IMF now faults re­gion’s bud­get prepa­ra­tion

Process has been termed as nar­row, re­sult­ing in un­re­li­able es­ti­mates

The East African - - BUSINESS - By GE­ORGE KAMAU Spe­cial Cor­re­spon­dent

The In­ter­na­tional Mon­e­tary Fund has faulted the bud­get-mak­ing process in Kenya, Uganda and Tan­za­nia, terming it nar­row and for­mal­is­tic with­out any con­nec­tion with fu­ture tar­gets, re­sult­ing in un­re­li­able es­ti­mates.

The IMF has asked the min­istries of fi­nance to em­ploy staff with skills in eco­nomics and fi­nance and a good un­der­stand­ing of gov­ern­ment pro­grammess to help in pre­par­ing bud­gets that will en­sure mid and long-term goals are achieved.

Cur­rently, line min­istries make their cash re­quests to the Trea­sury whose only con­cern is whether the min­istry fac­tored in its es­ti­mates rel­e­vant gov­ern­ment poli­cies, the im­pact of new leg­is­la­tion, and in­fla­tion.

In con­trast, the cen­tral bud­get of­fice of more ad­vanced coun­tries re­quires line min­istries to ex­plain their poli­cies and the es­ti­mated eco­nomic and so­cial im­pact of the poli­cies.

The IMF also be­moaned the lack of re­li­able data re­sult­ing in bud­gets be­ing flawed.

“Data sug­gest that the na­tional author­i­ties tend to adopt al­most the same nom­i­nal GDP and in­fla­tion fore­casts re­gard­less of eco­nomic con­di­tions and trends. Kenya, Tan­za­nia, Uganda, and Zam­bia have ben­e­fit­ted sub­stan­tially from Imf-sup­ported pro­grammes since the mid-1990s. Once the IMF pro­grammes ended, the qual­ity of the fore­casts ap­pears to have wors­ened,” said the Fund in their re­port that also cov­ers Namibia and South Africa.

Fi­nance min­is­ters are com­pelled to make sup­ple­men­tary bud­gets to cover for weak­nesses in ex­pen­di­ture, with re­cur­rent costs over­shoot­ing es­ti­mates and de­vel­op­ment ex­pen­di­tures lag­ging be­hind tar­get.

Kenya’s sup­ple­men­tary bud­get this year was of $610 mil­lion while Uganda re­quested an ad­di­tional $145 mil­lion un­der­lin­ing the short­falls.

The Kenyan gov­ern­ment has pre­vi­ously threat­ened to stop pass­ing sup­ple­men­tary bud­gets.

Fi­nance min­is­ters are ex­pected to pre­pare an­nual bud­gets in the con­text of the coun­try’s medium term goals, but sel­dom do due to the com­pet­ing present needs of each min­istry.

“The medium term pro­jec­tions are of lim­ited util­ity. It is not clear that any­one pays much at­ten­tion to what goes into gen­er­at­ing th­ese, or that Par­lia­ment ex­er­cises any over­sight. We ba­si­cally still bud­get on an an­nual ba­sis, but with ex­tra fig­ures in the doc­u­ment,” said Ja­son Lakin, the head of re­search at In­ter­na­tional Bud­get Part­ner­ship Kenya.

A sur­vey over 15 years showed that the three East African coun­tries tend to un­der­es­ti­mate their bud­get deficits and over­es­ti­mate donor aid. In­fla­tion is also un­der­es­ti­mated en­sur­ing it re­mains within the Cen­tral Bank tar­get, which is not real­is­tic.

Tax col­lec­tion agen­cies are usu­ally un­der pres­sure to col­lect more, with tar­gets in­creased an­nu­ally even when pre­vi­ous ones have been missed.

Cab­i­net min­is­ters were said to be in the dark con­cern­ing their min­istry fi­nances re­sult­ing in lack of ac­count­abil­ity.

“Most cab­i­nets in the case coun­tries are not ac­cus­tomed to play­ing a sig­nif­i­cant role in strate­gic pol­icy mak­ing. They sel­dom ex­ert a strong in­flu­ence on over­all fis­cal man­age­ment, and do not have ac­cess to cred­i­ble data and pol­icy anal­y­sis with which to make in­formed de­ci­sions,” said the IMF.

Pic­ture: File

Kenya’s Trea­sury Cab­i­net Sec­re­tary Henry Rotich on his way to Par­lia­ment to present the an­nual bud­get in March.

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