By P.N. Makau BSD/MOF

1. Determination of Budget ceilings and Distribution Among competing priorities – a Sector Based Appraoch By P.N. Makau BSD/MOF

2. Introduction • The budget is no longer an accounting document that the Minister for Finance lays before parliament to account for resources he intents to raise and how he intents to spend but is now an economic policy documents that conveys the governments policy in terms of revenue and expenditure • It is also a political document which conveys the implementation of the policies of the government of the day.

3. Determination of the Overall resource envelope • Growth Target: Through the KTM the macro working group estimates the economic growth target for the medium term. • Inflation Target: The macro working group in close consultation with the central bank make estimates of the desired level of inflation rate

4. Determination of the Overall resource envelope • Private sector credit: The macro working group in close consultation with the central bank make estimates of the desired level of private sector credit • Credit to government. This is determined as a residual and forms the Net domestic borrowing. • Using the estimated growth target and other government policy the Macro working group in consultation with the Economic affairs department of MOF and KRA the revenues are estimated

5. Determination of the Overall resource envelope • Using the estimated growth target and other government policy the Macro working group in consultation with the Economic affairs department of MOF and KRA the revenues are estimated • Estimation of Foreign available funding broken into projects-grants and loans and programme finance

6. Determination of the Overall resource envelope • Thus the overall resource envelope is equal to: • Ordinary Revenue+Foreign Resources+Net Domestic Borrowing • It may need to be noted that Foreign Resource may be specific or tagged

7. Distribution Framework • Non-discretionary expenditures take first charge • Non-discretionary includes: Pensions, Other CFS-Constitutional offices expenses, public debt payments and any other that may be deemed as non discretionary payment

8. Distribution Framework • Discretionary Expenditures are then equal to: Total/Overall Resource Envelope -Non discretionary Expenditures

9. Distribution Framework • Discretionary expenditures are made up of Recurrent and Development • In this framework if the foreign financed is tagged then it forms automatically the development budget

10. Bottom up process inputs to discretionary Expenditures • Government policy: which is government spending needs to achieve poverty goals • The cost of the priority spending often reflected/ estimated through MTEF process – MPER, sectoral discussions and other government documents

11. Bottom up process inputs to discretionary Expenditures • Through the various documentations the requirements can be categorized as discretionary priority government spending and discretionary non priority spending

12. The point of interaction • The framework set out target of discretionary expenditures matched with the total bottom up requirements. • If the requirements are higher than the framework then the decisions made are:

13. Making trade OFFs • Is there likely to be additional external financing i.e. Budget support if no then • Reconsider additional revenue effort • What happens if credit to government is increased • Discretionary non-priority spending • Reconsider the poverty goals/priority spending

14. Making trade OFFs • Once agreed upon the necessary adjustments are made to the framework and the overall discretionary spending agreed with the specific allocations to priorities also agreed upon

15. Constraints in Framework for resource allocation • Policy :- Macro targets, revenues, priority spending, non discretionary spending • Lack of proper costing of programmes • Fiscal indiscipline

16. Constraints in Framework for resource allocation • Capacity issues • Weak process of budget negotiation

17. Conclusion • The science of determination, and distribution of available resources among competing needs requires that there exists a well developed model for forecasting, a well developed framework of negotiation, a well developed classification of the government budget i.e structure, a well developed and programmed process of costing of activities and programmes and of course fiscal discipline underpined by political backing of clear policy.

18. Thank You