Public Finance Management (National Government) Regulations — subsidiary to Chapter 12
The Cabinet Secretary shall gazette the financial, accounting and reporting formats for use by national government entities soon after these regulations become effective.
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EXPLANATORY MEMORANDUM TO THE PUBLIC FINANCE MANAGEMENT (NATIONAL GOVERNMENT) REGULATIONS, 2015
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The purpose of these Regulations is to:
The process of developing a comprehensive PFM Regulations started in 2012 after enactment of the Public Finance Management Act (Cap. 412A) which consolidated all Public Finance Management legislations catering for both the National and County Governments.
The development of the PFM Regulations, 2014 was guided by the following considerations;
These PFM Regulations, 2015 are therefore firmly anchored in Chapter 12 of the Constitution and gives effect to the provisions of the Public Finance Management Act (Cap. 412A).
Parliament enacted the Public Finance Management (PFM) Act (Cap. 412A) in August, 2012 and over the past two years Kenya has been rolling out devolution as envisaged in the Constitution. The Act on its own, however, is not sufficient since it does not provide guidelines on all matters relating to public finance management at the national and county level. In order to provide further clarity on various aspects of public finance management, it is therefore necessary to have regulations.
An efficient and effective PFM system is a necessary condition for achieving Vision 2030 and our development objectives. Investors, both foreign and local, require assurance that a country's PFM system can be relied upon to maintain fiscal discipline and in particular contain public debt both at the National and County level. Without a credible public financial management system, our ability to borrow or even attract donor funds will be curtailed. In addition, an effective PFM system is very critical in supporting the mobilization of resources to be equitably shared between the two levels of government.
In order to make the regulations user friendly and to capture the unique needs of the two levels of government, two volumes of Regulations have been prepared — one for the National Government and the other for the County Governments. The provisions of Parts I to XVI in the two sets of Regulations are largely mirrored but tailored to each level of government. Parts XVII onwards, however, include provisions that are specific to each level of government.
Further, there is need to ensure prudent use of public resources in line with Article 201 of the Constitution by providing ceilings in both the Public Finance Management Act, 2012 and PFM (County) Regulations, 2014 for expenditures of County Assemblies.
It is considered that the provisions of the proposed Public Finance Management (National and County Governments) Regulations will provide a sufficient level of economic, fiscal and financial detail and adequate time for the legislatures at the National and County Governments to perform their oversight role in an effective manner.
On the basis of the foregoing, it is considered prudent to anchor the fundamental concepts of a modem public financial management system and its application in Kenya in a comprehensive PFM law.
Some of the salient features of these regulations are:—
• The Regulations provide additional Fiscal responsibility principles such as— º compensation of national and county government employees shall not exceed 35% of either level of government equitable revenue share; º 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; and º national public debt shall not exceed 50% of GDP in terms of NPV among others; • Provides for expenditures before approval of budget estimates by national and county assemblies under extreme circumstances. • Provides any request for expenditures from the Contingencies Fund to have a certificate of the relevant Cabinet Secretary confirming compliance with PFM Act provisions. • Provides all Government Bank Accounts for both the National and County Governments will be held at the Central Bank of Kenya except where the cabinet Secretary has expressly granted exemption and approved. • Provides that the Cabinet Secretary shall provide further guidelines for loans and advances including benefits and allowances for public officers. • Provides for lease financing transactions by accounting officers. • Provides for equitable transfers before approval of County Allocation of Revenue Bill. • Provides for various thresholds for approval of losses and write-offs including responsibility for Accounting Officers, Cabinet Secretary, Cabinet and Parliament. • Provides for guiding principles for national and county government borrowing; borrowing purposes and objectives of public debt management, the criteria for issuance of government securities both domestic and external, sets the overall debt limit for the country at 50% of the net present value of GDP while the debt limit for county governments is set at 20% of the audited total annual revenue and approved by the county assembly. • Provides for establishment of a Sinking Fund for debt redemption both levels of government • Provides for criteria for establishment of public funds, management and winding up of a national public fund or a county government public fund. • Provides the guiding principles for establishment of state corporations or county corporations, criteria for establishment of a state or county corporations as well as dissolution of state corporations; evaluation of state or county corporation performance. • Provides for the powers of the Cabinet Secretary to gazette financial, accounting and reporting formats.
The PFM Regulations have taken into account the views of key stakeholders such as the Commission on Revenue Allocation, the Commission for the Implementation of the Constitution, Accounting Officers, Council of Governors, County Executive Committee Members of finance, civil society, the general public and international and local experts on public financial management.
It is important to appreciate that one of the key recommendation from different stakeholders was to separate the Regulations governing National and County levels of Governments.
In order to address this recommendation, the Regulations were separated to deal each level of Government, hence the reason why we have submitted two volumes of Public Finance Management Regulations; PFM (National Government) Regulations and PFM (County Government) Regulations. This will give flexibility on the application of the Regulations to each level of Government and ensure maximum impact of the Regulations on public finance accountability architecture.
The National Treasury will sensitize stakeholders including Parliament, accounting officers of national and county governments and the general public, on the provisions of the public finance management (National & County Governments) Regulations, the accountability mechanism, the monitoring and evaluation mechanism and the need to ensure regular reporting to both the Parliament and relevant County Assemblies.
The National Treasury shall monitor the application of the PFM Regulations. This will be done through quarterly reports sent by the relevant accounting officer of the national or county government. In addition, the National Treasury will also carry out regular monitoring and evaluation of the specific provisions of these Regulations through interaction with the implementers of these Regulations, studying various reports by Constitutional Commissions, Independent Offices, Civil Society and the general public.
It is important to note that the Regulations shall apply to the level of government as indicated in their headings from the commencement date of these Regulations. In this respect, a review thereof will be done by the National Treasury with the approval by Parliament in line with Section 205 of the Public Finance Management Act (Cap. 412A).
The contact person at the National Treasury is the Cabinet Secretary, Mr. Henry Rotich or the Principal Secretary, Dr. Kamau Thugge, EBS.
5 questions based on Part XVIII – MISCELLANEOUS. Test your understanding before moving to the next part.