared to 6.44 percent in July exhibiting a 200 basis points growth. Month on month analysis shows an increase from a revised index of 115.446 in July 2021 to 115.710 in August 2021. Year on year analysis shows a growth by 5000 basis from 4.36 in August 2020. Both analysis point to a relatively high inflation rate compared to the approved international standard of 2 per cent. 36. The month to month Food and Non-Alcoholic Drinks’ Index increased by 0.46 per cent between July 2021 and August 2021. This was mainly attributed to increase in prices of some food items, which outweighed the decrease in prices of others. 37. The Housing, Water, Electricity, Gas and Other Fuels’ Index, increased by 0.32 per cent between July 2021 and August 2021. This was mainly attributed to increase in prices of cooking fuel and house rent in spite of the slight decrease in the price of electricity. 38. Transport Index decreased by 0.32 per cent mainly due to decreases in bus fares of country and city public service vehicles. This is mainly as a result of the return to carrying of full capacity for public service vehicles in the month of August, 2021. The lowest inflation rates were registered between June and October 2020, and those remained below five percent. 39. The overall inflation is projected at 6.68 in September 2021. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 36 Figure 9: Overall Inflation Rate (%), FY 2020/2021 Inflation Rate 7 6.5 6 5.5 5 4.5 4 2020 2020 2020 2020 2020 2021 2021 2021 2021 2021 2021 2021 2021 12-Month Inflation Source: Kenya National Bureau of Statistics 3.5 INTEREST RATES 40. The Central Bank Rate was retained at 7.00% in the last MPC meeting marking the ninth consecutive hold, after having cut it by 125 basis points during March–April 2020, The CBR has been constant at 9 percent between July, 2018 and September, 2019, it then dropped to 8.5 percent in November, 2019 due to the repeal of the interest caps on commercial bank loans. The MPC kept on lowering the Central Bank Rate (CBR up to 7.00 percent in April, 2020 from 7.25 percent as of march, 2020. The decision came amid high-frequency data pointing to a recovery in GDP in the first half of this year, and a bounce-back in 2021 overall as restrictions are further rolled back and activity fully resumes. That said, the Bank noted the economy is still underperforming and an output gap remains. Moreover, it pointed out the uneven global recovery and the still-heightened uncertainty over the evolution of the pandemic amid new strains of the virus, suggesting a rate hike would have been premature. Meanwhile, the Bank expects inflation to be elevated in the short term—due to higher prices for fuel and food and higher taxes—but it will remain well within the 2.5%–7.5% target band, kept in check by muted demand. 41. A reduction of the CBR signals an easing of monetary policy and a desire for market interest rates to move downwards. Therefore lower interest rates leads to growth in economic activity due to the increase in demand of credit hence leading to injection of funds to the economy for investment. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 37 August September October November December January February March April May June July August Figure 10: Analysis of Trends in Interest Rates (%), FY 2017/18, 2018/19, 2019/20, 2020/2021 Note: Central Bank rate in %. Source: Central Bank of Kenya. 3.6 EXCHANGE RATES 42. The Kenyan shilling (KES) plummeted against the U.S. dollar as fears over the impact of the spread of the Covid-19 pandemic rattled markets. The foreign exchange market has experienced some volatility, largely due to uncertainties with regard to the impact of Covid-19 Pandemic and a significant strengthening of the US Dollar in the global markets. 43. However, the Kenya Shilling remained competitive supported by a stable current account deficit. The Shilling depreciated against the US Dollar, Sterling pound and the Euro exchanging at an average of Kshs 109.1353, Kshs 151.1394 and Kshs 127.9688 in July 2021 from Kshs 107, Kshs 135.3 and Kshs 122.5 in July 2020, respectively. The depreciation was driven by the decline in dollar receipts from dollar earning sectors such as tourism and horticulture in addition to high demand for hard currency from investors. In comparison to most Sub-Saharan Africa currencies the Kenya Shilling has remained relatively stable. The figure below presents the exchange rates of hard currencies against Kenyan shilling for 2020 and 2021. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 38 Figure 11: Average exchange rates for 2020 and 2021 Source: Central Bank of Kenya 3.7 MEDIUM TERM FISCAL FRAMEWORK 44. The County Government will continue to pursue prudent fiscal policy as it puts effort into bolstering economic recovery in the county and sustainably utilizing public finances. Allocation and utilization of resources in the medium term will be guided by the priorities outlined in County Integrated Development Plan (CIDP) and other County plans; and in accordance with section 107 of the PFM Act 2012. For effective utilization of public finances for enhanced expenditure productivity, the County Government will prioritize expenditures within the overall sector ceilings and strategic sector priorities. This will help to ease pressure on expenditure and to provide adequate cushion against unforeseen events. 45. The County Government will continue to pursue prudent fiscal policy to ensure stability. In addition, our fiscal policy objective will provide an avenue to support economic activity while allowing for sustainable management of public finances. As such, the CG has committed to a repayment of the pending bills with an intention of offsetting all the pending bills in the shortest period possible and ensuring expenditure is strictly done guided by availability of funds going forth. 46. Fiscal policy will continue to support County development economic activities while providing platform for the implementation of the CIDP within a context of sustainable public financing. Over the FY2021/22, the County Government has reoriented expenditure towards completion of ongoing and stalled projects over the medium-term expenditure framework (MTEF).This process will be strengthened by encouraging more private-sector engagement through the Public Investment Forum in order to build concrete Public Private Partnership in pursuit of new economic opportunities. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 39 47. The County Government will rationalize expenditure to improve efficiency and reduce wastage by strengthening implementation of the Integrated Financial Management Information System (IFMIS) across departments. Moreover, the improved conformation to PFM Act, 2012 is expected to accelerate reforms in expenditure management system. 48. On matters revenue, the government will maintain a strong revenue effort by incorporating measures essential in achieving a significant growth rate. Efforts will be centered on simplification of the Revenue codes in line with international best practices and improved fees and charges collection with enhanced administrative measures. 3.8 RISKS TO ECONOMIC AND FISCAL OUTLOOK 49. Risks from the global economies relate to the risks of a pandemic resurgence, vaccine resistant strains, and operational threats such as vaccine development and delivery delays, COVID-19 vaccine inequity and its impact on socio-economic recovery in low- and lower-middle income countries, the emergence of COVID-19 Vaccine Passports, high price per COVID-19 vaccine dose relative to other vaccines. 50. Nationally, there still remains unusual uncertainities and contingent on the course of the pandemic. Kenya’s economy is expected to continue its recovery, albeit unevenly and for some sectors only gradually, supported by the government’s plan to vaccinate the entire adult population by mid-2022. 51. Domestic risks will emanate from a slower deployment of vaccines due to supply challenges, logistical impediments to domestic distribution, and vaccine hesitancy, could weaken the recovery. Furthermore, external factors such as setbacks to the global economy due to a resurgence in infection rates could adversely impact the projected recovery in Kenya’s goods exports, tourism, and capital inflows. A slower than anticipated vaccination rollout, fiscal slippages, adverse weather conditions, and a weaker global economic backdrop could all challenge the projected recovery. 52. At the County level, other than the frequent late disbursement of exchequer issues, the main challenges that continue to be experienced relate to unrealized projected local revenue collection, bloated wage bill and huge pending bills some of which are statutory deductions that accrue huge interests. Non timely disbursement of funds by the national government continues to be a challenge as this leads to delay in execution of planned activities of the County thus compromising service delivery. 53. Going forward, due to revenue shortfalls, the ever-increasing pending bills and a high wage bill, continues to pose a threat of a budget deficit. Systems are being put in place to improve local revenue performance, following revenue collection reforms and moderation in recurrent expenditure, so as to increase the revenue bases and the fiscal position in the medium term. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 40 54. The Government will monitor the above risks and take appropriate measures to safeguard macroeconomic stability including preparation of supplementary budgets to regularize and align any emerging issues. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 41 4.0 CHAPTER FOUR: RESOURCE ALLOCATION FRAMEWORK 4.1 OVERVIEW 55. This section outlines how the County Government of Kilifi intends to utilize its limited resources to deliver on its mandate. It shows the total revenue expected and allocates these resources across the County’s departments and agencies through expenditure projections of each department. 56. Own Source Revenue (OSR) collection was lower than the projected amount; with only Ksh 832,361,953 collected out of the projected 1,205,616,156 shillings, marking a 69% attainment, compared to a 72% attainment in FY 2019/20. Though not equal to the projected amount, this was a significant improvement as compared to FY 2019/20, where the revenue collected was 794,390,255. Specific revenue streams of billboards and signage, HSIF, Stall Rents, Refuse Collection, Food Hygiene Fees and Building plans approval and inspection all surpassed their target amounts. A significant improvement was also noted in business permits stream although it was not sufficient to meet its target. All other streams had negative deviations from the projected amounts. 57. The Division of Revenue Bill, 2021 provides for more budget allocation to the county governments compared to the last financial year. Allocation to counties stands at KSHS 370 billion for FY 2021/22 which is an improvement from the KSHS 316.5 billion if the previous financial year. This means an increased allocation of equitable share to Kilifi County where such incremental resources will be allocated towards completion of the ongoing projects and the priority areas set out in CFSP 2021, subject to adherence to fiscal responsibility principles. 4.2 ADJUSTMENTS TO THE FY 2021/22 BUDGET 58. In the FY 2020/21, expenditure was rationalized to prioritize COVID-19 containment and mitigation measures and completion of ongoing projects; while cutting down on discretionary recurrent expenditure and trading off non-priority development projects. In addition to this, the County Treasury appropriated monies to offset pending bills as a priority and in compliance to the national government directives. 59. Therefore, the prevailing macroeconomic conditions, the finalization of the current regime as well as the projected economic growth formed the basis of the FY2021/22 budget preparation. The expenditure options for FY 2021/22 will be mostly based on conclusion of ongoing as well as flagship projects to ensure prudent utilization of resources as well as check on stalled projects as that is the last year of the CIDP 2018-22 life span. 60. The FY 2021/22 Budget emphasizes on efficiency and effectiveness of public spending and improving revenue collection to stimulate and sustain economic activities, mitigate the adverse 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 42 impact of COVID -19 pandemic on the economy and re-position the economy on a steady and sustainable growth trajectory. 61. With an increasingly constrained fiscal space, the County treasury is putting in place measures to enhance collection of own source revenue to increase the resource basket to meet the expected FY 2021/2022 target of KSHS 925,000,000 compared to the previous FY 2020/21 where the target was KSHS 1,205,616,156. In order to meet the set revenue target, the county government is pursuing the following strategies, which include; • The full automation of revenue collection and the opening of new and refurbished markets, This will increase revenue through market fees and stall rents. • The integration of agricultural services particularly the Agricultural Training College (ATC), Agricultural Mechanization Servicers (AMS), Livestock and Fisheries services and the county slaughter house with the county revenue management system will strengthen process controls enhance revenue growth in these revenue streams. • The County Government of Kilifi, in partnership with the IFC-World Bank is implementing the Kilifi Electronic Development Applications Management System (Kilifi eDAMS). The system will strengthen controls in development control and lands management processes as well as enhancing ease of doing business. • County Treasury will collaborate with the county department of Lands in strengthening the business processes involving land subdivision, consolidation, transfer and payment of land rates. In order to strengthen enforcement efforts, the County Treasury will ensure the issue land rates clearance certificates is undertaken by the Department of Lands. 62. On the expenditure side, the County utilized a total of Ksh. 12,356,137,617 out of the total appropriated revenue of Ksh. 14,661,031,386. This marked an 84% absorption rate of the county funds. It is expected that the revision of the budget will be done to provide for pending bills and completion of ongoing projects. 4.3 BUDGET FRAMEWORK FY 2021/22 63. The budget framework is set by the Constitution of Kenya, the PFM Act, 2012, and the County Government Act, 2012 among other legislations. The County Government will continue to emphasize on the implementation of policy measures that are aimed at economic recovery post COVID-19to implement the COVID-19 mitigation and economic recovery strategy in addition to expenditure rationalization and revenue mobilization programs that the County has to put in place to ensure a steady and sustainable growth trajectory. 64. The budget framework FY 2022/23 will continue to emphasize on the completion of ongoing projects, adoption of the “no new projects” policy, continued realignment of the county programs with the Big Four Agenda, focusing spending on emerging priorities and finalization of the County Integrated Development Plan of 2018-2022. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 43 65. The resource envelope of the County comprises of equitable share, conditional grants and locally collected revenues. Equitable share estimates are projected based on the National Treasury Budget Policy Statement (2021) that it is expected to hold at Ksh. 370 billion in FY 2022/23 and increase to Ksh. 375 billion in FY 2023/24. Kilifi County government will receive her share in accordance with the third basis formula for equitable sharing of revenue which is recommended by the Commission on Revenue Allocation (CRA), this is projected at KSHS 11,641,592,941 in FY 2022/23 and then increase to KSHS 11,798,911,765 in FY 2023/24 as a result of the increase projected by the BPS 2021. 66. In the 2022/2023 financial year, the County projects to mobilize resources amounting to KSHS 830,500,000 as own source revenue. This is a slight decrease from the projected OSR in the FY 2021/22 because of the adverse effects of the electioneering period that the country will go through at the time. Revenue streams such as business permits, Rent/stall rents are likely to experience a negative shift. Strict enforcement measures put in place, the automation of collection systems, the boom in construction projects experienced in the COVID-19 period where most people were working from home and the formal upgrading of squatter schemes has resulted in the increased revenue from the Building Plan approval and Inspection stream. This stream is expected to go back to normal collection levels hence the anticipated decrease. The revenue will be expected to stabilize in the FY 2023/24 and continue growing steadily thereafter. 67. The revenue streams performance from FY 2017/18 to FY 2020/2021 was used to make the revenue projections. The table below presents projections for equitable share and own source revenue for FY 2022/23 to FY 2024/25. Table 15: Projections for Equitable Share and Own Source Revenue for FY 2022/23 to FY 2024/25 REVENUE ACTUAL APPROVED PROJECTIONS REVENUE ESTMATES DESCRIPTION FY 2020/21 FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 Equitable Share 10,444,500,000 11,641,592,941 11,641,592,941 11,798,911,765 11,956,230,588 Land Rates and other Land Revenue 170,329,040 195,000,000 180,000,000 200,000,000 215,000,000 Cess on natural resources 273,840,434 315,000,000 280,000,000 300,000,000 310,000,000 Business Permits 57,731,023 105,000,000 70,000,000 100,000,000 115,000,000 Parking Fees 25,515,572 50,000,000 35,000,000 45,000,000 60,000,000 Market Fees 9,285,225 25,000,000 20,000,000 25,000,000 30,000,000 Bill Boards and signage 29,147,422 30,000,000 35,000,000 37,000,000 40,000,000 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 44 Building Plan approval and Inspection 51,174,860 25,000,000 35,000,000 45,000,000 55,000,000 Rent/Stall rents 7,432,190 15,000,000 10,000,000 15,000,000 20,000,000 Survey fees and plot rents 537,730 1,266,000 1,000,000 1,500,000 2,000,000 Plot ground rent 5,686,017 10,000,000 15,000,000 10,000,000 13,000,000 House rent 2,677,814 40,000,000 40,000,000 40,000,000 45,000,000 Refuse Collection 2,267,500 1,262,000 2,500,000 3,500,000 4,500,000 Food Hygiene Fees 5,035,910 10,000,000 11,000,000 13,000,000 15,000,000 Liquor License 6,000,000 7,000,000 8,500,000 10,000,000 AMS&ATCs 25,000,000 27,000,000 30,000,000 33,000,000 Leasing of Plants and Equipment 20,000,000 22,000,000 25,000,000 27,500,000 Slaughter House and Livestock sale Yards 1,045,190 10,000,000 5,000,000 6,500,000 8,000,000 Others 28,138,992 41,472,000 35,000,000 40,000,000 45,000,000 TOTAL 11,114,344,919 12,566,592,941 12,472,092,941 12,743,911,765 13,004,230,588 4.4 MEDIUM TERM EXPENDITURE FRAMEWORK 68. The expenditure projections for the FY 2022/23 budget comprise both recurrent and development expenditures. In the next MTEF period, County total expenditures including the County Assembly for FY 2022/2023 is projected at Ksh.12,472,092,941, Ksh.12,743,911,765 in FY 2023/24 and Ksh.13,004,230,588 in FY 2024/25. In 2022/2023, the overall recurrent and development expenditures are projected to be Ksh.8,884,269,105 and Ksh.3,587,823,836 respectively. This translates to 71% and 29% recurrent and development expenditures respectively. The projected expenditure does not include grants which when factored in will ensure the county adheres to the fiscal responsibility principle that sets the minimum allocation on development at 30 percent of the county’s budget. The intended growth in expenditure corresponds to the projected and anticipated increase in the total revenue basket. 69. The fiscal framework entails a deliberate effort to continue exercising prudence in public expenditure management with the principal goal of containing fiscal risks, gradually lowering the fiscal deficit, and adopting austerity measures to deter increase of recurrent expenditures in favor of productive capital spending. 70. Priority in allocation of resources will be on the flagship, ongoing and stalled projects as the CIDP is in its sunset year. The allocation of resources will be based on; 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 45 • Ongoing activities of the county government flagship projects and programmes will be accorded priority. • Linkage of the programme with the objectives of the CIDP 2018-2022. • The degree to which the programme is addressing the core mandate of the County department will be given appropriate consideration. 71. Resource allocation will continue to be aligned to the transformation agenda of the County Government as highlighted in the County Fiscal Strategy Paper, 2021. The FY 2021/22 medium term expenditure framework will focus on the following key issues: • The upcoming regime change that is due in a year’s time hence need to complete ongoing and flagship projects; • The impending expiry of the five-year term of the 2018-2022 CIDP – hence need to conclude on the five-year plans set out in the CIDP • Resource reallocation to high priority areas • Allocation of resources to projects that have been fully processed including feasibility studies done, with detailed designs, necessary approvals and land secured as well as pay attention to the estimated requirements for each of the stages of the project cycle; 72. The MTEF budgeting will thus entail adjusting non-priority expenditures to cater for the priority ones. The priority social sectors, education and health, will continue to receive adequate resources though they are required to utilize the allocated resources more efficiently to generate fiscal space to accommodate other strategic interventions in their sectors. 73. The economic sectors such as agriculture will receive increasing share of resources to boost agricultural productivity and initiating value addition ventures as the county deals with threats of food insecurity and poor market returns for agricultural produce. For expansion of agricultural activities, irrigation subsector will receive a large share of resources in the medium term period. Another sector that will receive a sizable share of resources is Trade, Tourism & Co-Operative Development. This will aid the county to tap into its tourism potential. 74. With the County Government’s commitment to improving infrastructure across the county, the share of resources going to priority physical infrastructure sector, such as roads and water, will rise over the medium term. This will spur the county’s economic growth because no meaningful economic activity can be carried out without reliable physical infrastructure. Further, implementation by the spending units will be monitored closely especially with regard to the development expenditures and uptake of resources. This requires a highly efficient and effective monitoring and evaluation by the county government. 75. All the other sectors will continue to receive adequate resources in line with our county’s commitment to a balanced sector development so as to ensure socio-economic welfare and enhanced quality of life for the residents of the county. Reflecting the above medium-term expenditure framework, the table below provides the tentative projected baseline ceilings for the 2022 MTEF, classified by Departments. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 46 Table 16: Medium Term Expenditure Framework EXPENDITURE DEPARTMENT APPROVED PROJECTIONS FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 3111 County Assembly Sub-total 1,000,000,000 980,518,868 1,001,888,456 1,022,353,948 Recurrent 901,500,000 883,937,760 903,202,443 921,652,084 Development 98,500,000 96,581,108 98,686,013 100,701,864 3112 Office of the Governor Sub-total 196,930,782 193,094,347 197,302,677 201,332,962 Recurrent 196,930,782 193,094,347 197,302,677 201,332,962 Development - - - - 3124 County Attorney Sub-total 129,193,400 126,676,566 129,437,376 132,081,383 Recurrent 129,193,400 126,676,566 129,437,376 132,081,383 Development - - - - 3113 County Division for Sub-total Finance 2,593,425,954 430,856,990 440,247,157 449,240,049 Recurrent 420,417,337 412,227,131 421,211,277 429,815,324 Development 2,173,008,617 18,629,858 19,035,881 19,424,725 3125 County Division for Sub-total Economic Planning 110,593,609 108,439,120 110,802,460 113,065,813 Recurrent 110,593,609 108,439,120 110,802,460 113,065,813 Development - - - - 3114 County Division for Sub-total Agriculture 119,688,689 117,357,018 119,914,716 122,364,204 Recurrent 60,411,065 59,234,189 60,525,149 61,761,491 Development 59,277,624 58,122,829 59,389,567 60,602,713 3126 County Division for Sub-total Livestock 51,966,883 50,954,509 52,065,020 53,128,548 Recurrent 28,182,695 27,633,664 28,235,917 28,812,689 Development 23,784,188 23,320,845 23,829,103 24,315,858 3127 County Division for Sub-total Fisheries 131,114,426 128,560,169 131,362,030 134,045,351 Recurrent 31,364,426 30,753,411 31,423,656 32,065,545 Development 99,750,000 97,806,757 99,938,373 101,979,806 3115 County Division for Water Sub-total & Sanitation 372,920,223 365,655,315 373,624,466 381,256,462 Recurrent 13,091,348 12,836,314 13,116,070 13,383,991 Development 359,828,875 352,819,001 360,508,396 367,872,471 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 47 EXPENDITURE DEPARTMENT APPROVED PROJECTIONS FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 3128 County Division for Sub-total Environment, Natural Resources 152,828,466 149,851,194 153,117,076 156,244,786 & Wildlife Recurrent 152,828,466 149,851,194 153,117,076 156,244,786 Development - - - - 3116 County Division for Sub-total Education 509,838,177 499,905,952 510,800,984 521,235,073 Recurrent 426,338,177 418,032,627 427,143,298 435,868,518 Development 83,500,000 81,873,325 83,657,686 85,366,555 3129 County Division for Sub-total Information, Communication & 28,182,695 27,633,664 28,235,917 28,812,689 Technology Recurrent 28,182,695 27,633,664 28,235,917 28,812,689 Development - - - - 3117 County Division for Sub-total Medical Services 1,988,636,220 1,949,895,336 1,992,391,672 2,033,090,091 Recurrent 918,877,517 900,976,743 920,612,777 939,418,057 Development 1,069,758,703 1,048,918,593 1,071,778,895 1,093,672,033 3130 County Division for Public Sub-total Health 109,629,238 107,493,536 109,836,268 112,079,884 Recurrent 89,129,238 87,392,900 89,297,555 91,121,628 Development 20,500,000 20,100,637 20,538,713 20,958,256 3118 Roads, Transport & Public Sub-total Works 1,521,984,625 1,492,334,642 1,524,858,826 1,556,006,990 Recurrent 270,184,625 264,921,123 270,694,857 276,224,318 Development 1,251,800,000 1,227,413,519 1,254,163,969 1,279,782,672 3119 County Division for Lands Sub-total & Energy 467,429,238 458,323,187 468,311,957 477,878,127 Recurrent 213,300,000 249,178,513 254,609,150 259,810,030 Development 254,129,238 209,144,675 213,702,808 218,068,097 3131 County Division for Sub-total Physical Planning, Urban 100,835,887 98,871,490 101,026,311 103,089,967 Development and Housing Recurrent 19,727,887 19,343,565 19,765,142 20,168,883 Development 81,108,000 79,527,924 81,261,169 82,921,084 3120 Gender, Culture, Social Sub-total Services and Sports 135,907,643 133,260,009 136,164,299 138,945,716 Recurrent 80,407,643 78,841,211 80,559,490 82,205,072 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 48 EXPENDITURE DEPARTMENT APPROVED PROJECTIONS FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 Development 55,500,000 54,418,797 55,604,809 56,740,644 3121 County Division for Trade, Sub-total & Tourism 283,137,504 277,621,665 283,672,197 289,466,745 Recurrent 76,637,504 75,144,519 76,782,231 78,350,655 Development 206,500,000 202,477,146 206,889,966 211,116,090 3132 County Division for Sub-total Cooperative Development 14,091,348 13,816,833 14,117,959 14,406,345 Recurrent 14,091,348 13,816,833 14,117,959 14,406,345 Development - - - - 3122 County Public Service Sub-total Board 35,546,156 34,853,676 35,613,283 36,340,753 Recurrent 35,546,156 34,853,676 35,613,283 36,340,753 Development - - - - 3133 Devolution, Public Service Sub-total and Disaster Management 179,391,810 175,897,054 179,730,584 183,401,925 Recurrent 162,391,810 159,228,234 162,698,480 166,021,908 Development 17,000,000 16,668,821 17,032,104 17,380,017 3123 Public Service Management Sub-total 4,640,626,456 4,550,221,800 4,649,390,074 4,744,362,778 Recurrent 4,640,626,456 4,550,221,800 4,649,390,074 4,744,362,778 Development - - - - Total Total 14,873,899,430 12,472,092,941 12,743,911,765 13,004,230,588 Recurrent 9,060,783,423 8,884,269,105 9,077,894,312 9,263,327,702 Development 3,659,107,390 3,587,823,836 3,666,017,453 3,740,902,886 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 49 5.0 CHAPTER FIVE: CONCLUSION 76. The fiscal outcome for FY 2020/21 had implication on the financial objectives contained in the last County Fiscal Strategy Paper (CFSP) submitted to the County Assembly in February 2021. The County is making progress in addressing some of the challenges previously identified as affecting budget implementation. 77. Despite the progress made, the following challenges continue to hamper effective budget implementation; • Delay in submission of budget implementation/performance and expenditure reports by departments to the County Treasury. • In most cases, submitted reports are not in the desired prescribed formats. • Off-budget, off-plan expenditures. • Pending bills which affect the resource allocation. 78. The County should implement the following recommendations in order to improve budget execution; • The county Government (departments) should adhere to Section 0166 of the PFMA. 2012 in submission of quarterly reports in the desired format. • The County Government should devise strategies to enhance local revenue collection, mainly through automation of revenue collection and civic education on the importance of OSR to the public through the proposed 2021 Finance Bill. • The county should spend within its means and avoid any leakages. 79. Going forward, the set of policies outlined in this CBROP reflect the dynamic circumstances and are broadly in line with the fiscal responsibility principles outlined in the PFM Act, 2012. They are also consistent with the county strategic objectives being pursued as a basis of allocation of public resources. 2021 KILIFI COUNTY BUDGET REVIEW AND OUTLOOK PAPER 50