OVERVIEW OF PFM ACT AND BUDGET PREPARATION

Outline

I. Background
II. Link between the Constitution and the PFM Act 2012
III. The Five Core Areas of a Good PFM System
IV. PFM Institutions at the National and County Government
Level
V. Other National/County Government PFM Institutions
VI. Intergovernmental Fiscal Relations Institutions
VII. Macro-Fiscal Policy Making and Budgeting
VIII. Treasury Management
IX. Budget Execution, Accounting and Reporting
X. Conclusion

I. Background

• A good PFM management help in creating a conducive
  environment for investments, job creation and poverty reduction
  at both levels of government.
• Objectives of PFM Act:

1. Safeguard financial autonomy of both levels of government
   within a unitary system of devolved government and in line with
   the constitution.
2. Firmly anchor the Act under Article 201 of the constitution which
   deals with the ‘Principles of public finance’
3. To ensure the PFM Act incorporated best international practices.
   This was achieved by basing the policy framework on the five
   core areas of public finance
4. To modernize and consolidate the many PFM laws we currently
   have into one integrated PFM Law—an Organic Budget Law.

FINANCIAL AUTONOMY
This financial autonomy is supported by Articles 6
and 189 of the Constitution:
Art. 6 (2) The governments at the national and
county levels are distinct and inter-dependent
and shall conduct their mutual relations on
the basis of consultation and cooperation.
Art. 189 (1)(a): Government at either level
shall perform its functions, and exercise its
powers, in a manner that respects the
functional and institutional integrity of
government at the other level, and respects
the constitutional status and institutions of
government at the other level.

Both levels of Government should not interfere in
the day-to-day management of finances in the
other level of government.

• Each level of government should able to formulate,
  plan, execute and report on their budgets without
  interference of the other level of government.
• To operationalize this concept and to avoid
  favouring one level of government over the other,
  the PFM Act mirrored many of the institutional
  structures for financial management of the national
  government at the county government level.

Principles of public finance

1. Openness, accountability and public
   participation
2. Equitable sharing of revenues
3. Ensuring debt sustainability and equitable
   sharing of debt between current and future
   generations
4. Prudent and responsible management of
   public resources
5. Responsible financial management and clear
   fiscal reporting.

Acts repealed

• With this PFM Act, the following were repealed:
  – The Government Financial Management Act, 2004;
  – The Fiscal Management Act, 2009
  – The Internal Loans Act, The external Loans Act;
  – The National Government Loans Guarantee Act, 2011
  – The Contingencies Fund and County Emergency Funds
  Act 2011.
• The PFM Act also caters for all the legislations
  required under the 5th Schedule of the
  Constitution—except for the procurement law
  which is separate.

Link between the Constitution & the PFM Act

• Article 201 which provides for principles of public finance guides
  the PFM Act.
• Article 206 on the Consolidated fund and other public funds.
• Article 207 which establishes County Revenue Funds and
  provides for setting up of other funds at the county level.
• Article 208 on Contingencies Fund.
• Article 211 to 214 on borrowing and guarantees.
• Article 220 which requires national legislation to prescribe the
  form, content and timing of budgets.
• Article 225 on financial controls at the national &county level.
• Article 226 which requires an Act of Parliament to provide for
  financial records and audit of all accounts of governments;
• Article 227 on procurement.