Treasury unveils tight public investment rules to curb wastage

Construction works on Nairobi-Naivasha railway line. FILE PHOTO | NMG

By PATRICK ALUSHULA
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Summary

• Public projects valued at more than Sh100 million will now be approved directly by the Treasury.
• Lack of a public investment management framework had created room for shoddy projects finding their way into the Budget, creating unnecessary distortions in funding plans.
• Kenya is currently grappling with public debt that has crossed the Sh6 trillion mark, most of it spent on projects whose costs were either highly inflated or whose economic benefit to the country has been questioned.

Public projects valued at more than Sh100 million will now be approved directly by the Treasury after it formally launched new investment guidelines aimed at locking out white elephants.

The Treasury had in 2018 come up with draft Public Investment Management (PIM) guidelines to create a Public Investment Management Department for appraising all requests for funding based on quality and cost-effectiveness of intended projects. Treasury Secretary Ukur Yatani has now written to Cabinet and Principal secretaries and all accounting officers informing them about the onset of the new guidelines that will have an impact on the 2020/2021 funding of projects.

“These guidelines are also designed to improve the management of public investments by ensuring budgetary allocations are only provided for those projects that have positive social and economic returns,” says the circular.

Lack of a public investment management framework had created room for shoddy projects finding their way into the Budget, creating unnecessary distortions in funding plans. This was done through a bloated project portfolio, unpredictable funding, stalled projects and inflated costs that contributed to under-execution of budgets and a mismatch between project execution and improvement of taxpayers’ well-being.

The adoption of the guidelines comes at a time when Mr Yatani has been promising “brutal and sustained” budget cuts on non-essentials as the government pursues fiscal consolidation amid slowing growth in tax revenues.

The Treasury’s Public Investment Management Department will now be responsible for approving funding for new projects and will also carry out independent evaluations for medium, large and mega projects.

According to the new guidelines, small projects as those costing less than Sh100 million while medium projects are those costing between Sh100 million and Sh500 million. All projects costing between Sh500 million and Sh1 billion will be classified as large while mega projects will be those valued above Sh1 billion.

Kenya is currently grappling with public debt that has crossed the Sh6 trillion mark, most of it spent on projects whose costs were either highly inflated or whose economic benefit to the country has been questioned.

The International Monetary Fund’s latest fiscal transparency evaluation update on Kenya said that half of the 1,000 public projects being implemented in Kenya had stalled and would require Sh1 trillion to complete. This was attributed to non-payment to contractors, insufficient allocation of funds to projects and litigation of cases in court.

Last year, the World Bank had said that the public was not getting full value for the hundreds of billions of shillings spent on development projects, arguing that countries running similar budgets had achieved more than Kenya.

“There is scope for improvement on outcomes realised relative to inputs in terms of public spending in education, health and physical infrastructure,” said World Bank in analysis of Kenya’s public expenditure.

According to the report, Kenya was spending about 20 percent of its gross domestic product (GDP) to achieve just 0.17 percent growth in GDP per capita in contrast with Israel which uses similar spending to achieve a 12.2 percent growth.