IMF faults East African region’s budget preparation

By George Kamau | The East African September 21, 2017

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 programmes 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.

Supplementary Budgets

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.

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