Point in Time
Act No: No. 18 of 2012
Act Title: PUBLIC FINANCE MANAGEMENT
[ Date of assent: 24th July, 2012. ]
Arrangement of Sections
PART I – PRELIMINARY
1.
Short title and commencement
(1)

This Act shall be cited as the Public Finance Management Act.

(2)

Subject to Article 116(3) of the Constitution, all provisions relating to county governments under this Act shall come into operation upon the final announcement of the results of the first elections under the Constitution.

3.
Object of this Act

The object of this Act is to ensure that—

(a)

public finances are managed at both the national and the county levels of government in accordance with the principles set out in the Constitution; and

(b)

public officers who are given responsibility for managing the finances are accountable to the public for the management of those finances through Parliament and County Assemblies.

4.
Declaration of entities as national government entities
(1)

The Cabinet Secretary may, with the approval of the Cabinet and Parliament, by order in the Gazette, declare a state corporation, an authority or any other body whose functions fall under the national government to be a national government entity for the purposes of this Act.

(2)

A declaration made under subsection (1) shall be based on criteria prescribed by regulations.

(3)

The Cabinet Secretary shall, from time to time, and not less than once each year, publish in the Gazette a list of national entities declared under subsection (1).

(4)

The Cabinet Secretary may, from time to time with the approval of the Cabinet and Parliament, by order in the Gazette, declare that a national government entity declared under subsection (1) shall, with effect from the date of the order, cease to be a national government entity for the purposes of this Act.

5.
Declaration of entities as county government entities
(1)

A County Executive Committee member for finance may, with the approval of the county executive committee and county assembly, by order in the Gazette, declare a county corporation, an authority or any other body whose functions fall under that county government to be a county government entity for the purposes of this Act.

(2)

A declaration made under subsection (1) shall be based on criteria prescribed by regulations.

(3)

A County Executive Committee member for finance shall, from time to time, and not less than once each year, publish in the Gazette a list of the county entities declared under subsection (1).

(4)

A County Executive Committee member for finance may, from time to time with the approval of the county assembly, and by notice in the Gazette declare that a county government entity declared under subsection (1) shall with effect from the date of the order cease to be a county government entity for the purposes of this Act.

6.
Act to prevail in certain matters

This Act shall prevail in the case of any inconsistency between this Act and any other legislation, on the following matters—

(a)

preparation and submission of budget estimates, including the time for doing so;

(b)

preparation and submission of accounts for audit, including the time for doing so;

(c)

borrowing, lending and loan guarantees;

(d)

raising of revenue and making of expenditures;

(e)

banking arrangements, including opening of bank accounts and investment of moneys;

(f)

establishment and management of public funds; and

(g)

establishment and dissolution of state corporations.

PART II – PARLIAMENTARY OVERSIGHT OF NATIONAL FINANCES
Responsibilities of Committees of Parliament
7.
Responsibilities of the National Assembly budget committee in public finance matters

The committee of the National Assembly established to deal with budgetary matters has responsibility for the following matters, in addition to the functions set out in the Standing Orders—

(a)

discuss and review the Budget Policy Statement and budget estimates and make recommendations to the National Assembly;

(b)

provide general direction on budgetary matters;

(c)

monitor all budgetary matters falling within the competence of the National Assembly under this Act and report on those matters to the National Assembly;

(d)

monitor adherence by Parliament, the Judiciary and the national government and its entities to the principles of public finance and others set out in the Constitution, and to the fiscal responsibility principles of this Act;

(e)

review the Division of Revenue Bill presented to Parliament and ensure that it reflects the principles under Articles 187(2)(a), 201 and 203 of the Constitution;

(f)

examine financial statements and other documents submitted to the National Assembly under Part III of this Act and make recommendations to the National Assembly for improving the management of Kenya’s public finances;

(g)

in accordance with Articles 114, 218 and 221 of the Constitution—

(i) make recommendations to the National Assembly on “money Bills”, after taking into account the views of the Cabinet Secretary; and
(ii) table in the National Assembly a report containing the views of the Cabinet Secretary in subparagraph (i); and
(h)

introduce the Appropriations Bill in the National Assembly.

8.
Responsibilities of the Senate budget committee in public finance matters
(1)

The Committee of the Senate established to deal with budgetary and financial matters has responsibilities for the following matters, in addition to the functions set out in the Standing Orders—

(a)

present to the Senate, subject to the exceptions in the Constitution, the proposal for the basis of allocating revenue among the Counties and consider any bill dealing with county financial matters;

(b)

review the County Allocation of Revenue Bill and the Division of Revenue Bill in accordance with Article 218(1)(b) of the Constitution at least two months before the end of the financial year;

(c)

examine financial statements and other documents submitted to the Senate under Part IV of this Act, and make recommendations to the Senate for improving the management of government’s public finances; and

(d)

monitor adherence by the Senate to the principles of public finance set out in the Constitution, and to the fiscal responsibility principles of this Act.

(2)

In carrying out its functions under subsection (1)(a) and (b), the Committee shall consider recommendations from the Commission on Revenue Allocation, County Executive Committee member responsible for finance, the Intergovernmental Budget and Economic Council, the public and any other interested persons or groups.

Parliamentary Budget Office
9.
Parliamentary Budget Office continued
(1)

The office known as the Parliamentary Budget Office shall continue to exist as an office of the Parliamentary Service.

(2)

In addition to any other criteria established by the Parliamentary Service Commission, the Budget Office shall consist of persons appointed on merit by virtue of their experience in finance, economics and public policy matters.

10.
Responsibilities of the Parliamentary Budget Office
(1)

The Parliamentary Budget Office shall—

(a)

provide professional services in respect of budget, finance, and economic information to the committees of Parliament;

(b)

prepare reports on budgetary projections and economic forecasts and make proposals to Committees of Parliament responsible for budgetary matters;

(c)

prepare analyses of specific issues, including financial risks posed by Government policies and activities to guide Parliament;

(d)

consider budget proposals and economic trends and make recommendations to the relevant committee of Parliament with respect to those proposals and trends;

(e)

establish and foster relationships with the National Treasury, county treasuries and other national and international organisations, with an interest in budgetary and socio-economic matters as it considers appropriate for the efficient and effective performance of its functions;

(f)

subject to Article 35 of the Constitution, ensure that all reports and other documents produced by the Parliamentary Budget Office are prepared, published and publicised not later than fourteen days after production; and

(g)

report to the relevant committees of Parliament on any Bill that is submitted to Parliament that has an economic and financial impact, making reference to the fiscal responsibility principles and to the financial objectives set out in the relevant Budget Policy Statement; and

(h)

propose, where necessary, alternative fiscal framework in respect of any financial year.

(2)

In carrying out its functions under subsection (1), the Parliamentary Budget Office shall observe the principle of public participation in budgetary matters.

PART III – NATIONAL GOVERNMENT RESPONSIBILITIES WITH RESPECT TO THE MANAGEMENT AND CONTROL OF PUBLIC FINANCE
Establishment of the National Treasury
11.
Establishment of the National Treasury
(1)

There is established, pursuant to Article 225 of the Constitution, an entity of the national government to be known as the National Treasury.

(2)

The National Treasury shall comprise of—

(a)

the Cabinet Secretary;

(b)

the Principal Secretary; and

(c)

the department or departments, office or offices of the National Treasury responsible for economic and financial matters.

(3)

The Cabinet Secretary shall be the head of the National Treasury.

13.
Powers of the National Treasury
(1)

The Cabinet Secretary may generally give to the National Treasury such powers as are necessary to facilitate the Cabinet Secretary and national government to exercise their powers in the Constitution, and in particular, the National Treasury may do all or any of the following—

(a)

with prior notification to the entity, access any system of public financial management and control of national government entity;

(b)

where reasonably necessary in the execution, of its functions, access the premises of any national State Organ or other public entity and inspect the entity’s records and other documents relating to financial matters after giving notice;

(c)

require national government entities to comply with any specified applicable norms or standards regarding accounting practices and budget classification systems;

(d)

require any public officer in the national government to provide information and if necessary, explanations with respect to matters concerning public finance:

Provided that a person providing information shall not be liable if at the time of providing the information that person, in writing, objected to providing such information on grounds that the information may incriminate him or her;

(e)

provide any County Treasury with any information as it may require to carry out its responsibilities under the Constitution and this Act; and

(f)

perform any other act as the Cabinet Secretary may consider necessary including power to intervene where a state entity or state organ fails to operate a financial system that complies with requirements provided for under this Act or is in serious material breach under this Act or in accordance with Articles 190 and 225 of the Constitution.

(2)

The National Treasury may authorise any of its officers in writing to carry out a responsibility or exercise a power specified in the authorisation on behalf of the National Treasury.

(3)

When acting in terms of subsection (2), an authorised officer, if requested by the person in relation to whom the responsibility or power is being carried out or exercised, shall produce the authorisation for inspection and failure to comply with that request invalidates any subsequent action purporting to be taken in terms of the authorisation.

(4)

An authorisation given under subsection (2) remains in force for a period specified in it or, if no period is specified, until it is revoked by the National Treasury.

(5)

The National Treasury may, in writing, revoke or vary an authorisation given under subsection (2).

14.
Secondment of public officers by National Treasury to County Treasury
(1)

Subject to Articles 189 and 190 of the Constitution, the National Treasury may, upon request by the County Treasury, and for a period that shall be agreed, second to a County Treasury for purposes of capacity building, such number of officers as may be necessary for the County Treasury to better carry out its functions under this Act.

(2)

A public officer seconded to a County Treasury under subsection (1), shall be deemed to be an officer of the County Treasury and shall be subject only to the direction and control of the County Treasury.

15.
The National Treasury to enforce fiscal responsibility principles
(1)

The National Treasury shall manage the national government’s public finances in accordance with the Constitution, and the principles of fiscal responsibility set out in subsection (2).

(2)

In managing the national government’s public finances, the National Treasury shall enforce the following fiscal responsibility principles—

(a)

over the medium term a minimum of thirty percent of the national and county governments budget shall be allocated to the development expenditure.

(b)

the national government’s expenditure on wages and benefits for its public officers shall not exceed a percentage of the national government revenue as prescribed by regulations;

(c)

over the medium term, the national government’s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure;

(d)

public debt and obligations shall be maintained at a sustainable level as approved by Parliament for the national government and the county assembly for county government;

(e)

fiscal risks shall be managed prudently; and

(f)

a reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future.

(3)

For the purposes of subsection (2)(c), short term borrowing shall be restricted to management of cash flows and in case of a bank overdraft facility it shall not exceed five per cent of the most recent audited national government revenue.

(4)

The National Treasury shall ensure that the level of National Debt does not exceed the level specified annually in the medium term national government debt management strategy submitted to Parliament.

(5)

Regulations made under this Act may add to the list of fiscal principles set out in subsection (2).

16.
National government deviation from financial objectives
(1)

The national government may, with the approval of Parliament, deviate from the financial objectives in a Budget Policy Statement on a temporary basis where such deviation is necessitated by a major natural disaster or other significant unforeseen event.

(2)

If there is a change of national government, the new government may, with the approval of Parliament, deviate from the financial objectives in a Budget Policy Statement but shall not deviate from the fiscal responsibility principles.

(3)

The National Treasury shall provide a report to Parliament regarding the deviation, and shall include in the report—

(a)

the reasons for and the implications of the deviation;

(b)

proposals to address the deviation;

(c)

the period the deviation is estimated to last; and

(d)

the status of development projects initiated by the national government and if any project has been stopped, the reasons for doing so.

(4)

The National Treasury shall publish and publicise the report made under subsection (3) within fifteen days after its submission to Parliament.

Responsibilities of the National Treasury with respect to national public funds
18.
The National Treasury to administer the Equalisation Fund
(1)

The National Treasury shall administer the Equalisation Fund in accordance with Article 204 of the Constitution.

(2)

The National Treasury shall keep the Equalisation Fund in a separate account maintained at the Central Bank of Kenya and shall—

(a)

transfer into that Equalisation Fund all revenues payable into the Fund under Article 204(1) of the Constitution; and

(b)

transfer from that Equalisation Fund, without undue delay, all money for purposes specified in Article 204(2) of the Constitution.

(3)

The National Treasury shall ensure that the Equalisation Fund Account is not overdrawn at any time.

(4)

Where a withdrawal from the Equalisation Fund is authorised under an Act of Parliament that approves the appropriation of money, the National Treasury shall make a requisition for the withdrawal and submit it to the Controller of Budget for approval.

(5)

The approval by the Controller of Budget of a withdrawal from the Equalisation Fund, together with written instructions from the National Treasury requesting for the withdrawal, shall be sufficient authority for the Central Bank of Kenya to pay amounts from the Equalisation Fund Account in accordance with the approval and instructions given.

(6)

Any unutilised balances in the Equalisation Fund shall not lapse at the end of the Financial year, but shall be retained for use for the purposes for which the Equalisation Fund was established.

19.
Source of the Contingencies Fund

The Contingencies Fund shall consist of monies appropriated from the Consolidated Fund by an appropriation Act in any financial year.

20.
Cabinet Secretary to administer the Contingencies Fund
(1)

The Cabinet Secretary shall administer the Contingencies Fund.

(2)

The permanent capital of the Contingencies Fund shall not exceed ten billion shillings or such other amount as may be prescribed by the Cabinet Secretary with the approval of Parliament.

(3)

The Cabinet Secretary shall keep the Contingencies Fund in a separate account, maintained at the Central Bank of Kenya and shall pay—

(a)

into that account all monies appropriated to the Contingencies Fund by an appropriation Act; and

(b)

from the Contingencies Fund, without undue delay, all advances made under section 21.

21.
Advances from the Contingencies Fund
(1)

Subject to section 22, the Cabinet Secretary may make advances from the Contingencies Fund if, on the basis of the set criteria and the process and operational guidelines of Article 208(1) as prescribed in regulations approved by Parliament and the laws relating to disaster management, the Cabinet Secretary is satisfied that an urgent and unforeseen need for expenditure has arisen for which there is no specific legislative authority.

(2)

For the purposes of subsection (1), there is an urgent need for expenditure if the Cabinet Secretary, guided by regulations and relevant laws, establishes that—

(a)

the payment which was not budgeted for because it was unforeseen and cannot be delayed until a later financial year without harming the general public interest; and

(b)

the event was unforeseen.

(3)

In addition to regulations and relevant laws, and for the purposes of this section, an unforeseen event is one which—

(a)

threatens serious damage to human life or welfare;

(b)

threatens serious damage to the environment; and

(c)

is meant to alleviate the damage, loss, hardship or suffering caused directly by the event.

(4)

An event threatens damage to human life or welfare under subsection (3)(a) only if it involves, causes or may cause—

(a)

loss of life, human illness or injury;

(b)

homelessness or damage to property;

(c)

disruption of food, water or shelter; or

(d)

disruption to services, including health services.

(5)

Subject to subsection (2), the Cabinet Secretary shall, by regulations and with Parliament approval, prescribe the criteria for making advance under subsection (1).

22.
Cabinet Secretary to seek Parliamentary approval for payments made from Contingencies Fund
(1)

Not later than two months after a payment from the Contingencies Fund in terms of section 21, the Cabinet Secretary shall submit to Parliament a detailed report in respect of the payment setting out the information specified in section 23(2) and seek Parliament to approve the payment.

(2)

If Parliament does not sit during the period referred to in subsection (1), or is not sitting at the end of that period and the Cabinet Secretary has not sought the approval of Parliament before the end of that period, the Cabinet Secretary shall seek the approval for the payment not later than fourteen days after Parliament next sits.

(3)

As soon as practicable after the Parliament has approved the payment, the Cabinet Secretary shall cause an appropriation Bill to be introduced in Parliament for the appropriation of the money paid and for the replenishment of the Contingencies Fund to the extent of the amount of the payment.

23.
Financial statements in respect of the Contingencies Fund
(1)

Not later than three months after the end of each financial year, the National Treasury shall prepare and submit to the Auditor-General financial statements for that year in respect of the Contingencies Fund.

(2)

The National Treasury shall include the following information in the financial statements submitted under subsection (1)—

(a)

the date and amount of each payment made from that Contingencies Fund;

(b)

the person to whom the payment was made;

(c)

the purpose for which the payment was made;

(d)

if the person to whom the payment was made has spent the money for that purpose, a statement to that effect;

(e)

if the person to whom the payment was made has not yet spent the money for that purpose, a statement specifying the reasons for not having done so; and

(f)

a statement indicating how the payment conforms to section 21.

24.
Establishment of Parliamentary Fund and other national government public funds
(1)

There is established a fund to be known as the Parliamentary Fund.

(2)

The Secretary to the Parliamentary Service Commission shall, on the directions of the Commission, open and operate such bank accounts as may be necessary for the purposes of the Parliamentary Fund.

(3)

Notwithstanding any other provisions of this Act, where a Fund is established under any other law for the purposes of Parliament or a House of Parliament, the Parliamentary Service Commission shall—

(a)

establish procedures and systems for proper and effective management of the monies and property of the Fund;

(b)

establish accounting procedures and systems for the Commission to properly account for the monies and property;

(c)

superintend the expenditure of the monies of the Fund to ensure that the monies are properly accounted for;

(d)

prepare and submit accounts for each financial year in accordance with the written law for the time being relating to audit for audit by the Auditor-General; and

(e)

ensure that accounts prepared under paragraph (d) comply with the provisions of this Act.

(4)

The Cabinet Secretary may establish a national government public fund with the approval of the National Assembly.

(5)

The Cabinet Secretary shall designate a person to administer every national public fund established under subsection (4).

(6)

The administrator of a national public fund shall ensure that the earnings of, or accruals to a national public fund are retained in the fund unless the Cabinet Secretary directs otherwise.

(7)

The administrator of a national public fund shall ensure that money held in the fund, including any earnings or accruals referred to in subsection (6), is spent only for the purposes for which the fund is established.

(8)

The Cabinet Secretary may wind up a national public fund with the approval of the National Assembly.

(9)

On the winding up of a national public fund—

(a)

the administrator of the national public fund shall pay any amount remaining in the fund into the National Exchequer Account for the credit of the national government; or

(b)

the Cabinet Secretary shall pay any deficit in the fund from funds of the national government in the National Exchequer Account with the approval of the National Assembly; and

(c)

the Cabinet Secretary shall submit a final statement of accounts to Parliament.

(10)

The administrator of a national public fund—

(a)

shall prepare financial statements for the fund for each financial year in a form specified by the Accounting Standards Board; and

(b)

not later than three month after the end of each financial year, submit those statements to the Auditor-General and deliver a copy of the statements to the National Treasury, Commission on Revenue Allocation and the Controller of Budget.

(11)

The regulations shall provide for the establishment, management, operation or winding-up of national public funds.

(12)

This section applies to all other rational public funds including funds earmarked for specific purposes established by an Act of Parliament but does not apply to a public fund established by the Constitution.

(13)

In this section—

“administrator”, in relation to a national public fund, means a person designated by the Cabinet Secretary under subsection (5) to administer the fund; and

“national public fund” means a public fund established under subsection (4).

Responsibilities of the National Treasury with respect to the Budget process
25.
National Treasury to prepare annual Budget Policy Statement
(1)

The National Treasury shall prepare and submit to Cabinet the Budget Policy Statement for approval.

(2)

The National Treasury shall submit the Budget Policy Statement approved in terms of subsection (1) to Parliament, by the 15th February in each year.

(3)

In preparing the Budget Policy Statement, the National Treasury shall set out the broad strategic priorities and policy goals that will guide the national government and county governments in preparing their budgets both for the following financial year and over the medium term.

(4)

The National Treasury shall include in the Budget Policy Statement—

(a)

an assessment of the current state of the economy and the financial outlook over the medium term, including macro-economic forecasts;

(b)

the financial outlook with respect to Government revenues, expenditures and borrowing for the next financial year and over the medium term;

(c)

the proposed expenditure limits for the national government, including those of Parliament and the Judiciary and indicative transfers to county governments; and

(d)

the fiscal responsibility principles and financial objectives over the medium term including limits on total annual debt.

(5)

In preparing the Budget Policy Statement, the National Treasury shall seek and take into account the views of—

(a)

the Commission on Revenue Allocation;

(b)

county governments;

(c)

Controller of Budget;

(d)

the Parliamentary Service Commission;

(e)

the judicial Service Commission;

(f)

the public; and

(g)

any other interested persons or groups.

(6)

Regulations made under this Act shall prescribe circumstances and the manner in which persons or groups may make written or oral representations about the contents of the statement.

(7)

Parliament shall, not later than fourteen days after the Budget Policy Statement is submitted to Parliament, table and discuss a report containing its recommendations and pass a resolution to adopt it with or without amendments.

(8)

The Cabinet Secretary shall take into account resolutions passed by Parliament in finalising the budget for the relevant financial year.

(9)

The National Treasury shall publish and publicise the Budget Policy Statement not later than fifteen days after submission of the Statement to Parliament.

26.
National Treasury to prepare Budget Review and Outlook Paper
(1)

The National Treasury shall prepare and submit to Cabinet for approval, by the 30th September in each financial year, a Budget Review and Outlook Paper which shall include—

(a)

actual fiscal performance in the previous financial year compared to the budget appropriation for that year;

(b)

updated macro-economic and financial forecasts with sufficient information to show changes from the forecasts in the most recent Budget Policy Statement;

(c)

information on how actual financial performance for the previous financial year may have affected compliance with the fiscal responsibility principles or the financial objectives in the latest Budget Policy Statement; and

(d)

the reasons for any deviation from the financial objectives together with proposals to address the deviation and the time estimated to do so.

(2)

Cabinet shall consider the Budget Review and Outlook Paper with a view to approving it, with or without amendments, not later than fourteen days after its submission.

(3)

Not later than seven days after the Budget Review and Outlook Paper has been approved by Cabinet, the National Treasury shall—

(a)

submit the Paper to the Budget Committee of the National Assembly to be laid before each House of Parliament; and

(b)

publish and publicise the Paper not later than fifteen days after laying the Paper before Parliament.

27.
Publication of pre- and post-election economic and fiscal reports by National Treasury
(1)

The National Treasury shall arrange to be published—

(a)

a pre-election economic and fiscal update not earlier than four months before the polling day for any general election; and

(b)

a post-election economic and fiscal update not later than four months after the polling day of any general election.

(2)

The pre-election and post-election economic and fiscal update shall—

(a)

detail all election related spending including—

(i) direct election expenses such as those for the Independent Electoral and Boundaries Commission for costs of elections and election materials;
(ii) indirect election expenses such as allocations to police and security forces for the election year; and
(iii) any other expenses related to the election specified in regulations or instructions; and
(b)

be accompanied by a statement signed by the Principal Secretary stating that the economic and fiscal updates include—

(i) all policy decisions with material economic or fiscal implications that the national government made before the day on which the contents of the economic and fiscal updates were finalised;
(ii) all other circumstances with material economic or fiscal implications of which the National Treasury was aware before those days; and
(iii) a confirmation that the economic and fiscal updates were prepared using the best professional judgment and information available before the economic and fiscal updates were finalised.
(3)

If the day of dissolution of Parliament is less than two months before the day appointed as polling day for the general election, the Cabinet Secretary shall arrange for the pre-election economic and fiscal update required under this section to be published not later than fourteen days after the day of the dissolution of Parliament.

Other responsibilities of the National Treasury
28.
Banking arrangements for national government entities
(1)

The National Treasury shall authorise the opening, operating and closing of bank accounts and sub accounts for all national government entities in accordance with regulations made under this Act.

(2)

The National Treasury shall establish a Treasury Single Account into which all revenues received by national government entities shall be deposited and from which all payments of money to or on behalf of national government entities shall be made.

(3)

The Treasury Single Account shall not be operated in any manner that prejudices any entity to which funds have been disbursed.

(4)

An accounting officer for a national government entity shall not cause a bank account of the entity to be overdrawn beyond the limit authorised by the National Treasury or a board of a national government entity, if any.

(5)

Subject to subsection (3), an accounting officer who authorises the bank account of a national government entity to be overdrawn is liable for the full cost of the overdrawn amount, in addition to any other disciplinary measures that—

(a)

the Cabinet Secretary may impose by regulations; or

(b)

any other relevant authority may impose under the provisions of any other legislation.

(6)

The National Treasury shall keep complete and current records of all bank accounts for which it is responsible under the Constitution, this Act or any other legislation.

(7)

The National Treasury shall give monthly statements on actual revenue collected in the accounts relating to Article 206 of the Constitution to the Commission on Revenue Allocation.

29.
Management of cash at the national government level
(1)

The National Treasury shall establish a framework within which the national government shall manage its cash transactions.

(2)

Every national government entity, other than a state corporation, shall submit an annual cash plan and forecast to—

(a)

the National Treasury in a form and manner and relating to such periods directed by that Treasury; and

(b)

the Controller of Budget.

(3)

Subject to the Constitution, the Cabinet Secretary may, notwithstanding any previous authority given, limit or suspend national government expenditure, if in the Cabinet Secretary’s opinion, the exigencies of the financial situation render such a limitation or suspension necessary.

(4)

The approval of the National Assembly for any limitation or suspension under subsection (3) shall be sought within two months of the decision being made.

(5)

The National Treasury may invest, subject to any regulations that may be prescribed, any money kept in a bank account of the national government.

(6)

Except as otherwise provided by legislation—

(a)

interest received from investments made under subsection (5); and

(b)

money received from the redemption or maturity of those investments, and from the sale or conversion of securities relating to them, is payable into the National Exchequer Account.

(7)

The National Treasury may incur costs, charges and expenses in connection with negotiating, placing, managing, servicing, or converting any investment entered into under subsection (5).

(8)

Costs, charges or expenses referred to under subsection (7) shall be paid from the Consolidated Fund in accordance with Article 228 of the Constitution.

30.
Procurement of goods and services

For the purposes of this Act, all procurement of goods and services required for the purposes of the national government or a national government entity is to be carried out in accordance with Article 227 of the Constitution and the relevant legislation on procurement and disposal of assets.

31.
Cabinet Secretary to report on all loans
(1)

The Cabinet Secretary shall submit to Parliament, every four months, a report of all loans made to the national government, national government entities and county governments, in accordance with Article 211(2) of the Constitution.

(2)

Where either House of Parliament is canvassing a matter relating to the national debt, the Cabinet Secretary shall submit to Parliament, a report of all loans made to the national government, national government entities, and county governments, not later than seven days after receiving a request to do so from either House of Parliament.

(3)

At the end of every four months, the Cabinet Secretary shall submit a report to Parliament stating the loan balances brought forward, carried down, drawings and amortizations on new loans obtained from outside Kenya or denominated in foreign currency, and such other information as may be prescribed by regulations, specifying—

(a)

the names of the parties to the loan;

(b)

the amount of the loan and the currency in which it is expressed and in which it is repayable;

(c)

the terms and conditions of the loan, including interest and other charges payable and the terms of repayment;

(d)

the amount of the loan advanced at the time the report is submitted;

(e)

the purpose for which the loan was used and the perceived benefits of the loan; and such other information as the Cabinet Secretary may consider appropriate.

32.
Cabinet Secretary to report on national government guarantees
(1)

The Cabinet Secretary shall submit to Parliament, a record of all guarantees given by the national government, not later than seven days after receiving a request to do so from either House of Parliament.

(2)

The Cabinet Secretary shall, with respect to every such guarantee, specify the following information in the record—

(a)

names of the parties to the loan that is guaranteed;

(b)

principal amount of that loan;

(c)

terms and conditions applicable to that loan, including—

(i) interest and other charges that are payable in respect of that loan; and
(ii) terms of its repayment.
(3)

Not later than two months after the end of each financial year, the Cabinet Secretary shall publish and publicise a report giving details of the guarantees given by the national government during that year.

33.
Cabinet Secretary to submit national government debt management strategy to Parliament annually
(1)

On or before the 15th February in each year, the Cabinet Secretary shall submit to Parliament a statement setting out the debt management strategy of the national government over the medium term with respect to its actual liability and potential liability in respect of loans and guarantees and its plans for dealing with those liabilities.

(2)

The Cabinet Secretary shall ensure that the medium-term debt management strategy is aligned to the broad strategic priorities and policy goals set out in the Budget Policy Statement.

(3)

The Cabinet Secretary shall include in the statement the following information—

(a)

the total stock of debt as at the date of the statement;

(b)

the sources of loans made to the national government and the nature of guarantees given by the national government;

(c)

the principal risks associated with those loans and guarantees;

(d)

the assumptions underlying the debt management strategy; and

(e)

an analysis of the sustainability of the amount of debt, both actual and potential.

(4)

Within fourteen days after the debt strategy paper is submitted to Parliament under this section, the Cabinet Secretary shall submit the statement to the Commission on Revenue Allocation and the Intergovernmental Budget and Economic Council and publish and publicise the statement.

34.
The National Treasury to provide Parliament with additional reports when required

Either House of Parliament may request the Cabinet Secretary or the National Treasury to prepare and submit to that House a report on any matter relating to the Cabinet Secretary or National Treasury’s responsibilities as the House of Parliament may specify.

National government budget process
35.
Stages in the budget process
(1)

The budget process for the national government in any financial year shall comprise the following stages—

(a)

integrated development planning process which shall include both long term and medium term planning;

(b)

planning and determining financial and economic policies and priorities at the national level over the medium term;

(c)

preparing overall estimates in the form of the Budget Policy Statement of national government revenues and expenditures;

(d)

adoption of Budget Policy Statement by Parliament as a basis for future deliberations;

(e)

preparing budget estimates for the national government;

(f)

submitting those estimates to the National Assembly for approval;

(g)

enacting the appropriation Bill and any other Bills required to implement the National government’s budgetary proposals;

(h)

implementing the approved budget;

(i)

evaluating and accounting for, the national government’s budgeted revenues and expenditures; and

(j)

reviewing and reporting on those budgeted revenues and expenditures every three months.

(2)

The Cabinet Secretary shall ensure public participation in the budget process provided for under subsection (1).

36.
Cabinet Secretary to manage budget process at national level
(1)

The Cabinet Secretary shall manage the budget process at the national level.

(2)

Not later than the 30th August in each year, the Cabinet Secretary shall issue to all national government entities a circular setting out guidelines on the budget process to be followed by them.

(3)

The circular shall include—

(a)

a schedule for preparation of the budget indicating key dates by which various exercises are to be completed;

(b)

the procedures for the review and projection of revenues and expenditures;

(c)

key policy areas and issues that are to be taken into consideration when preparing the budget;

(d)

procedures setting out the manner in which members of the public shall participate in the budget process;

(e)

the format in which budget information and documents shall be submitted; and

(f)

any other information that, in the opinion of the Cabinet Secretary, may assist the budget process.

(4)

Every national government entity shall comply with the guidelines, and in particular, such dates as are specified in the schedule referred to in subsection (3)(a).

(5)

The Cabinet Secretary shall by regulations, prescribe procedures specifying how, when and where members of the public shall participate in the budget process at the national level.

(6)

The Cabinet Secretary shall notify the members of the Intergovernmental Budget and Economic Council of the commencement of the budget process.

38.
Submission of other budget documents to the National Assembly
(1)

The Cabinet Secretary shall submit to the National Assembly the following other budget documents for each financial year—

(a)

a budget summary that includes—

(i) a summary of budget policies including policies on revenue, expenditure, debt and deficit financing;
(ii) an explanation of how the budget relates to the fiscal responsibility principles and to the financial objectives; and
(iii) a memorandum by the Cabinet Secretary explaining how the resolutions adopted by the National Assembly on the Budget Policy Statement under section 25(7) have been taken into account.
(b)

the format of the budget estimates shall include—

(i) a list of all entities that are to receive funds appropriated from the budget of the national government;
(ii) estimates of revenue allocated to, and expenditures projected from, the Equalisation Fund over the medium term, with an explanation of the reasons for those revenue allocations and expenditures and how these estimates comply with the policy developed by the Commission on Revenue Allocation under Article 216(4) of the Constitution;
(iii) all revenue allocations to county governments from the national government’s share in terms of Article 202(2) of the Constitution, including conditional and unconditional grants;
(iv) all estimated revenue by broad economic classification;
(v) all estimated expenditure, by vote and by programme, clearly identifying both recurrent and development expenditures; and
(vi) an estimate of any budget deficit or surplus for the financial year and medium term and the proposed sources of financing;
(c)

information regarding loans made by the national government, including an estimate of principal, interest and other charges to be received by the national government in the financial year in respect of those loans;

(d)

information regarding loans and guarantees made to and by the national government, including an estimate of principal, interest and other charges to be paid by the national government in the financial year in respect of those loans;

(e)

information regarding any payments to be made and liabilities to be incurred by the national government for which an appropriation Act is not required which shall include the constitutional or national legislative authority for any such payments or liabilities; and

(f)

a statement by the National Treasury specifying the measures taken by the national government to implement any recommendations made by the National Assembly with respect to the budget for the previous financial year or years.

(2)

The nature of information that is to be presented in the budget estimates and the form of its presentation shall be prescribed in regulations and the regulations shall be tabled in Parliament for approval.

(3)

The Cabinet Secretary shall ensure that the expenditure appropriations and the budget estimates in an appropriation Bill are presented in a way that—

(a)

is accurate, precise, informative and pertinent to budget issues; and

(b)

clearly identifies the appropriations by vote and programme.

39.
National Assembly to consider budget estimates
(1)

The National Assembly shall consider the budget estimates of the national government, including those of Parliament and the Judiciary, with a view to approving them, with or without amendments, in time for the Appropriation Bill and any other relevant Bills, except the Finance Bill, required to implement the budget to be assented to by the 30th June each year.

(2)

Before the National Assembly considers the estimates of revenue and expenditure, the relevant committee of the National Assembly shall discuss and review the estimates and make recommendations to the National Assembly, taking into account the views of the Cabinet Secretary and the public on the proposed recommendations.

(3)

The National Assembly may amend the budget estimates of the national government only in accordance with the Division of Revenue Act and the resolutions adopted with regard to the Budget Policy Statement ensuring that—

(a)

an increase in expenditure in a proposed appropriation is balanced by a reduction in expenditure in another proposed appropriation; or

(b)

a proposed reduction in expenditure is used to reduce the deficit.

(4)

Where a Bill originating from a member of the National Assembly proposes amendments after passing the budget estimates and the appropriations Bill by Parliament, the National Assembly may only proceed in accordance with—

(a)

the Division of Revenue Act;

(b)

Article 114 of the Constitution; and

(c)

any increase in expenditure in a proposed appropriation is balanced by a reduction in expenditure in another proposed appropriation or any proposed reduction in expenditure is used to reduce the deficit.

(5)

Not later than twenty-one days after the National Assembly has approved the budget estimates, the National Treasury shall consolidate, publish and publicise the budget estimates.

(6)

The National Treasury shall take all reasonably practicable steps to ensure that the approved budget estimates are prepared and publicised in a form that is clear and easily understood by, and readily accessible to, members of the public.

(7)

Following approval of the budget estimates under this section, and before the Appropriation Act is assented to, the National Assembly may authorise withdrawals in accordance with Article 222 of the Constitution, and such authority shall be communicated to the Cabinet Secretary responsible for finance by the Speaker of the National Assembly within seven days of that authority being granted by the National Assembly.

(8)

The Controller of Budget shall ensure that members of the public are given information on budget implementation both at the national and county government level in accordance with Article 228 of the Constitution.

41.
Passing of the Finance Bill

Not later than ninety days after passing the Appropriation Bill, the National Assembly shall consider and approve the Finance Bill with or without amendments.

42.
Consideration by Parliament of Division of Revenue and County Allocation of Revenue Bills

Parliament shall consider the Division of Revenue and County Allocation of Revenue Bills not later than thirty days after the Bills have been introduced with a view to approving them, with or without amendments.

43.
Limited powers of accounting officer of national government entity to reallocate appropriate funds
(1)

An accounting officer may reallocate funds from the authorised use but may not reallocate funds where—

(a)

the funds are appropriated for transfer to another government entity or person;

(b)

the funds are appropriated for capital expenditure except to defray other capital expenditure;

(c)

the reallocation of funds is from wages to non-wages expenditure; or

(d)

the transfer of funds may result in contravention of fiscal responsibility principles.

(2)

An accounting officer for a national government entity, other than a state corporation, may reallocate funds between programs, or between Sub-Votes, in the budget for a financial year if—

(a)

there are provisions in the budget of a program or Sub-Vote which are unlikely to be utilised;

(b)

a request for the reallocation has been made to the National Treasury explaining the reasons for the reallocation and the National Treasury has approved the request; and

(c)

the total sum of all reallocations made to or from a program or Sub-Vote does not exceed ten percent of the total expenditure approved for that program or Sub-Vote for that financial year.

(3)

Regulations made under this Act may provide for the reallocation of funds within Sub-votes or programs.

44.
National government to submit supplementary budget to Parliament
(1)

The national government shall submit to Parliament for approval, a supplementary budget in support of money spent under Article 223 of the Constitution.

(2)

After Parliament has approved spending under subsection (1), an Appropriation Bill shall be introduced for the appropriation of the money spent.

(3)

The supplementary budget shall include a statement showing how the additional expenditure relates to the fiscal responsibility principles and financial objectives.

45.
Appropriations to lapse if unspent at the end of the financial year
(1)

An appropriation that has not been spent at the end of the financial year for which it was appropriated shall lapse immediately at the end of that financial year.

(2)

Subject to any other legislation, where, at the end of a financial year, a national government entity is holding appropriated money that was withdrawn from the National Exchequer Account but has not been spent, it shall repay the unspent money into the National Exchequer Account and shall prepare and submit a statement of the same to the Controller of Budget.

Responsibilities of the Cabinet Secretary and functions of the national government with respect to grants and loans
46.
Overall responsibility of Cabinet Secretary
(1)

The Cabinet Secretary shall, in addition to his or her other functions under the Constitution, this Act and any other legislation—

(a)

oversee the formulation of macro-economic and financial policies of the Government;

(b)

by agreement, assist national government entities and county governments in building capacity for efficient, effective and transparent financial management;

(c)

where applicable, support the efforts of national government entities and county governments to avert or resolve their financial problems.

(2)

Within twenty-one days after the end of each month, the Cabinet Secretary shall publish in the Gazette a statement of actual revenues collected by category and net exchequer issues by the National Treasury.

(3)

In the performance of the duties and functions under this Act the Cabinet Secretary shall—

(a)

seek views from county governments on the proposed macro-economic and financial policies using the Intergovernmental Budget and Economic Council established under this Act;

(b)

share with national government entities and county governments any findings that may assist national government entities and county governments in improving their financial management; and

(c)

upon detecting any emerging or impending financial problems in a national government entity or county government, immediately alert the national government entity or county government of the problem.

47.
Conditions for receiving grants and donations by national government or its entities or third parties
(1)

In this section and section 48

(a)

“donation” means a gift or a contribution;

(b)

“grant” means financial or other assistance by a development partner which is not repayable and—

(i) under which public money is paid to or used by a grant recipient;
(ii) which is intended to finance or facilitate the development of projects or delivery of services or otherwise assist the grant recipient to achieve goals that are consistent with the policy objectives of the national government; and
(iii) under which the grant recipient is required to act in accordance with any terms or conditions specified in a grant agreement.
(c)

“grant recipient” means the national government or a national government entity authorised to control or spend money under this Act or an incorporated or unincorporated body not otherwise authorised to control or spend money under this Act;

(d)

“intended beneficiaries” means the people of Kenya whom the projects or public services financed by a grant are intended to benefit;

(e)

“third party” means any other person other than a public officer.

(2)

Subsections (3) to (10) apply to the national government and a national government entity.

(3)

The national government or a national government entity may receive a grant or donation from a development partner with the approval of the Cabinet Secretary and only as provided by this section.

(4)

Funds received in the form of grants or donations shall only be spent in accordance with Articles 221 and 223 of the Constitution and this section.

(5)

As soon as possible after receiving the grant or donation, the recipient shall notify the Cabinet Secretary of the receipt.

(6)

If a project that is being financed by a grant or donation requires national government funding, the project may only be started when—

(a)

the required funding has been appropriated in accordance with this Act or is authorised by other legislation; or

(b)

the Cabinet Secretary has given a written authorisation for the project to start.

(7)

The Cabinet Secretary shall inform Parliament of the authorisation given under subsection (6)(b) in accordance with Article 223 of the Constitution.

(8)

The recipient of a grant or donation from a development partner shall record the amount or value of the grant or donation in its books of accounts.

(9)

Subject to audit in terms of Article 229(4) of the Constitution, the recipient of a grant or donation shall administer and account for the grant or donation by using—

(a)

government financial accounting and auditing laws and, administrative procedures; or

(b)

any financial accounting rules and procedures for money specified in the agreement between the recipient and the development partner.

(10)

The Cabinet Secretary may in addition to the audit under subsection (9), permit a donor of a grant to audit such funds on the basis of its own financial accounting rules.

48.
Regulations on grant administration
(1)

Regulations approved by Parliament shall provide for the administration, control and management of grants, including—

(a)

procedures to ensure that grants are spent on the basis of the integrated national development plan;

(b)

procedures for the allocation and disbursement of the grants;

(c)

requiring that grants be used only to finance programmes within the integrated development plan;

(d)

the publication of transparent criteria for the allocation of grants;

(e)

requiring specific terms and conditions in agreements to which grant recipients are subjected;

(f)

procedures for the budgeting, financial management, accounting and reporting of grants by grants recipients;

(g)

procedures under which a third party may be authorised to receive, control or pay public money as a grant; and

(h)

measures to ensure that a third party authorised to receive, control or pay public money as a grant, or responsible for any other aspect of administration of a grant, is subject to the same obligations as a public officer under this Act.

(2)

Regulations under subsection (1) shall include measures to ensure public disclosure, accountability and participation in relation to the grants, including—

(a)

timely public disclosure to intended beneficiaries of the allocation and disbursement of grants to grant recipients;

(b)

timely public disclosure by grant recipients to intended beneficiaries of expenditure and performance achieved in relation to the grant;

(c)

measures to facilitate intended beneficiaries to participate in the design and management of projects or public services financed by the grant;

(d)

measures allowing intended beneficiaries to report instances of non-compliance with the regulations or grant agreement;

(e)

sanctions to be imposed on grant recipients for non-compliance with grant conditions by any grant recipient; and

(f)

obligations of a public officer or third party authorised to receive, control or pay public money as grants.

(3)

A third party shall not receive, have custody of, or pay public money otherwise than in accordance with an authorisation given in accordance with regulations made under subsection (1).

(4)

A third party who contravenes provision under subsection (3), commits an offence and is liable on conviction to a term of imprisonment not exceeding two years or to a fine not exceeding one million shillings, or to both and shall make good the loss arising from the use of public funds contrary to law.

49.
Authority for borrowing by the national government
(1)

Subject to provisions of this Act, the Cabinet Secretary may, on behalf of the national government, raise a loan only if the loan and the terms and conditions for the loan are set out in writing and in accordance with—

(a)

the fiscal responsibility principles and the financial objectives set out in the most recent Budget Policy Statement; and

(b)

the debt management strategy of the national government over the medium term.

(2)

A loan may be raised either within Kenya or from outside Kenya.

51.
Borrowing by national government entities
(1)

A national government entity may borrow in accordance with this Act or any other Act of Parliament.

(2)

A national government entity shall obtain the approval of the Cabinet Secretary for its intended program of borrowing, refinancing and repayment of loans—

(a)

over the medium term; and

(b)

for the forthcoming financial year, prior to the beginning of that financial year.

(3)

A national government entity shall also obtain the approval of the Cabinet Secretary before making any changes to its program of borrowing, refinancing and repayment during a financial year.

(4)

The national government is not liable to contribute towards payment of any debt or liability of a national government entity, unless the national government has guaranteed the debt or liability.

52.
Persons authorized to execute loan documents at national government level
(1)

The Cabinet Secretary or any person designated by the Cabinet Secretary in writing is authorised to execute loan documents for borrowing by the national government.

(2)

Despite the provisions of subsection (1), the following persons are authorised to execute loan documents for borrowing by a National government entity—

(a)

the accounting officer responsible for the entity; or

(b)

any other specified officer authorised by legislation to execute such documents on behalf of the entity.