Overview

1. This is the second budget options paper prepared by the Parliamentary Budget Office to provide alternative insights and policy options on what the government should do in order to achieve the various objectives of the vision 2030 of transforming Kenya into a newly industrialized, "middle-income country" providing a high quality life to all its citizens by the year 2030.
2. The analysis attempts to gauge the progress made with regard to the Governments effort in addressing the current economic challenges and extent to which the various mitigation measures have been put in place amid post election violence hangover and the global economic crisis. The report will provide a critical analysis on the progress made on the Government's commitment of aligning public resources with national strategic objectives under the Medium Term Expenditure Framework (MTEF) and Vision 2030.
3. The focus of this year's budget options paper is to give alternative insights for sustainable economic growth, which seeks to address the issue of unemployment, which is almost reaching crisis level. Indeed, creating jobs for the millions of currently unemployed Kenyans especially the youth is most urgent than any other time in the economic history. The key issues the paper seeks to discuss are highlighted below:
   
   • The provisions of the Chapter 12 of the New Constitution have significantly altered the Public Financial Management (PFM) landscape. In particular, management of public resources is now based on key principles of transparency or openness, accountability and public participation. Equally, the constitution provides that public resouces be managed to an extent that it promotes equitable resource distribution in society, in addition to fair taxation of tax burden. This therefore calls for a realignment and change of culture among all players in the Public Finance Management (PFM) institutions.
   • Public debate on economic and social policly options has been given greater impetus in Kenya owing to the post election violence as well as financial market crisis and the severity of the resulting downturn. More interestingly, many economists and policy makers have had divergent views on the various policy prescriptions and the adequacy of financial regulation. Overall, questions have been posed with regard the mix between the role of Government due to market failure and the issue of over-regulation by the same government, which often stifles the growth of the financial sector. On a global front, there are unresolved imbalances in global trade and declining capital flows have had a negative effect on international financial coordination efforts. All the aforementioned have a bearing on demand management strategies on the Kenyan economy.
   • The policy debate extends beyond macroeconomic and financial stability issues to climate change and renewable energy and other environmental strategies have permeated economic debate. Issues of pension reforms to cater for the huge civil service whose payments largely relies on the exchequer presents serious budgetary adjustments and therefore need for a fresh relook. In addition, the report on achievement of MDGs presents mixed results.
   • Policy debate in Kenya is also focussed on our own specific transformation challenges amid the passage of the new constitution. Obviously, the adoption of the new constitution has altered the public finance landscape. Specifically, it brings in new aspects of fiscal decentralization and also introduces a paradigm shift in terms of institutional arrangement within the public finance arena. More importantly, to meet Kenya's development needs, a new path has to be forged across all organs of Government (Legislature, Executive, and Judiciary). The new dispensation spells out clear roles of each of the aforementioned arms of government.
   • It is important to note that putting clear and coherent policies is one thing; successful implementation is another. The executive must be held to account since jobs, growth and development are not abstractions: they play out every day in industries, factories, offices and permeates in all the sectors of the economy. In addition, there is considerable complexity in the organization of public services, in the structure and regulation of markets, and in the coordination of public policy and industrial development.