How public finance reforms improve service delivery

Kenya is feeling the economic and health impact of Covid-19 as it enters the financial year 2020/21. In times like these, as economic activity and revenue collection stall, optimising the impact of public spending has become critical. The best way to achieve the efficient and effective use of public funds is through sound Public Finance Management (PFM). The implementation of the new PFM Reform Strategy 2018-2023 by the Government of Kenya is an essential step towards achieving the Vision 2030 objectives.

The European Union (EU) wants to be a key partner of the Government of Kenya in this area and has offered a Sh3.1 billion (EUR 26 million) grant for a PFM budget support programme.

Kenya has adopted an innovative approach by formulating a PFM Reform Strategy that draws on an analysis of where structural challenges in the administration of public funds undermine efficient service delivery.

The Kenya PFM Reform Strategy 2018-2023 focuses on the budgeting process, public investment decisions, cash management, public procurement, wages and salaries in the public sector, management of public funds by education and health facilities, financial reporting and auditing, as well as curbing corruption.

The implementation of co-ordinated reforms in these areas should collectively improve Kenya’s fiscal situation and service delivery for Kenyan citizens. But this is easier said than done as the proposed changes are complex and require sustained efforts, co-operation between actors that do not traditionally work together, and a great deal of Government ownership and political buy-in.

Why does it make sense to focus on PFM reforms in order to improve service delivery? Kenya is a lower middle-income country. As such it has a stable political system, a fast-growing services sector, strong regional trade ties, and it is a transport hub.

It has huge potential for diversified growth but faces many challenges such as inequality and poverty, corruption, vulnerability of the agricultural sector to climate patterns, barriers to trade, to name just four.

In order to eradicate these challenges, in particular corruption, and improve services and livelihoods in the way that Kenyans ultimately want to see, long-term structural reforms are needed. This complements short-term service delivery fixes that are otherwise useful and necessary, for example to address the immediate needs arising from Covid-19.

The EU provides grants that are disbursed directly into the consolidated account of the Government of Kenya in proportion to the degree of progress that the Government achieves against specific targets it has set itself in the PFM reform strategy.

The determining factors for disbursement are timeliness of transfers to counties, revenue collection, customs clearance, the transparency of procurement and public investment management, as well as curbing corruption.

One way of illustrating the approach, is to focus on the counties, which depend for a large majority of their income on transfers from national government, as most major taxes are collected at the national level.