26Fiscal responsibility principles
(1) In addition to the fiscal responsibility principles set out in section 15 of the Act, the following fiscal responsibility principles shall apply in the management of public finances—
- (a) national government's expenditure on the compensation of employees (including benefits and allowances) shall not exceed 35 percent of the national government's equitable share of the revenue raised nationally plus other revenues generated by the national government pursuant to Article 209 (4) of the Constitution;
- (b) for the avoidance of doubt, the revenue referred to in paragraph (a) shall not include revenues that accrue from extractive natural resources, including oil and coal;
- (c) pursuant to the provision of section 50(2) of the Act, the public debt shall not exceed ten trillion shillings;
- (d) the annual fiscal primary balance shall be consistent with the debt target in paragraph (b);
- (e) for avoidance of doubt, the requirement under section 15(2)(a) of the Act shall exclude the loan redemption receipts for on-lent loans but shall include loan interest receipts and penalties on loans; and
- (f) pursuant to section 15(5) of the Act, the national government expenditure on development shall be at least thirty percent in line with the requirement under Section 15(2)(a) of the Act;
- (g) if the national government does not achieve the requirement of regulation 15(l)(f) above at the end of that financial year, the Cabinet Secretary shall submit a responsibility statement to Parliament explaining the reasons for the deviation and provide a plan on how to comply with the provisions of section 15(2)(a) of the Act in the subsequent years.
(2) The Cabinet Secretary shall, in line with prudent management of risks envisioned in section 15(2)(e) of the Act, in the budget policy statement, 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 and shall further include—
- (a) fiscal risks arising from macroeconomic shocks, including matters touching on real GDP growth, inflation, commodity prices, and interest and exchange rates and adverse impacts from regional and international economy;
- (b) potential policy decisions affecting revenue, tax payer behavioural responses and court decisions that are likely to affect revenue bases and overall tax collections and revenue and government income, which may include tax concessions (or tax expenditures), increase in tax rates, tax minimisation and avoidance by tax payers and rates;
- (c) 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;
- (d) potential capital decisions that are risk to the fiscal forecasts only to the extent that they cannot be managed within existing national government balance sheet;
- (e) matters dependent on external factors such as the outcome of negotiations or international obligations; and
- (f) a list of contingent liability, including debt guarantees, pension liability and pending bills.
(3) Despite the provisions of paragraph (2) of this regulation, the Cabinet Secretary may exempt from disclosure items of risk if in his or her opinion the disclosure—
- (a) may prejudice substantial economic interests of Kenya, security or defines of Kenya, International relations of the government and on-going litigation and negotiation; or
- (b) may compromise the government in a material way in negotiation, litigation or commercial activity; or
- (c) may result in a material loss of value to the government.
(4) The Cabinet Secretary may 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 shall be approved or the situation is likely to 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;
- (d) any other matters the National 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.
27Budget Policy Statement
(1) For the avoidance of doubt, the Budget Policy Statement submitted under section 25(2) of the Act, shall contain an assessment of the current state of domestic economy by—
- (a) providing an assessment of the impacts of regional and international economy on the medium macroeconomic framework and its outlook;
- (b) indicating allocation of available resources between the national and county levels of government and among county governments;
- (c) providing a macroeconomic framework underlying the budgetary and fiscal policy over the medium term;
- (d) providing a medium-term fiscal framework defining a top-down aggregate resource envelope;
- (e) providing a statement of fiscal responsibility principles, as specified in the Act and these Regulations and indicating whether the fiscal strategy adheres to these principles; and
- (f) providing a summary of programmes that are of national interest for the forthcoming year.
(2) In addition to the provisions under section 25(4) of the Act, the Budget Policy Statement shall contain a fiscal risk statement, including, any commitments and contingent liabilities not included in the fiscal forecasts, and all other circumstances which may have a material effect on the fiscal and economic forecasts and which have not already been incorporated into the fiscal forecasts as well as information on the losses and outstanding payments of the State Corporations.
(3) Before tabling a report containing recommendations on the Budget Policy Statement for adoption by Parliament in accordance with section 25(7) of the Act, the relevant committee of Parliament shall seek the views of the Cabinet Secretary on its recommendations.
(4) Once the Budget Policy Statement is adopted by Parliament, it shall serve as the basis of expenditure ceilings specified in the fiscal framework.
(5) The ceiling for the development expenditure and personnel spending of the national government budget shall be approved by Parliament and be binding for the next two budget years.
(6) The National Treasury shall include a statement explaining any deviation to the provisions of paragraph (4).
28Macroeconomic framework
The macroeconomic framework shall contain information on the macroeconomic situation and forecasts for—
- (a) the current budget year and three further years and actual out-turns for the previous budget years including—
- (i) gross domestic product and its components; (ii) consumer prices and gross domestic product deflator; (iii) current account position of the balance of payments; (iv) savings and investment balance;
- (v) assumptions underpinning the forecasts; and
- (b) the medium term macroeconomic forecasts affecting fiscal policy.
29Contents of a fiscal framework
(1) The fiscal framework in the Budget Policy Statement shall contain—
- (a) updated forecasts expressed in Kenya shillings and as a percentage of gross domestic product for the current budget year and three further years and actual results for the previous budget years for the consolidated general 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 public debt and publically guaranteed debt; (vi) key assumptions on which the above numbers are based; (vii) sensitivity analysis taking account of possible changes in macroeconomic and other conditions; and (viii) any other information the Cabinet Secretary 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 debt sustainability; and (iii) expenditure policy, including expenditure priorities, aggregate expenditure intentions, including for the consolidated budget, county consolidated budgets; and expenditure ceilings and other targets or limits implied by or required by the fiscal responsibility principles;
- (d) an analysis of the consistency of the updated fiscal strategies with the previous fiscal strategies, providing an explanation of any significant changes.
(2) The Cabinet Secretary shall gazette effective dates and give general guidelines and formats for preparing a consolidated general government accounts for statistical purposes.
30Revisions to the fiscal framework
The fiscal framework in regulation 29, may be revised as a result of—
- (a) a significant and unexpected change in macroeconomic indicators and assumptions; or
- (b) policy changes arising from change of government.