State Agencies Fail to Spend Sh142 Billion Budget Funds

Business Daily (Nairobi)

Allan Odhiambo

25 May 2011

Treasury is expecting the return of a whopping Sh142.5 billion in unspent money to its vaults in the next couple of months – clearly demonstrating the inability of government agencies to make good use of Budget funds.

The latest government spending report shows that the agencies had accumulated Sh79 billion in unused recurrent funds, barely a fortnight before Finance minister Uhuru Kenyatta unveils next year’s fiscal plan on June 8.

The report covering the period up to May 20 shows that another Sh63.5 billion lies with the agencies in unused development funds, even as thousands of projects remain in limbo for lack of financing.

Top on the list of under-spenders is the Ministry of Education, which had not made good use of Sh23.5 billion of the funds allocated to it in last year’s Budget by mid this month. This is despite the fact that Education is one of the departments whose performance remains way below standards with financing as the often cited obstacle.

Though inability to spend is often the culmination of many factors — including the cumbersome procurement procedures — recent assessments have shown that some departments lack the manpower and skills to spend the money.

That the Ministry of Education is taking Sh23.5 billion back to the Treasury at a time when the Teachers Service Commission (TSC) has been crying over its inability to hire more teachers to meet the shortage in government schools only speaks of the massive distortion in budget priorities. Also in the list of departments that failed to make good use of the billions of allocated funds are the Ministry of Provincial Administration and Internal Security (Sh11.3 billion), the Department of Defence (Sh10.7 billion), Ministry of Higher Education, Science and Technology (Sh8.2 billion) and the Ministry of Roads (Sh7.8 billion).

The Water and Irrigation ministry is also expected to return Sh6.3 billion to the government coffers although millions of Kenyans still have no access to clean and reliable supply of water. Kenya also faces a shortage of food – a constant reminder of the country’s heavy reliance in rain-fed agriculture.

At Sh142.5 billion, the pile of unused funds is nearly equal to the Sh160 billion Budget deficit that the government has mainly covered with heavy borrowing from the domestic markets at high cost to the economy.

Because of the high interest charges incurred in debt financing, the failure to spend large amounts of allocated funds means tax-payers are being made to carry additional financing burden even after they have made available enough funds to execute all government plans.

The latest spending report shows that the Interim Independent Boundaries Review Commission (IIBRC), whose term ended late last year, was the only body that used the entire Sh124 million it was allocated.

Treasury insists that the inability to spend allocated funds is mainly the result of cumbersome procurement procedures.

“Procurement remains a big issue for many agencies,” said Mr Henry Rotich, the deputy director of economic affairs at Treasury. “The elaborate procedures involved have often resulted in a miss-match between the time of funds approval and actual implementation of programmes.”

Rampant corruption in government forced Kenya to pass one of the most stringent procurement laws that come with elaborate integrity and fairness checks as well as lengthy grace periods for losing bidders to contest the awards.

Failure to spend large sums of money is however expected to put Mr Kenyatta on the spot when he unveils next year’s expenditure plans against a huge rise in demand for funds partly needed to set up a devolved systems of government as provided for under the new Constitution.

The minister may opt to cut back on allocations to ministries and departments that have persistently failed to use their share of the cake and instead transfer the money to more deserving agencies.

Treasury plans to roll out a Sh978.7 billion budget for the next financial year – two percentage points lower than this year’s.

“The unpredictable spending patterns pose a huge budget-making challenge especially to our desire to match government borrowing with cash plans,” Mr Rotich said.

Treasury faces a Sh202 billion deficit in the next financial year based on revenue projections of Sh777.3 billion.

This signals a possible deepening of government borrowing to cover for the shortfall – a move that is likely to drive up interest rates to new highs.

Latest reports that the government was Sh100 billion below its revenue target at end of April have, for instance, seen the three-month T-Bill rate jump to 6.4 per cent — above the benchmark central bank rate (CBR). Some analysts have however questioned the “accuracy” of the expenditure estimates released by Treasury.

“Treasury lacks an authentic mechanism to accurately monitor use of funds,” said Mwalimu Mati of the Mars Group – a corruption watchdog. “The auditor-general has consistently pointed out to lack of reconciliation in the books of account. A lot of money goes unaccounted for within the system because nobody seems to have an efficient tracking system,” he said

Treasury plans to have all cash allocations to government ministries sent to a single bank account at the Central Bank of Kenya to improve monitoring of expenditure.

“Such an arrangement should enable a ministry or department to surrender its allocation for use elsewhere as it sorts out its issues,” Mr Rotich said.

Currently, each ministry has its own account where Budget funds are credited, making it hard for THE Treasury to monitor the balances in real-time. This has resulted in a situation where the government borrows money even when some ministries have money in their accounts.

Financial management

Mr Rotich said the single account model would work well with the integrated financial management information system (IFMIS), a new platform that connects all ministries electronically but has not been fully used.

“IFMIS has a cash management module that can perfectly gel with the single account system and bring forth the desired efficiency,” he said.

Treasury aims to save up to Sh70 billion annually through efficiency improvement in procurement, budgeting and revenue reconciliation.

Though IFMIS has been in the pipeline for more than a decade, it has failed to take off, largely due to lack of political goodwill and resistance from beneficiaries of the inefficient processes. Uncoordinated accounting and budgeting system makes its easy for dishonest officers to collude with suspected cartels in defrauding the government.

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