Major assault on Treasury’s powers

By Jaindi Kisero, the Managing Editor, Investigations and Economic Affairs
Posted Tuesday, August 10 2010 at 21:00
In Summary

-Framers of new law acted the way they did to ensure success of devolution

The new constitution has been described as the herald of the end of Kenya’s all powerful and imperial presidency.

But, in terms of management of the country’s finances, the new constitution marks the end of the imperial Treasury.

The new charter has completely dispersed the powers of the Treasury which was regarded as one of the main pillars of the centralised state and dealt a major blow on the stranglehold it has held on matters of finance.

It is noteworthy that in the whole of the Public Finance chapter in the new constitution, the Treasury is mentioned only once.

Neither is any reference made to the Office of the Permanent Secretary to the Treasury nor to such powerful and influential offices in the budget execution chain — Paymaster-General, the Accountant General, the Exchequer committee.

Clearly, the framers of the new constitution figured that any form of devolution would not work without a significant assault on the powers of this critical pillar of the old regime.

The most critical innovation in the new constitution in this regard is the introduction of two key constitutional offices with power and responsibility over the country’s public financial management system.

Revenue allocations

First, there will be the Office of the Commissioner for Revenue Allocations — a new constitutional office with powers to determine the sharing of revenues between the central government and the devolved administration.

Secondly, there will be the office of the Controller of the Budget to oversee the execution of the budget.

The new constitution specifically stipulates that the Controller of Budget will have powers to “authorise withdrawals of funds from the Consolidated Fund, the Equalisation Fund and County Governments Fund”.

This is a major point of departure because, under the present arrangement, money from the Consolidated Fund can only be withdrawn by the authority of the Controller and Auditor General.

The question that immediately comes to mind is: If you transfer revenue allocations and implementation of the budget to these two new constitutional offices, what is left for the Treasury?

The answer is simple — nothing. The role and responsibility of the Treasury will be defined by an ordinary Act of Parliament.

The crux of it all is that the new constitution has taken away all discretionary powers from the Treasury, leaving a technocratic bureaucracy whose role will be to implement decisions taken elsewhere.

It is a sea change in the country’s public financial management system. By taking away Treasury’s discretionary powers, the new constitution insulated this key institution from being used by the President and his cronies as a locus for patronage resources.

The public finance management system is being shielded from patron-client politics.

Because of Treasury’s dominant role in the management of fiscal revenues, successive presidents have been keen to ensure that their men and cronies hold the key positions there.

The Permanent Secretary for Treasury is a first among equals with supervisory powers over other permanent secretaries.

The Financial Secretary at the Treasury is the Paymaster General. In terms of hierarchy, the Office of the Head of Public Service and Cabinet Secretary is clearly the highest office.

But those who understand government operations intimately will tell you that real and effective power rests in the Treasury, especially the Office of the Permanent Secretary.

The wide and discretionary powers the Treasury has been enjoying originate from the fact that it can change and alter the budget mid-year.

Parliament approves the Budget. But the bureaucracy at the ministry of Finance is able to undo what Parliament has decided.

The Treasury has discretion to introduce re-allocations of money between budgets of ministries.

For instance, the printed estimates in one financial year may allocate money for construction of the Kendu Bay-Homa Bay Road.

Come mid-year, the project will have been dropped from the estimates. All the Treasury needs to do is to ensure that the changes it has introduced mid-year are reported in the supplementary budget — usually in March.

There have been specific financial years where such re-allocations were simply excessive. It had reached a point where major variations between the original budget and the actual budget was the norm.

A key player in the chain of power is the Exchequer issues committee which is chaired by the Paymaster General. This committee determines and manages cash flow for ministries. Exclusively run by Treasury staff, the committee meets every two weeks to assess cash flows.

Often, ministries will postpone paying contractors for weeks on end as they wait for Exchequer releases.

Why did the old system give the Treasury such wide discretion to alter the Budget?

Policy changes with budgetary implications may occur mid-year. Revenue shortfalls may be experienced between the budgets.

During such exigencies, the Treasury has the discretion to introduce new ceilings mid-year to respond to new cash flow situations.

But the reality is that the discretionary powers given to the Treasury have served to turn this critical institution into an instrument of political patronage.

The Big Man can wake up one day and order that a hospital be built in a specific region. And, when the Big Man gives the orders, it is the responsibility of the Treasury to raise money, the fact that the money was not budgeted for notwithstanding.

Too much discretion is why Treasury has always been the link in all major cases of grand corruption in the country.

Several issues remain, however. For the system proposed by the new constitution to work, it will be important to make the role of the Treasury vis-a-vis the new institutions clearer.

It will be important to clear up the issue of leadership in management of the public finance management system.

And the government will need to give more attention to issues like capacity for fiscal management at devolved levels. New accountability and oversight arrangements will be imperative.

It will also be important to clarify the roles and functions of the new office of Controller of Budget and the Controller and Auditor General (CAG) especially with regard to authorisation of withdrawal of funds from the Consolidated Fund.

Granted, the current system where CAG is the one who authorises withdrawal of funds and at the same time audits government accounts raises issues of conflict of interest.

The new constitution needs to make it clear that the role of the CAG has changed.

The idea of giving the Central Bank of Kenya constitutional independence was sound.

It will shield this critical institution from meddling, especially from the Treasury.