Post-budget Analysis of the National Budget, FY 2009/10

 
1

Post-budget Analysis of the National Budget, FY 2009/10

                 Spending your way out of recession

© National Taxpayers Association (NTA)
2010

This publication was made possible through support provided by the Department for International
Development (DFID) and the Swedish International Development Cooperation Agency (SIDA).
The findings expressed herein are those of the NTA and they do not necessarily reflect the views of our
partners.
2

    Table of Contents
    List of figures.............................................................................................................................4
    List of tables..............................................................................................................................4
    List of boxes...............................................................................................................................4
    List of acronyms and abbreviations.............................................................................................5
    Preface......................................................................................................................................6
    Acknowledgements...................................................................................................................7
    1.0      Introduction.....................................................................................................................8
    2.0      Macro economic context..................................................................................................8
    2.1      Economic growth.............................................................................................................8
    2.2      Inflation rates...................................................................................................................9
    2.3      Interest rates....................................................................................................................9
    2.4      Exchange rates.................................................................................................................9
    2.5      Employment rates..........................................................................................................10
    2.6      Poverty and inequality rates............................................................................................10
    3.0      Assessment of the link between the 2009/10 budget and the national
             strategic objectives.........................................................................................................11
    3.1      Public spending grows faster than revenues, threatening macro-
             economic stability...........................................................................................................11
    3.2      The slow pace of establishing the e-registry in the ag’s office
             Threatens the attainment of a conducive business environment.....................................12
    3.3      The minister proposes huge investment in key infrastructure facilities
             and public works countrywide to stimulate growth, create employment
             and reduce poverty........................................................................................................12
    3.4      Doubtful financing strategy for agenda 4.......................................................................12
    3.5      The minister takes bold steps to promote equity and social stability................................12
    3.6      Strengthening governance for sustainable development.................................................13
    3.7      Inadequate funding for the democratization processes – constitution review
             and electoral process......................................................................................................13
    3.8      Slow judicial automation and inadequate funding threaten the delivery of
             justice to all....................................................................................................................13
    4.0      Financing the budget.....................................................................................................14
    5.0      Sectoral analysis.............................................................................................................17
    5.1      Education sector............................................................................................................17
    5.1.1 The budget proposals for the education sector...............................................................17
    5.1.2 National policies, goals and priorities in the education sector..........................................18
    5.1.3 Challenges facing the education sector..........................................................................18
    5.1.4 Reforms in the education sector.................................................................................................. 24
3

5.1.5 Trends in budgetary allocations to the education sector............................................................... 25
5.1.6 Expenditure across different education levels............................................................................... 26
5.1.7 Budget 2009/10 and its impact to the education sector............................................................... 27
5.2       Health sector............................................................................................................................... 30
5.2.1 Background................................................................................................................................ 34
5.3       Agriculture and rural development.............................................................................................. 34
5.3.1 Introduction................................................................................................................................ 34
5.3.2 Assessment of 2009/10 budget proposals for the agriculture and rural
          development sector..................................................................................................................... 37
5.3.3 Summary.................................................................................................................................... 39
6.0       Inequality.................................................................................................................................... 40
6.1       Introduction................................................................................................................................ 40
6.2       Expenditure and inequality.......................................................................................................... 41
6.3       Tax measures and income inequality............................................................................................ 43
6.3.1 VAT............................................................................................................................................. 43
6.3.2 Personal income tax.................................................................................................................... 44
6.3.3 Custom duties and excise taxes................................................................................................... 45
6.3.4 Summary.................................................................................................................................... 46
7.0       Conclusion.................................................................................................................................. 47
4

    List of Figures
    Figure 1.1: Real GDP Growth Rates............................................................................................9
    Figure 1.2: Inflation and Interest Rates Trends..........................................................................10
    Figure 1.3: Exchange Rates Trends............................................................................................10
    Figure 1.4: Employment Patterns..............................................................................................11
    Figure 4.1: Budget Financing....................................................................................................15
    Figure 4.2: Government Revenue, Expenditure and Fiscal Deficit..............................................15
    Figure 4.3: Trends in Government Expenditure.........................................................................16
    Figure 4.4: 2009/10 Expenditure estimates by sector................................................................16
    Figure 5.1: Number of Registered Educational Institutions........................................................20
    Figure 5.2: Primary enrolment by gender..................................................................................22
    Figure 5.3: Secondary school enrolment by gender..................................................................24
    Figure 5.4: Share of Recurrent and Development Expenditure in the Ministry
    		             of Education (2004/05-2008/09).............................................................................26
    Figure 5.5: Growth in Government Expenditure in the social sector..........................................27
    Figure 5.6: Economic Trends: Real Trends in Sectoral Spending, 1999/2000 – 2006/07.............33
    Figure 5.7: Distribution of Outpatient Visits by Type of Health Provider, 2007...........................33

    List of Tables
    Table 1.1: Income Inequality and poverty in selected countries................................................12
    Table 5.1: Educational institutions by Province 2003 and 2007................................................21
    Table 5.2: Primary enrolment public and private by gender and province.................................23
    Table 5.3: Enrolment analysis by level of education and gender...............................................24
    Table 5.4: Other Education Indicators......................................................................................25
    Table 5.5: Expenditure by level of education............................................................................27
    Table 5.6: A summary of selected socioeconomic indicators for Kenya....................................32
    Table 5.7: A summary of health sector institutions in Kenya....................................................32
    Table 5.8: Health sector projects funded under the Economic Stimulus Programme.................34
    Table 5.9: Reasons for Avoiding the Nearest Provider, 2007.....................................................35
    Table 6.0: Agriculture and Rural Development sector resource requirements and
    		             2009/10 budgetary allocations................................................................................36
    Table 6.1: Measures to reduce regional Imbalances.................................................................43
    Table 6.2: Analysis of VAT Proposals........................................................................................45
    Table 6.3: A summary of income tax proposals and their possible implications........................46

    List of Boxes
    Box 5.1:       2009/10 Budget and the International Conventions on Education............................... 18
5

List of Acronyms and Abbreviations
A&RD		    Agriculture and Rural Development
ASAL      Arid and Semi Arid lands
ASDS		    Agricultural Sector Development Strategy
CDF		     Constituency Development Fund
CT		      Consumption Tax
ECD		     Early Childhood Development
ECDC		    Early Childhood Development Centres
EFA       Education for All
ERS       Economic Recovery Strategy Paper
FPE       Free Primary Education
FSTE 		   Free Secondary Tuition Education
GDP		     Gross Domestic Product
GER 		    Gross Enrolment Rate
GOK		     Government of Kenya
ICT		     Information Communication and Technology
IDF 		    Import Declaration Fee
IDP		     Internally Displaced Persons
IFMIS     Integrated Financial Management Information System
KCPE 		   Kenya Certificate of Primary Education
KESSP     Kenya Education Sector Support Programme
KNDR      Kenya National Dialogue and Reconciliation
KNUT		    Kenya National Union of Teachers
KRA		     Kenya Revenue Authority
KV 2030   Kenya Vision 2030
MDG		     Millennium Development Goals
MoA		     Ministry of Agriculture
MoCD		    Ministry of Cooperatives Development and Marketing
MoE		     Ministry of Education
MoFD		    Ministry of Fisheries Development
MoFW		    Ministry of Forestry and Wildlife
MoL		     Ministry of Lands
MoLD		    Ministry of Livestock Development
MOYA		    Ministry of Youth Affairs
MTEF      Medium Term Expenditure Framework
MTP		     Medium Term Plan
MUB 		    Manufacturing Under Bond
NAAIAP    National Accelerated Agricultural Input Access Programme
NER		     Net Enrolment Rate
NFE		     Non Formal Education
NGO		     Non Governmental Organisations
NHSSP		   National Health Sector Strategic Plan
PAYE 		   Pay As You Earn
PFM		     Public Financial Management
PTR 		    Pupil Teacher Ratio
RoK		     Republic of Kenya
SWA       Sector Wide Approach
TIVET		   Technical, Industrial, Vocational and Entrepreneurship Training
TSC		     Teachers Service Commission
UPE       Universal Primary Education
VAT		     Value Added Tax
6

    Preface
    One of the fundamental problems in budget monitoring is the lack of effective analysis of the budget
    drawing a clear linkage between the budget figures and socio-economic problems facing the country. This
    process requires not just a re-statement of the budget but technically unpacking the budget figures to give
    clear indication of what they effectively translate to for the ordinary Kenyan citizen. This is the fundamental
    weakness that budget analysis in Kenya faces. Without adequate expertise and organizational commitment
    to undertake the analysis, budgets will remain far withdrawn from ordinary citizens. More importantly,
    without linking the budget figures to the livelihoods of citizens no meaningful participation of citizens in
    the budget making process can be expected. This means, the current provisions for citizens’ participation
    in the MTEF process will generally remain ineffective.
    The implications from weak CSO engagement with the GOK on the national budget are very serious. First,
    it allows the GOK make allocations across government ministries and departments without considering the
    priorities and concerns of citizens/ CSOs. Second, it allows the GOK to make wasteful, and in some cases
    corrupt allocations of taxpayers’ money. It is likely that there are many cases of wasteful spending in the
    national budget; however, its breath makes it very difficult to uncover. Third, there is no accountability for
    GOK in the funds allocated in budget therefore encouraging lack of transparency and wasteful decisions
    in the future.
    Subsequently the NTA has established a budget analysis working group bringing together NTA staff,
    stakeholders and other organizations working in the area of public financial management. The group
    has since undertaken a comprehensive analysis of 2009/2010 budget. The findings are presented in this
    report. The ultimate aim is to make this a routine annual process that can feed into to the budget making
    process from the onset. This means the group will conduct an analysis of the key pre-budget documents
    including, the Budget Outlook Paper, Budget Strategy Paper and the Budget Policy Paper with the aim of
    influencing the final budget to be citizen responsive. This process would then be finalized with an analysis
    of the actual budget as soon as it is read with two key objectives in mind; to establish the extent to which
    the contribution made by the civil society budget working group have been incorporated in the budget
    and secondly how closely the budget responds to the needs and priorities of the citizens as well as inform
    citizens of the key highlights directly impacting their lives.
7

Acknowledgements
The NTA would like to acknowledge the outstanding effort and work that has been put in this exercise
and publication by the NTA budget analysis team. We are particularly grateful for the incisive and detailed
analysis undertaken by the team focusing on various sectors of the budget. Our sincere gratitude goes
to; Charles Kahuthu from the Kenya National Chamber from Commerce and Industry, Rhoda Gakuru and
Naomi Mathenge from Kenya Institute of Public Policy Research and Analysis, Munene Charles Kiura from
Institute of Development Studies University of Nairobi, Vincent Kimosop from Institute of Legislative Affairs,
Esther Kimani from Society for International Development, Gilbert Muyumbu of Action Aid International-
Kenya, Kennedy Masime, Jackson Kuhumba and Tabitha Mutua from the Centre for Governance and
Development and Michael Otieno of the National Taxpayers Association. We wish to thank Ninnette
Gatimu and Eric Kivuva from Centre for Governance and Development for coordinating the analysis and
the compilation of the report. Finally this work would not have been successful without the immense
contribution of Albert Mwenda who guided the group through the analysis process as well the final
compilation of the report.
8

    1.0 Introduction
    On the 11th of June, 2009 the Minister for Finance Hon. Uhuru Kenyatta presented the budget for the
    financial year 2009-2010 to Parliament. The objective of the budget as stated by the Minister is ‘to stimulate
    growth and protect jobs, reduce poverty, enhance food security and protect the poor’. In formulating the
    budget, the Minister was guided by five principles namely;
          1. Maintaining a stable macroeconomic environment and creating an enabling environment for
             business
          2. Developing key infrastructure facilities and public works country wide to stimulate growth,
             create employment and reduce poverty
          3. Promoting equitable regional and social development for stability
          4. Investing in environment and food security and
          5. Strengthening governance not because we have to, but rather, because it is the way forward in
             improving public service delivery (RoK, 2009a: 4).
    This budget was presented at a time when Kenya was experiencing the spillover effects of the global
    financial crisis, which had adverse implications on some sectors of the economy, particularly the health
    sector. Besides the global economic crisis, livelihoods and economic activities were disrupted by the 2008
    post election violence and the severe famine that affected the entire country.
    In this budget analysis, therefore, the National Tax Payers (NTA) Budget Analysis Team assesses the budget
    proposals contained in the Minister’s budget speech and other budget documents. In particular, the team
    assesses the economic assumptions made by the minister and the spending and tax proposals relating to
    three key sectors of the economy — education, health and agriculture. In addition, the team evaluates the
    proposals aimed at reducing poverty and inequalities.

    2.0 Macro economic context
    2.1 Economic Growth: This year, the budget was presented against a background of a dismal economic
    performance. The economic growth momentum witnessed in Kenya between 2003 and 2007 was restrained
    by a number of both internal and external factors in 2008. These included; the 2008 post election violence,
    the global financial crisis, unfavourable weather conditions and high food and fuel prices. As a result, the
    growth rate dropped to 1.7 percent in 2008 from a high of 7.1 percent in 2007 (see figure 1.1). While the
    country’s economic blue print, Vision 2030 projects overall annual growth rates of 10 percent over a ten
    year period, the Minister while presenting budget 2008/9 noted that the global economic down turn and
    a dysfunctional free market economy across the world would pose a major risk to the realization of the
    expected budget outcome. As a result, the Minister projected a slight improvement in economic growth of
    only 3% in the next fiscal year up from a low of 1.7%.

    Figure 1.1: Real GDP Growth Rates
                              Real GDP Growth Rates
    8.0                                                    7.1
    7.0                                     6.3
                              5.9
    6.0         5.1
    5.0
    4.0
    3.0
                                                                          1.7
    2.0
    1.0
    0.0
              2004           2005           2006          2007            2008

                               Real GDP growth rates

    Source: Kenya National Bureau of Statistics, 2009, Economic Survey.
9

2.2 Inflation Rates: In Kenya, one of the key constraints to consumption has been the rise in consumer
prices, primarily fueled by high food and oil prices. These key household expenditure items continue to
pose a significant threat to the realisation of the expected budget outcomes. Indeed, inflations threaten
to wipe out the benefits that would otherwise accrue from the Minister’s tax and spending proposals. It
should therefore concern all tax payers that the Minister proposed to bring down inflation to 5 per cent
but did not provide any significant policy measures to address this. Figure 1.2 below shows overall and
underlying inflation in Kenya. Overall inflation is declining but continues to be above 15 percent.

2.3 Interest Rates: On the other hand, interest rates continued to increase (see Figure 1.2). This, coupled
with the high inflation rates continues to erode the real average earnings, effectively acting as deterrence
to investment.

Figure 1.2: Inflation and Interest Rates Trends

                               Inflation                                                                              Interest Rates (%)

         Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul-
          06 06 07 07 08 08 09 09

                                    Year                                                                                              Year
                                                                                                                     Deposit                 Savings
        Overall inflation                           Underlying inflation                                             Landing                 91-Day T Bill

Source: Kenya National Bureau of Statistics (KNBS), 2009

2.4 Exchange Rates: The shilling remained stable against the US dollar as the foreign exchange inflows
matched demand (see figure 1.3).

Figure 1.3: Exchange Rates Trends
                                                         Kenya shillings per US dollar
                              90
                              80
                              70
                              60
                   Ksh/ USD

                              50
                              40
                              30
                              20
                              10
                                                     05

                                                                           06

                                                                                                 07

                                                                                                          8
                                                                                                                08

                                                                                                                       08

                                                                                                                                9
                                                                                                                                      09
                               04

                                        5

                                                5

                                                              6

                                                                      6

                                                                                    7

                                                                                            7

                                                                                                       00

                                                                                                                             00
                                     00

                                            00

                                                           00

                                                                  00

                                                                                 00

                                                                                        00
                                                    20

                                                                          20

                                                                                                20

                                                                                                              20

                                                                                                                      20

                                                                                                                                    20
                              20

                                                                                                      r_2

                                                                                                                            r_2
                                    r_2

                                           _2

                                                          r_2

                                                                 _2

                                                                                r_2

                                                                                       _2
                                                    v_

                                                                          v_

                                                                                                v_

                                                                                                                _

                                                                                                                      v_

                                                                                                                                      _
                         v_

                                          Jul

                                                                Jul

                                                                                      Jul

                                                                                                            Jul

                                                                                                                                  Jul
                                                                                                                           Ma
                                   Ma

                                                         Ma

                                                                               Ma

                                                                                                     Ma
                                                No

                                                                      No

                                                                                            No

                                                                                                                    No
                       No

                                                                          Year
                                                                              Exch Rate_USD

Source: Central Bank of Kenya, 2009
10

     2.5 Employment Rates: In 2008, employment creation was adversely affected by the slow economic
     growth. The number of jobs created by the domestic economy declined from 485.5 thousand jobs in 2007
     to 467.3 thousand jobs in 2008. The 2009/10 budget focused on employment creation and job protection
     as one of the objectives. Figure 1.4 below provides a trend of the employment numbers for the formal
     and informal sectors. The bulk of the jobs are being created in the informal sector. A critical analysis of the
     sector is, however, not possible due to unavailability of data. Concerns have however been raised about the
     quality of jobs created and the low wages offered for jobs in the informal sector.

     Figure 1.4: Employment Patterns

                                      Employment (thousands)
     Employees

                                    Formal                   Informal      Total

     Source: Kenya National Bureau of Statistics, 2009, Economic Survey.

     2.6 Poverty and Inequality Rates: About 80 percent of the population in Kenya lives in the rural
     areas and only 20 percent in urban areas. In 2005/06 it was estimated that 45.9 percent of Kenyans were
     poor1. Substantial regional differences in the level of poverty exist in Kenya, with about half (49.1 percent)
     of the rural population being poor and only 33.7 percent of the urban population was poor. The major
     sector supporting the rural population and hence the bulk of the people is agriculture, hence the emphasis
     on this sector not only because it contributes significantly to GDP, but also because most people in Kenya
     depend directly or indirectly. Inequality manifests itself in various forms including gender, income, and
     regional. Income inequality in Kenya is high; the country’s top 10 percent households control 42 percent of
     the total income while the bottom 10 percent controls less than 1 percent. Reducing the level of inequality
     is a priority within the Vision 2030 as well as Agenda 4 (see section 3.0 below for more details).
     Table 1.1 below shows that levels of inequality in Kenya are high and similar to those of most of the Asian
     countries. In contrast, most African countries have lower income inequality levels. In terms of poverty levels,
     Kenya has a higher proportion of the population below the poverty line than most countries and notably
     higher than our neighbours; Tanzania and Uganda.

     1           Kenya Integrated Budget Household Survey, 2005 (KIBHS)
11

Table 1.1: Income Inequality and poverty in selected countries

 Country                    Survey Year                Gini                      Population
                                                                                 below national
                                                                                 poverty line(%)
 Kenya                      2005/06                    0.452                     45.9
 China                      2004                       0.469                     4.6
 Malaysia                   1997                       0.492                     15.5
 Thailand                   2002                       0.420                     13.6
 Ghana                      1998/99                    0.408                     39.5
 Ethiopia                   1999/00                    0.300                     23.0
 Malawi                     2004/05                    0.390                     20.8
 Rwanda                     2000                       0.468                     60.3
 Tanzania                   2000/01                    0.346                     35.7
 Uganda                     2002                       0.457                     37.7

Source: Wambugu and Munga 2009 pg 20

3.0 Assessment of the link between the 2009/10 budget and the
    national strategic objectives
The 2009/10 budget sets out government strategies and policies for the year in line with the Vision 2030’s
goals as shown in the first Medium-Term Plan (MTP), 2008-2012; the Millennium Development Goals and
other various government priorities including Agenda 42. Agenda Item 4 addresses the long term issues
that triggered the post election violence. Hence apart from the Vision 2030 development goals and the
millennium development goals, the government also addresses issues proposed in this agenda item in
order to promote lasting national cohesion.
The 2009/10 Budget is premised on the need to urgently overcome the immediate socio-economic challenges
the country faces in order to restore the confidence of Kenyans in their country and its institutions. The
objective of the 2009/10 Budget, therefore, is to stimulate growth and protect jobs, reduce poverty, enhance
food security and protect the poor. The Minister went on to spell out the key principle that would help in
the achievement of the budget objectives. Below we assess the plausibility of the government delivering
on the principles.

3.1 Public spending grows faster than revenues, threatening macro-
    economic stability.
A stable macro environment does not only provide an enabling environment for businesses, it also works
in favour of the poor who stand to lose the most in periods of high inflation. This year, perhaps out of a
realization that the country’s capacity to raise more revenue from tax was running out while the spending
was growing faster, the Minister’s proposals focused on improving efficiency in spending and absorption
of external resources. The minister therefore proposed to reduce non priority expenditure in furniture
and fittings, utility bills and travel as well as curbing the high fuel costs by reducing the number of cars
allocated to government officials and restricting the engine capacity to less than or equal to 1800cc.
This policy recommendation has good intentions but it is questionable how they arrived at the 1800cc
figure. The government needs to put mechanisms in place to ensure government officials adhere to these
conditions.

2    Following the post election violence, international mediation began in early January 2008. The Kenya National Dialogue and Reconciliation
    was the forum for dialogue and mediation. They agreed on actions to immediately halt the violence and restore fundamental rights, as well as
    to address the humanitarian crisis that was deepening as violence spread to various regions. The mediation framework identified four central
    agenda points for this purpose. Agenda Item 4: Addresses long-term issues, including constitutional and institutional reforms; land reforms;
    poverty and inequalities; youth unemployment; national cohesion; and transparency and accountability.
12

     3.2 The slow pace of establishing the e-registry in the AG’s office
         threatens the attainment of a conducive business environment
     To promote a conducive business environment in the country, the 2009/10 budget proposed to introduce
     a Business Regulation Bill, operationalise the e-registry for business licenses, fast-track implementation of
     ongoing licensing reforms and Capital Markets Regulation to be amended to increase the share capital for
     stockbrokers and investment banks from 5m and 130m to 50m and 250m respectively among others. The
     rigorous process of registering businesses in Kenya continues to be a deterrent to investors. The allocation
     to the State Law Office for the e-Registry is warmly welcome but it should be fast-tracked as has happened
     in other countries such as Rwanda.

     3.3 The Minister proposes huge investment in key infrastructure
         facilities and public works countrywide to stimulate growth,
         create employment and reduce poverty
     In line with the Vision 2030 that proposes to increase investment in infrastructure in order to increase
     interconnectivity through a network of roads, railways, ports, airports, waterways and telecommunications,
     the Minister made substantial budgetary allocations towards infrastructure development. Notable although
     low, is the KES 3 billion allocation for a new railway line from Mombasa to Kampala. In addition, the
     development of a light commuter rail system in Nairobi and the construction of bypasses and modern
     interchanges will benefit from KES 140 billion allocated to infrastructure. The challenge, however, remains
     in the government absorption capacity of the funds. The Ministry of Roads and Public Works and others
     ministries within the infrastructure sector have over the years recorded some of the worst absorption rates.
     The Minister outlined some measures to increase the absorption capacity of budgeted donor funds from
     the current 40 per cent to 80 per cent.
     Besides the easy movement of goods and people, there are other benefits that will accrue from the heavy
     investment in infrastructure. First, increased public works in key infrastructure projects will generate a lot
     of employment particularly for the youth. It is expected that the ‘Kazi kwa Vijana’ initiative will sprout from
     this. Of the 300,000 jobs that the kazi kwa vijana programme hopes to generate 50,000 are expected to
     come from road projects and 15,000 from urban garbage collection and waste management projects.

     3.4 Doubtful financing strategy for Agenda 4
     The 2009/10 budget allocated KES 2 billion towards the realization of Agenda 4 of the national accord.
     These funds were allocated to start rolling out activities in the national accord under agenda 4. This funding,
     however, may not be sufficient given the Agenda 4’s importance to Kenya’s overall development and
     stability. For example, the proposed police reforms are estimated to cost KES 81.4 billion between 2009/10
     and 20012/13 financials but the police budget in 2009/10 is KES 2.3 billion (RoK, 2009e). Land reforms as
     outlined in the National Land Policy are expected to cost an additional KES 9.6 billion over the next the first
     6 years (RoK, 2009f). This amount is way above the annual budgetary allocation for the Ministry of Lands.
     The Kenya National Dialogue and Reconciliation (KNDR) Monitoring Project Report explains how far we
     have gone in implementing the recommendations of Kenya National Dialogue and Reconciliation (KNDR)
     (South Consulting, 2009).

     3.5 The Minister takes bold steps to promote equity and social
         stability
     The social pillar in the vision seeks to create a just, cohesive and equitable social development in a clean
     and secure environment. In line with the policies under this pillar, the 2009/10 budget proposed to expand
     economic opportunities in rural areas for employment creation, resettle IDPs, address issues under ASALs
     and make quality healthcare accessible to all Kenyans as well as improve infrastructure and quality of
     education countrywide. These policies are mainly targeted at the poor and the vulnerable members of the
     society.
13

The resettlement of IDPs has taken too long and this process should be resolved as soon as possible.
The budget also focused on ASALs where the development allocation to northern Kenya increased from
2.4 billion to 3.8 billion. Increase in the tax exempt limit for pension was another welcome move aimed
at providing relief to pensioners who are an admittedly vulnerable group. Disabled persons were also
beneficiaries in the budget.
There was a deliberate move towards fiscal decentralisation through the CDF and enhanced decentralisation
of funds to the constituencies through line ministry conditional grants. Although this policy shift has the
potential to enhance equitable distribution of resources and efficiency in spending, two main challenges
remain. These are the delays in the disbursement of funds as well as management capacity at constituency
level. It remains to be seen how the structures at constituency level will be bolstered to manage the
increased funding.

3.6 Strengthening Governance for Sustainable Development
Economic growth and development as well as a just and equitable society with equitable social development
cannot be achieved without good governance, peace and justice for all as emulated by the post election
violence. The political pillar aims at sustaining a democratic political system that nurtures issue-based
politics, the rule of law and protects all rights and freedoms of every individual and society. The 2009/10
budget stressed on the need for strengthening governance because it is the way forward in improving
public service delivery and ensuring accountability by all public officers.
To enhance accountability, the budget proposed that the government will enforce sector specific public
works benchmarks; procurement will be allowed only within established price reference, introduce strict
ethical and integrity code of behavior for all officers working on public financial management (PFM).
Some modules relevant for efficient public financial management e.g. Integrated Financial Management
Information System (IFMIS)3 are not fully operational and have not been incorporated. Within stringent
measures and sanctions vis-à-vis prudent financial management, little will be achieved with regard to
accountability.

3.7 Inadequate funding for the democratization processes –
    Constitution review and Electoral process
The Minister for Finance did not factor in funds for envisaged by-elections and the referendum expected
early next year for ratifying the new constitution. The government lead by the Prime Minister has
approached the development partners with a request to finance the referendum4. This is a confirmation
that the government is not prepared to fully fund the constitutional review process. If the negotiations
with the donors do not yield positive results, the Minister will have to revise some of the budget allocations
downwards. This also poses a threat to the ambitious government programmes outlined in the 2009/10
budget.

3.8 Slow Judicial automation and inadequate funding threaten the
    delivery of justice to all
The budget allocated KES 3.1 billion of which KES 250 million is earmarked for automation and personnel
at the High Court. Judicial automation is welcome; however more resources are needed to fast track
transcription of judgments, law reporting and operation of the registry. Similarly, more funds are needed to
fast track reforms in the judiciary including better remuneration of magistrates, recruitment of more judges
and magistrates and to expand the number of courts around the country.

3   For more information on PFM and IFMIS see treasury website on : www.treasury.go.ke
4   Nation editorial team, PM seeks donor support for Kenya referendum. The Daily Nation, 30th November 2009. Available at;
    http://www.nation.co.ke/News/-/1056/814750/-/vnhxvo/-/index.html. [Accessed 1st December 2009].
14

       4.0 Financing the budget
       The Minister presented a bold expansionary budget with the highest expenditure in Kenya’s history
       (see figure 4.1). The government intends to spend KES 865.6 billion in 2009/10 with the development
       expenditure being 30% (KES. 258.9 billion). This will be financed by a revenue target of KES 569.6 billion
       (or 22.4% of GDP). Revenue is expected to grow in tandem with real economic growth. With expenditures
       exceeding revenue, the overall budget deficit is projected at 168.2 billion (or 6.6 per cent of GDP). The
       deficit is expected to be financed by net external borrowing of KES 50.2 billion leaving about KES 118
       billion to be financed through domestic borrowing.

       Figure 4.1: Budget Financing
                                                        Budget Financing

                                   Revenue including Grants             Expenditure           Fiscal deficit

       Source: RoK, 2009b. Statistical Annex to the Budget.

       Expenditure			                          865.6 billion
       Revenue including grants		              697.4 billion
       Fiscal deficit			                       168.2 billion
       Figure 4.2 following shows the composition of revenue, expenditure and fiscal deficit for the period 2004
       to 2008. A closer look at the chart shows that the government’s fiscal deficit has been increasing over the
       years more so from 2007.The current budget deficit estimated at KES 168 billion is higher than the 2008
       deficit.
             Figure 4.2: Government Revenue, Expenditure and Fiscal Deficit
     Amount (KES millions)

                               Revenue and Grants         Expenditure        Budget deficit

       Source: RoK, 2009b. Statistical Annex to the Budget.
15

High fiscal deficit5 is not necessarily bad. If the increased expenditure is directed towards economic
development in sectors like agriculture or infrastructure as well as social sectors like education and health,
productivity would be enhanced and this would eventually accelerate growth. This will in turn increase
revenue for the government and will in future reduce the debt which will have been generated by the
high expenditure. Conversely, if the increased expenditure is directed towards consumption i.e. recurrent
expenditures, then the increase in debt will not generate extra revenue and the government will continue
getting high (unsustainable) fiscal deficits over the years.
Figure 4.3 below shows expenditure in Kenya has been increasing but of particular interest is the increase in
development expenditure particularly in the last two years. Despite the considerable increase in development
expenditure, low absorption of funds in this particular area is worrying.

Figure 4.3: Trends in Government Expenditure

       2008/09

       2007/08
Year

       2006/07

       2005/06

       2004/05
                 -        100,000    200,000    300,000    400,000    500,000    600,000 700,000       800,000

                                          Amount KES Million

                      Recurrent expenditure                 Development expenditure

Source: RoK, 2009b. Statistical Annex to the budget.

Figure 4.4: 2009/10 Expenditure estimates by sector.

                Agriculture and Rural Development                        Trade Tourism and Industry
                Physical Infrastructure                                  Environment, Water and Sanitation
                Human Resource Development                               Research Innovation and technology
                Governance Justice Law and Order                         Public Administration
                Special Programmes                                       National Security

Source: RoK, 2009d. Medium Term Budget Strategy Paper.

5       One such study – “Raghbendra, J. (2001). Macroeconomics of Fiscal Policy in Developing Countries. Australian National
       University”, gives various effects of high fiscal deficit in developing countries.
16

     Figure 4.4 above shows total budgetary allocation by Medium Term Expenditure Framework (MTEF) sectors
     in 2009/10 fiscal year. Not surprising is that the human resource and development sector has the highest
     allocation (26.9%). This sector includes education and health sectors. Physical infrastructure also has a high
     allocation of 20.6 per cent followed by the public administration sector and governance justice law and
     order sector with 11.8 per cent each.

       References
       RoK, 2009a. Budget Speech for the Fiscal year 2009/2010 (1st July-30th June).
       RoK, 2009b. Statistical Annex to the Budget Speech for the Fiscal year 2009/2010 (1st July-30th
       June).
       RoK, 2009c. Economic Survey. Kenya Bureau of Statistics. Nairobi. Government Printer.
       RoK, 2009d. The Medium Term Budget Strategy Paper for 2009/2010- 2011/12. Nairobi: Government
       Printer.
       RoK, 2009e. Report of the Task force on Police Reforms. Nairobi: Government Printer.
       RoK, 2009f. Sessional paper No. 3 of 2009 on National Land Policy. Nairobi; Government Printer.
       Kenya National Bureau of Statistics, 2007. Basic report: Kenya Integrated Household Budget
       Survey-2005/06. Ministry of Planning and National Development. Nairobi: The Regal Press Kenya
       Ltd.
       Raghbendra, J. (2001) Macroeconomics of Fiscal Policy in Developing Countries. Australian National
       University.
       Society for International Development (SID), 2004. Pulling Apart, Facts and Figures on Inequality in
       Kenya. Society for International Development, Nairobi, Kenya.
       South Consulting, 2009. The Kenya National Dialogue and Reconciliation (KNDR) Monitoring
       Project 1: Status of Implementation of Agenda Items 1-4. Draft Report. Available at: http://www.
       dialoguekenya.org/mreport.aspx. [Accessed 30 Nov 2009].
       Wambugu A. and Munga B. (2009), Growth, Poverty and Income Inequality in Kenya: Suggested
       Policy Options, KIPPRA/NESC/UNDP/Royal Danish Embassy project.
17

5.0 Sectoral analysis
The following section analyses budgetary allocations to three key sectors – education, health and agriculture.
Due to time and human resource constraints NTA Budget Analysis Team was not able to analyse all the
sectors in detail.

5.1 Education Sector

 Box 5.1: 2009/10 Budget and the International Conventions on Education

  Kenya is a signatory to a number of international conventions relating to education. These include;
     ■   The international covenant on economic, social and cultural rights of May 1, 1972, which
         requires states to remove all obstacles to completion of education by all children
     ■   The convention on the rights of the child of 1990, which obliges states to make primary
         education compulsory, available and free to all, and to take measures to encourage regular
         attendance at schools and reduce dropout rates.
     ■   The Education for All (EFA) agenda of 1990, which urges member countries to ensure all
         children have attained universal primary education by 2015
     ■   The Millennium Development Goal (MDG) No 2, which urges member countries to ensure
         that by 2015, all children are able to complete a full course of primary schooling and MDG
         No 3, which urges member countries to eliminate gender disparity in primary and secondary
         education preferably by 2005 and in all levels of education, no later than 2015.
     ■   The UN Millennium Project Task Force on Education and Gender Equality of 2005, which urges
         governments to eliminate primary user fees based on considerable evidence documenting
         their detrimental effects on the attendance of students particularly girls.
  While Kenya has made considerable gains towards meeting the targets set by international
  conventions, there is still much to be done as the country has lagged behind the targets for some
  of the conventions such as the one on eliminating gender disparity. National policies and budget
  proposals should therefore be guided by these standards.

5.1.1 The budget proposals for the Education Sector
The current budget aims at improving infrastructure and the quality of education country wide. To achieve
this objective, the Minister for Finance proposed to:
     1. Allocate an additional KES 1 billion each to free primary education and free secondary
        education tuition to take care of increased cost of goods and services
     2. Allocate KES 1.5 billion or KES 7 million per constituency for the upgrading of two primary
        schools and equipping them with water harvesting and underground water storage facilities
     3. Allocate KES 6 billion or KES 30 million per constituency for the construction of one secondary
        school as a centre of excellence.
     4. Allocate KES 1.3 billion or KES 6 million per constituency for recruiting an additional 10,500
        primary school teachers on contract or 50 primary school teachers per constituency to improve
        the quality of educational service.
     5. Allocate KES 353 million or about KES 2 million per constituency to recruit an additional 2,100
        secondary school teachers or 10 teachers per constituency on contract terms as a first step.
     6. Allocate 1.3 billion or KES 6 million per constituency toward the purchase of digital laboratory
        buses.
18

     The proposals by the Minister for Finance sit well with the national goals on education. The first proposal on
     the allocation of additional funds to free primary and free secondary tuition is aimed at the improvement
     of quality of education offered at both levels by cushioning the schools against inflationary changes that
     affect their operations. This means that the schools will always have the basic requirements for learning.
     The second and the third proposals relate to the development of school infrastructure which has remained
     a teething problem for the ministry even before the introduction of free primary education and free tuition
     in secondary schools. Additional infrastructure will improve the general welfare of pupils and make the
     learning environment more conducive. The other three proposals are similarly aimed at improving quality,
     equity and relevance of education across the country. In short, the budget proposals fit into the broader
     education sector priorities.

     5.1.2 National policies, goals and priorities in the education sector
     The provision of education and training to all Kenyans is fundamental to the success of the government’s
     overall strategy. Kenya has thus developed national plans that are geared towards meeting her educational
     goal in line with the international conventions that the country is party to. The Kenya Vision (KV) 2030
     for instance, recognises that ‘education and training for all Kenyans is fundamental to the success of the
     vision’. Further, the overall goal of the government’s five year medium term plan (2008-2012) for achieving
     the 2012 goals of the KV 2030 is to provide adequate and quality human resource necessary to deliver on
     the economic, social and political goals (Government of Kenya - RoK, 2007: 99). Prior to the development
     of the KV 2030, the Economic Recovery Strategy Paper (ERSP6) for Wealth and Employment Creation (2003)
     stated that the broad objectives of education sector interventions are to achieve 100 per cent net primary
     school enrolment rate and reduce the disparity in access and quality of education. Secondary objectives
     were to improve access and quality and to reduce disparities at all levels of education (RoK, 2003: 31).
     These objectives, as contained in the national planning documents also relate strongly to the 2009/10
     budget proposals. For example, the budget allocates more money to pay teachers, run schools and pay
     tuition. This directly feeds on the improvement of both quality, through payment of teachers and cushioning
     schools against increased prices meaning that if well utilized, learning will not be adversely affected. The
     proposal is intended to improve access given that the subsidies are likely to reduce dropout rates. Other
     proposals such as upgrading of primary schools, creation of centers of excellence, recruitment of additional
     teachers and development of ICT in schools across the country, have the intention of improving both
     quality and access in line with the national plan. This is however pegged to successful implementation of
     the budget proposals
     The Sessional Paper Number 1 of 2005 on Policy Framework for Education Training and Research (ROK,
     2005: 1) similarly documents the following; a) that the long term objective of the government is to provide
     every Kenyan with quality basic education and training including 2 years of pre-primary, 8 years of primary
     and 4 years of secondary/technical education, b) that development of quality human resource is central
     to the attainment of national goals for industrial development, c) that the realisation of universal access
     to education and training ensures equitable access to education and training for all children, including
     disadvantaged and vulnerable groups and d) that education is necessary for the development and protection
     of democratic institutions and human rights. The objectives outlined above have over the years guided
     government policies for the education sector.

     5.1.3 Challenges facing the education sector
     In order to meet these objectives, the KV 2030 identifies four key strategic areas namely, access, quality,
     equity, science, technology, and innovation as the priorities for support, based on their possible impacts on
     economic, social and political pillars of the vision (ROK, 2007: 99). Although most of the policy initiatives
     have focused on the attainment of the Millennium Development Goals (MDG) and Education for all (EFA)
     goals, in particular Universal Primary Education (UPE), stakeholders in the education sector have noted
     that the main concerns for the sector are; access, retention, equity, quality, and relevance, as well
     as internal and external inefficiencies within the education system (ROK, 2005:3). The same priorities

     6    The ERSP was the blue print that guided government’s economic policies between 2003 and 2007. The plan was prepared
         by the newly elected National Rainbow Coalition (NARC) Government after it assumed power following its win in the 2002
         general elections.
19

are highlighted in the ERSP, 2003: 31. By implication, the budget directly addresses the challenges of
access, equity, quality and remotely relevance, through the purchase of digital laboratory buses for each
constituency. The budget, however, does little to address the challenge of inefficiencies within the education
system.
Other government documents have gone further to identify specific challenges such as high costs of
schooling that deny many children schooling opportunities, internal inefficiencies within the education
system that lead to high dropout rates, as well as regional and gender disparities especially in Arid and Semi
Arid Lands (ASAL). Other challenges include relevance of the education system in meeting the needs of the
economy and the society, access to education opportunities, meeting high quality educational standards,
and improving transitional rates especially from primary to secondary levels, (ROK, 2003: 31, ROK, 2005:
1, ROK, 2007:93).
Access to education
Access to education in Kenya is said to be a function of poverty, regional and gender disparities, socio-
cultural and religious barriers such as initiation ceremonies and gender socialization. This makes it difficult
to provide equal opportunities for boys and girls. Moreover, poor policies for the provision of education,
especially at the ECD level, also limit access to education (UNICEF, 2004; Achoka, 2007, in NTA 2009).
Growth in educational infrastructure
Education infrastructure remains a key challenge that the education sector has been grappling with for
many years. School infrastructure includes classrooms, libraries, toilets, administration offices, staff rooms,
water and electricity supply facilities etc. Education infrastructure is an important aspect of education as
it improves the quality of life in school and academic results (Mwamwenda and Mwamwenda in NTA,
2009:32).
There were a total of 70,790 institutions in 2008, compared to 62,721 in 2004 (see figure 5.1). This
signifies a growth rate of 12.9 percent over the four years or an average of 3.2 percent each year. The
highest number of institutions falls in pre-primary level with 37,954 institutions, 26,206 primary schools,
6,566 secondary schools, 36 training colleges and 28 universities. Pre-primary institutions also registered
the highest growth over the four year period with the institutions increasing by 5,075 institutions. While
there was a slight increase in the number of primary and secondary schools, training institutions and
universities remained the same over the period 2004-2008 (KNBS, 2009: 47).

Figure 5.1: Number of Registered Educational Institutions
                               40
                               35
                               30
                               25
                Number (000)

                               20
                               15
                               10
                                5
                                0
                                     2004               2005     2006         2007          2008
                                                                   Years

                                    Pre-Primary                Primary                   Secondary
                                    Training colleges          Universities

Source: Economic survey 2009
20

     Growth in Teacher Training Institutions
     Besides the general increase in the educational institutions over the four year period, government records
     further show that there is a worrying trend in the number of secondary training colleges. These stabilized at
     3 institutions between 2004 and 2007, but they surprisingly reduced to only 2 institutions in 2008 (KNBS,
     2009: 47). Amidst this reduction in training institutions, the total number of trained primary teachers
     declined from 176,381 in 2004 to 170,059 in 2008, while the untrained reduced from 1,803 in 2004 to
     1,514 in 2007. Similarly, trained secondary school teachers7 fell from 46,479 in 2004 to 42,867 in 2008,
     while the untrained also fell from 1,105 in 2004 to 149 in 2008. The Pupil Teacher Ratio (PTR) in primary
     schools rose from 44:1 in 2007 to 45:1 in 2008 perhaps due to the reduction in number of teachers. There
     is a high disparity among districts with some recording a low PTR of 24:1 while others have a high PTR
     of 94:1. Similarly, the student teacher ratio in secondary schools rose from 23:1 in 2007 to 28:1 in 2008.
     On average, 87 out of the 158 districts in 2008 have a higher PTR than the national average. This paints a
     gloomy picture at national education goals of improving the quality of education (KNBS, 2009).
     Number of ECD centres and primary schools by province
     Early childhood development centres (ECDC) and primary schools are important in ensuring access to basic
     education for all children in Kenya. Their distribution across the eight provinces is thus an important factor
     towards meeting this goal. Primary schools increased in all provinces between 2003 and 2007 (see table
     5.1). ECD centres, however, registered a drop in North-Eastern Province within the same period.

     Table 5.1: Educational institutions by Province 2003 and 2007

                                           2003                                 2007
         Province            ECD                Primary           ECD                Primary
         Coast                   2,013              1,155             3,279              1,698
         Central                 3,515              2,250             4,421              3,189
         Eastern                 5,306              4,389             6,667              5,028
         Nairobi                 2,044                289             2,619              1,235
         R. Valley               8,100              5,271             9,492              7,165
         Western                 3,287              2,106             4,314              2,566
         Nyanza                  4,635              3,948             6,098              4,818
         N.Eastern                 555                227                372               405
         Total                 29,455             19,635            37,263             26,104

     Source: NTA 2009

     The burden of developing education infrastructure has for most of the past been shouldered by parents,
     communities and sponsors. Schools have therefore contended with poor infrastructure, a problem that
     the government considers as an impediment to better quality education and universal access goals. In
     responding to this, the government established the primary school infrastructure investment programme
     within the Kenya Education Sector Support Programme (KESSP), which is aimed at improving access,
     quality and equity in education. The programme runs for a period of 5 years 2005-2010 (ROK, 2005: xii). It
     is important to closely monitor the extent to which the government is achieving its objective of improving
     and expanding primary school infrastructure in the target semi arid lands, urban slums and pockets of
     poverty, where disparity in access to education is high.
     Infrastructure development
     In the meantime, government has taken bold steps to improve access including provision of free primary
     education and free secondary tuition. These measures have increased school enrolment rates at both levels.
     In addition, the government has continued to support the construction of new classrooms under the school
     infrastructure investment programme of the KESSP. Under the programme for instance, the government
     7       These figures only give public schools data and they exclude teachers on study leave, disciplinary cases and those performing non teaching
            duties
21

spent KES 2.853 billion on primary school infrastructure from a planned amount of KES 4.2 billion for the
period 2005/06-2007/08 financial years (NTA, 2009). The report further notes that one school out of the
planned 71 is being built; rehabilitation of 3,081 schools has been undertaken which has included 4,000
new classrooms and refurbishing of 10,000 others. Further, 12,000 toilets with a corresponding number of
hand washing points, 50 water tanks, 25 kitchens and 132 administration blocks and school fences have
been built, while 15,000 desks have been provided.
Enrolment Rates
As a result of these interventions perhaps, the KNBS (2009):48, notes that overall primary school enrolment
rose by 2.8 percent to 8.6 million in 2008. The non-formal education (NFE) programme, now targeted by
the ministry through KESSP also registered an increase in enrolment from 154,000 in 2007 to 161,231 in
2008, with most enrolments taking place in Nairobi slums and Arid and semi arid lands (ASAL) districts.
Notably, the Dakar Framework for Action, (20008), and the Decade for Literacy (20039), have emphasized
the importance of non formal basic education, while the Jomtien conference of 1990 gave birth to several
international commitments to guide provision on NFE (NTA, 2009:38).
The Gross enrolment rate (GER)10 and the Net enrolment rate (NER11) remain the most easily measurable
indicators of progress towards UPE and EFA. The GER increased from 88.2 percent in 2002 to 102.8 percent
in 2003, and then rose to 107.2 percent in 2005 and 107.6 percent in 2007. The GER for boys and girls
similarly increased from 88.9 percent and 87.5 percent in 2002 to 110.7 per cent and 104.4 percent in
2007 respectively. The Primary NER similarly increased from 77.3 per cent in 2002 to 91.6 percent in 2007.
The NER for boys and girls stood at 86.5 per cent respectively in 2006 (NTA, 2009:14).
While the number of Kenya Certificate of Primary Education (KCPE) candidates decreased by 1.3 percent
from 704,918 in 2007 to 695,728 in 2008 possibly due to disruptions caused by the post election violence,
transition rates to secondary school improved marginally from 59.6 percent in 2007 to 59.9 percent in
2008 (KNBS, 2009). There was also a slight improvement in the average textbook pupil ratio from 1:3 to
1:2 as a result of grants towards purchase of instructional materials.

Figure 5.2: Primary enrolment by gender

                               5000

                               4000
                Number '000'

                               3000

                               2000

                               1000

                                  0
                                      2004          2005             2006             2007            2008
                                                                     Year

                                                              Boys                    Girls

Source: Economic survey 2009

8     The Dakar Framework is a collective commitment to action. Governments have an obligation to ensure that EFA goals and targets are reached
     and sustained. This is a responsibility that will be met most effectively through broad-based partnerships within countries, supported by
     cooperation with regional and international agencies and institutions (http://www.unesco.org/education)
9    Convinced that “literacy is crucial to the acquisition, by every child, youth and adult, of essential life skills”, the United Nations Literacy
     Decade (UNLD) 2003-2012 was declared by the United Nations General Assembly in December 2001. It aims to support the goal of
     achieving education for all by addressing the more than 774 million adults and 72 million out-of-school children in this world who are still
     deprived of literacy and of access to literacy learning activities.
10   Gross enrolment ratio is the ration of the number of children enrolled in primary schools, regardless of age, to the number of children aged
     between six and 13 years, which correspond to the official age cohort.
11    Net primary enrolment rate in primary education is the number of children of school going age as defined by International Standard
     Classification of Education (ISCED 97) who are enrolled in primary school to the total population of children of official school age
You can also read
Next slide ... Cancel