25Fiscal responsibility principles
(1) In addition to the fiscal responsibility principles set out in section 107 of the Act, the following fiscal responsibility principles shall apply in the management of public finances—
- (a) the County Executive Committee Member with the approval of the County Assembly shall set a limit on the county government's expenditure on wages and benefits for its public officers pursuant to section 107(2) of the Act;
- (b) the limit set under paragraph (a) above, shall not exceed thirty five (35) percent of the county government's total revenue;
- (c) for the avoidance of doubt, the revenue referred to in paragraph (b) shall not include revenues that accrue from extractive natural resources including as oil and coal;
- (d) the county public debt shall never exceed twenty (20%) percent of the county governments total revenue at any one time;
- (e) the county annual fiscal primary balance shall be consistent with the debt target in paragraph (d);
- (f) the approved expenditures of a county assembly shall not exceed seven per cent of the total revenues of the county government or twice the personnel emoluments of that county assembly, whichever is lower;
- (g) pursuant to section 107(5) of the Act, if the county government actual expenditure on development shall be at least thirty percent in conformity with the requirement under section 107(2)(a) of the Act;
- (h) if the county government does not achieve the requirement of regulation 25(1)(f) above at the end of the financial year, the county executive committee member for finance shall submit a responsibility statement to county assembly explaining the reasons for the deviation and provide a plan on how to ensure annual actual expenditure outturns as well as medium term allocation comply with the provisions of Section 107 (2) (a) of the Act and these regulations in the subsequent years; and
- (i) the compliance plan above shall be binding and the county executive committee member for finance shall ensure implementation.
(2) In line with prudent management of risks envisioned in section 107(2)(f) of the Act, the County Executive Committee Member shall in the County Fiscal Strategy Paper include a statement of fiscal risks outlining the potential policy decisions and key areas of uncertainty that may have a material effect on the fiscal outlook and the statement shall include—
- (a) potential policy decisions affecting revenue, tax payer behavioural responses and court decisions that are likely to affect revenue bases and overall tax and revenue collections and government income, including tax concessions ('r’ tax expenditures), increase in tax rates, tax minimisation and avoidance by tax and rates payers;
- (b) potential policy decisions that could increase or decrease expenses depending on decisions taken, and which constitute risks to the fiscal forecasts only to the extent that they cannot be managed within existing baselines or budget allowances;
- (c) potential capital decisions that are risks to the fiscal forecasts only to the extent that they cannot be managed within existing county government balance sheet;
- (d) matters dependent on external factors such as the outcome of negotiations or international obligations; and
- (e) a list of contingent liability including debt guarantees.
(3) The County Executive Committee Member shall disclose the specific fiscal risks if—
- (a) their impact in his or her view is significant enough;
- (b) a decision has not yet been taken but it is reasonably possible (but not probable) that the matter will be approved or the situation will occur;
- (c) it is reasonably probable that the matter will be approved or the situation will occur, but the matter cannot be quantified or assigned to particular years with reasonable certainty; and
- (d) any other matters, the County Treasury considers, using their best professional judgement, that the matters may have a material effect on the fiscal and economic outlook, but are not certain enough to include in the fiscal forecasts.
26County Fiscal Strategy Paper
(1) For the avoidance of doubt, the County Fiscal Strategy Paper submitted under section 117 of the Act, shall contain an assessment of the current state of the county economic environment which may include—
- (a) the medium term macroeconomic framework and its outlook as contained in the Budget Policy Statement and how it impacts on the county economic environment;
- (b) a medium-term fiscal framework defining a top-down aggregate resource envelope and broad expenditure levels;
- (c) indicative allocation of available resources among county government entities;
- (d) the economic assumptions underlying the county budgetary and fiscal policy over the medium term; and
- (e) a statement of fiscal responsibility principles, as specified in the Act and these Regulations indicating whether the fiscal strategy adheres to these principles.
(2) In addition, county fiscal strategy paper shall contain a fiscal risk statement as provided for under regulation 25.
(3) Before tabling a report containing recommendations on the County Fiscal Strategy Paper for adoption by the County Assembly in accordance with section 117(6) of the Act, the relevant committee of the County Assembly shall seek the views of the County Executive Committee member on its recommendations.
(4) Once the County Fiscal Strategy Paper is adopted by the County Assembly it shall serve as the basis of expenditure ceilings specified in the fiscal framework.
(5) The County Executive Committee member shall submit a copy of the adopted County Fiscal Strategy Paper to the National Treasury.
(6) The ceiling for the development expenditure and personnel spending of the county government budget shall be approved by the County Assembly and be binding for the next two budget years.
(7) The County Treasury shall include a statement explaining any deviation to the provisions of paragraph (4) of this regulation.
27Contents of a fiscal framework
(1) The fiscal framework in the County Fiscal Strategy Paper shall contain—
- (a) updated forecasts expressed in Kenya shillings for the current budget year and three further years and actual results for the previous budget years for the consolidated county government budgets for—
- (i) level of budgetary revenues by classification of the main categories of revenues; (ii) level of budgetary expenditures by economic and functional classifications; (iii) capital expenditures; (iv) the overall balance and primary balance position;
- (v) level of county public debt; (vi) sensitivity analysis taking account of possible changes in macroeconomic and other conditions; and (vii) any other information the County Executive Committee Member determines is material to fiscal strategy;
- (b) an explanation of the fiscal policies in relation to fiscal responsibility principles, and any temporary measures to be implemented to ensure compliance, if necessary;
- (c) an analysis and explanation of—
- (i) revenue policy, including planned changes to taxes and policies affecting other revenues; (ii) deficit and debt policy, including an analysis of county debt sustainability; and (iii) expenditure policy including expenditure priorities, aggregate expenditure intentions, including the county consolidated budgets, and expenditure ceilings and other targets of limits implied by or required by the fiscal responsibility principles; and
- (d) an analysis of the consistency of the updated fiscal strategies with the previous fiscal strategies, providing all explanation of any significant changes.
(2) The County Executive Committee Member shall gazette effective dates and give general guidelines and formats for preparing a consolidated county government accounts for statistical purposes.
(3) The guidelines and formats under paragraph (2) shall be in conformity with the ones issued by the Cabinet Secretary.
28Revision to the fiscal framework
The fiscal framework in regulation 27, may be revised as a result of—
- (a) a significant and unexpected change in county macroeconomic indicators and assumptions;
- (b) policy changes arising from change of government.