## Joint Staff Advisory Note (JSAN) review of the Kenya Vision 2030 First Medium-Term Plan (MTP) 2008–12

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---

### Purpose and scope
- Reviews the Kenya Vision 2030 First Medium-Term Plan (MTP) 2008–12 prepared by the Government of the Republic of Kenya.
- The MTP was prepared in 2007 and submitted to IDA and the IMF on October 9, 2009, in the context of preparation for the World Bank Country Partnership Strategy 2010–13 for Kenya.
- The MTP follows the Investment Programme for the Economic Recovery Strategy for Wealth and Employment Creation (IP-ERS) 2003–07; a JSAN of the IP-ERS was discussed by the World Bank and IMF Executive Boards on May 6 and May 10, 2004.

### Structure of the Vision and MTP
- Organized around three pillars: economic, social, and political.
- Economic pillar focuses on six sectors: tourism, agriculture, manufacturing, trade, information technology, and financial services.
- Social pillar covers: education, health, environment, water and sanitation, population, urbanization and housing, and gender, vulnerable groups, and youth.
- Political pillar addresses: governance and the rule of law and decentralization plans.
- Cross-cutting themes: investment in physical infrastructure and information and communications technology; land and public sector reforms; human resource development, labor and employment; and security, peace building and conflict resolution.

### Key assessment findings (overall)
- Sector-specific objectives are generally compelling and broadly compatible with Millennium Development Goals (MDGs).
- Two main weaknesses identified:
  - Marked lack of prioritization among many programs outlined.
  - Numerical goals (e.g., growth rate of investment) are highly optimistic relative to past experience; headline targets are better viewed as aspirations rather than practical targets for planning and accountability.

### II. Background — political and economic context
- Post-2007 events:
  - 2007 post-election violence occurred prior to MTP issuance; a Grand Coalition government was subsequently established.
  - Kenya experienced spillover effects of the international economic crisis; many macroeconomic assumptions underlying the MTP are no longer realistic.
- Governance and public trust:
  - 2008 Afrobarometer survey: 48 percent said “most” or “all” government officials are involved in corruption; an additional 43 percent said that “some” are corrupt.
- Economic performance:
  - Average real GDP growth of 6 percent in 2004–07, peaking at 7 percent in 2007.
  - In 2008, real GDP growth fell to 1¾ percent.
  - Kenya requested IMF assistance under the Rapid Access Exogenous Shocks Facility in the amount of about US$200 million in May, 2009.
- Debt and financial sector:
  - Total debt is now about 40 percent of GDP, down from 75 percent in 1992–93 to about 20 percent currently (external debt decline achieved without debt relief).
  - Financial Sector Assessment Program (FSAP) update: banking sector remains well-capitalized and adequately provisioned; weaknesses in supervision/regulation of cross-border transactions, increasing regionalization, and regulation of pension schemes.

### III. Poverty trends and characteristics
- Poverty rates (based on 2005–06 household survey):
  - Overall poverty rate: 47 percent.
  - Extreme poverty rate: 20 percent.
  - Rural poverty: 50 percent; urban poverty: 34 percent.
  - Official poverty rate essentially unchanged from 1981.
- Inequality:
  - Gini coefficient: 45.2.
  - National figures show widening inequality between 1997 and 2005.
  - Urban female-headed households poverty rate: 46 percent; households headed by men: 30 percent.
- Nonmonetary welfare trends:
  - Preliminary 2008–09 KDHS results: under-5 mortality fell to 74 deaths per 1,000 live births (from 115 in 2003).
  - Infant mortality declined from 77 to 52 deaths per 1,000 live births over the same period.
  - Introduction of free primary education appears to have increased primary attendance rates; official data show a recent decline in adult HIV prevalence (both findings await KDHS analysis confirmation).
- Binding constraints and drivers:
  - Diversification of household activities is a positive driver out of poverty.
  - Access to credit is weak: 70 percent of Kenyans unable to secure any form of credit.
  - High poverty rates among landless agricultural laborers; inequality in land ownership increased between 1997 and 2005.
  - Improved infrastructure, especially roads, is associated with movements out of poverty.
- Land reform agenda (MTP focus):
  - Key elements: establishment of a land registry and land information management system; development of a National Land Use Master Plan; accompanying legal and institutional reforms; devolution of land administration and management; improved access to land administration by the poor.
  - Staffs consider implementation could provide long lasting solutions to property rights, land use, inequity in access, and land ownership.

### IV. Poverty reduction strategy — Macroeconomic framework
- Achievements noted:
  - History of strong and stable macroeconomic policies since the early 2000s.
  - Low fiscal deficits maintained since the 1990s.
  - Reduction in total debt levels without debt relief.
- MTP macro targets and policy intentions:
  - Targets increase in annual real GDP growth from 4.5 percent in 2008 to 10 percent by 2012, with sectoral growth targets.
  - Fiscal policy aims for a gradual decline in the fiscal balance to achieve a domestic debt to GDP ratio of 18.3 percent by 2012/13, from 22.2 percent in 2007/08.
  - Public financial management (PFM) reforms, monetary policy targeting low inflation, financial sector reforms to increase national savings, and external sector policy to increase capital inflows and foreign reserves accumulation.
- Staff assessment of feasibility and risks:
  - Staffs believe targeted growth rates are unlikely to be achieved; targets were extremely ambitious when developed in 2007 and were not revised after the global economic crisis.
  - Downside risks: weather-related shocks, political environment, slower-than-expected global recovery.
  - Recommendation: strengthen macroeconomic coverage by adopting a consistent framework that accounts for risks and quantifies macroeconomic implications and policy challenges.
- Investment and financing:
  - MTP projects investment growth from 22.9 percent of GDP in 2007/08 to 32.6 percent by end of plan period, driven by flagship projects (agriculture, manufacturing, business process outsourcing, financial sectors).
  - Staffs endorse private-sector-driven focus but caution investment rates are unrealistically high and growth of capital-intensive projects may disproportionately benefit certain geographic areas.
  - Staffs recommend building a level playing field to support broad-based, sustained growth and equitable social development.
- Domestic financing risks:
  - Domestic financing projected to rise modestly due to a domestic debt-to-GDP target capping this source.
  - MTP assumes MTEF budgetary process can be strengthened to reallocate public spending to flagship projects; staffs caution reallocation scope may be limited.
  - Risks if domestic borrowing substitutes for financing shortfalls: upward pressure on interest rates, crowding out private sector, risk of adverse debt dynamics with rising domestic debt and debt service costs.
  - Public-private partnerships (PPPs) commendable but require careful consideration of costs, financing, and tax obligations; long-term leases/PPPs could be equivalent to nonconcessional financing.
- External financing and debt dynamics:
  - MTP projects increases in official external support and private sector commercial financing; issuance of a benchmark sovereign bond expected to attract private inflows.
  - Staffs view projected donor flows as optimistic relative to historical trends.
  - Caution that an international bond carries risks: current market conditions, high carrying cost, foreign exchange risk.
  - High reliance on FDI flows, corporate borrowing from abroad, and public sector financing could worsen overall debt dynamics.
  - Recommendation: concessional loans are first-best option for financing public-investment component; authorities advised to reengage donors and avoid excessive external borrowing.
- Exchange rate and competitiveness considerations:
  - Large inflows needed to support investment could exert upward pressure on the real value of the shilling, especially if imports are intensive.
  - Staffs advise managing and smoothing externally financed nontraded investment impacts to mitigate appreciation pressures.
  - Need for consistent macroeconomic strategy and structural policies to maintain external competitiveness.
  - Sectoral strategies should be grounded in an overarching macroeconomic and policy framework emphasizing macroeconomic stability and a favorable business climate.

### Governance, public financial management, and public sector reform
- Governance is a critical constraint to growth; MTP acknowledges weaknesses and low public confidence post-2007 elections.
- Strategic governance transformation areas in Vision and MTP:
  - (a) rule of law; (b) public participation; (c) decentralization; (c) transparency and accountability; (d) public administration and service delivery; and (e) security, peace building and conflict management.
- Political cohesion and institutional reform:
  - MTP focuses on constitutional reform (new draft constitution), an independent Truth, Justice and Reconciliation Commission, an Electoral Review Committee, and a permanent Ethnic and Race Cohesion Committee.
  - Staffs endorse addressing past grievances to foster national cohesion and a stable environment for economic objectives.
  - Staffs caution that Parliament and the Judiciary need reforms to restore efficiency, trust, and confidence; lack of coalition consensus could limit capacity to address fundamental issues.
  - Recommendation: authorities should forge a durable political consensus to aid achievement of economic growth objectives.

### Transparency of public financial management (PFM)
- Progress noted in: public procurement, debt management, linkages between macroeconomic objectives and fiscal planning, budget formulation, integrated payroll and personnel database (IPPD), internal and external audit.
- Cautions and risks:
  - Planned incentives for investors in flagship projects could complicate sound PFM principles.
  - Staffs caution against creating special incentives or privileges for certain sectors.
  - All projects should be subject to similar budget scrutiny and selected through the regular budget prioritization processes (especially the MTEF) without special budgeting, ring-fencing, or fast-tracked decisions.
  - Earmarking revenues for certain flagship projects and placing them outside the regular budget should be avoided because it may create distortions in the budget prioritization process as budget priorities evolve.
  - All flagship projects should be subject to the same procurement policies, in line with recent reforms to improve transparency of the procurement process.

### Accountability, results-based management, and transparency
- Endorsements and priorities:
  - Staffs commend authorities’ commitment to strengthen accountability and transparency.
  - MTP plans to build on the Results for Kenyans Reform Programme (conceived and designed over the 2004–2006 period) to entrench results-based management (RBM).
  - Proposed measures include performance contracting, improved public access to information and data, civilian oversight of key legal/justice/security institutions, and strengthening Parliament’s legislative oversight capacity.
- Staff recommendation:
  - Performance measures for these objectives should be more explicitly stated in the implementation plan, with more precise performance indicators and milestones.

### Sectoral assessments (select sectors)
- Infrastructure:
  - MTP emphasizes shifting budgetary resources from recurrent expenditures to infrastructure and plans to double resources on infrastructure during the MTP period.
  - MTP does not specify how sector funding for water will be channeled despite noting negative impacts of poor water supply and sanitation.
- Agriculture:
  - MTP and Agricultural Sector Development Strategy (ASDS) focus on food security, productivity and value addition, ASALs development, producer organizations and market linkages, and legal/policy reforms.
  - Staffs encourage high priority on reforms to improve service delivery, investments in irrigation and livestock marketing infrastructure, and fast-tracking reform and privatization of parastatals (e.g., sugar factories and livestock parastatals).
- Education and training:
  - MTP builds on elimination of school fees and increased primary enrollment.
  - Proposed efficiency measures include: (i) differentiating staff norms between primary and secondary education levels and between high and low potential areas; (ii) reducing teaching loads at secondary level; (iii) sharing teachers across schools; and (iv) retraining and redeploying teachers.
  - Weakness: lack of prioritization and reference to a financing framework; challenge of improving quality and relevance remains.
- Health:
  - MTP goals: provide affordable and high quality health care by devolving funds/management to districts and communities and shifting resources from curative to preventive care.
  - Priority outcomes: reduce incidence of HIV/AIDS, malaria, and TB; lower infant, child, and maternal mortality rates.
  - Flagship projects include rehabilitation of health facilities; strengthening procurement and distribution through KEMSA; establishing community-based information system; human resources for health; equitable healthcare financing mechanisms; and de-linking ministries of health from service delivery.
- Gender:
  - Strong focus on gender equality; strategies proposed across sectors to address gaps in education, representation, access to credit, land policy, gender-based violence, female genital mutilation, and maternal mortality.
  - Noted gap: gender-sensitive strategies less evident for the agricultural sector and modern sector wage employment.
  - Poverty prevalence cited: female-headed households (46.2 percent) versus male-headed households (30 percent).
- Financial services:
  - Objectives: stimulate savings and deepen financial intermediation.
  - Targets and assumptions:
    - Increase savings rate from around 17 percent to 30 percent of GDP by the end of the plan period.
    - Lower share of population without access to finance by around 15 percentage points.
    - Increase stock market capitalization by 40 percentage points.
    - Key assumption: up to 10 percent of GDP in savings for investment could be raised from remittances, FDI, and sovereign bonds.
  - Plans include facilitating transformation of small banks via increased capitalization, pension fund reforms, expanding bond and equity markets, and tapping international capital.
  - Staff concern: unclear linkage between proposed actions/legal and regulatory framework and achievement of objectives; pension reform (including NSSF) important because money-losing pension plans are equivalent to dissaving.
- Tourism:
  - MTP targets expansion in arrivals and income; arrivals rising after the 2007 dip but unclear impact on spending per tourist or price discounting.
  - Ministry of Tourism task force for sustainable tourism to propose recommendations on wildlife protection and park organization.
  - Strategy lacks clear prioritization and clarity on how measures (including flagship programs and legal/regulatory reforms) will meet targets and address sector constraints.

### Monitoring and evaluation (M&E)
- Institutional framework:
  - Monitoring through National Integrated Monitoring and Evaluation System (NIMES), administered by the Ministry for Planning, National Development and Vision 2030, producing quarterly and annual progress reports.
  - A handbook of indicators (separate volume) lays out performance and monitoring framework divided into four main blocs and indicates outcome measures by year for national socioeconomic and governance objectives, flagship projects, gender monitoring, and sub-national targets.
  - Framework provides for quarterly or annual progress reports and indicates responsible reporting agencies.
- Staff endorsement and caveats:
  - Staffs endorse the framework and planned reporting frequency and welcome specific annual milestones.
  - Most annual quantitative outcome indicators need realignment to account for change in the baseline due to adverse economic developments of 2008.
  - Framework as it applies to subnational and gender-related objectives appears incomplete and needs updating.
- Capacity concerns:
  - Most M&E data would be generated under the National Statistical System (NSS) headed by Kenya National Bureau of Statistics (KNBS).
  - KNBS reforms are encouraging but incomplete; insufficient progress in national accounts and external sector data.
  - Key upcoming data sources: 2008–09 Demographic and Health Survey, 2009 national population census, and an upcoming new round of the Integrated Household Budget survey expected for 2010–11.
  - Without further KNBS reform progress, evaluation of MTP progress may be challenging in some areas.

### Risks and conclusions
- Main risks:
  - Weak governance, an uncertain political future, and exogenous shocks (perennial drought, changes in terms of trade).
  - Perception of corruption remains very high.
  - Post-election violence of 2007–08 and subsequent coalition government focus on constitutional reform and next election have created uncertain environment constraining structural reform progress.
  - Heavy reliance on foreign financing: lower-than-expected investor and donor interest could jeopardize key MTP elements.
- Outlook:
  - International economic crisis and post-election instability reduced growth rates from the high levels seen from 2005 to 2007.
  - Near-term growth prospects remain depressed; medium-term outlook is broadly balanced.
  - Recent accomplishments relevant for the poor include elimination of primary school fees and a decline in child mortality.
  - Kenya Vision 2030 and the MTP present a blueprint for the future.
- Staff suggestion:
  - Authorities could consider strengthening engagement with development partners to help achieve diversification and resilience objectives.

### Key staff recommendations
- Update the underlying macroeconomic framework to take account of:
  - the recent decline in growth and subsequent changes to the baseline scenario due to the global financial crisis;
  - the over-optimistic growth targets, investment plans, and financing assumptions; and
  - the key risks that Kenya faces, especially from exogenous shocks.
- Strengthen the poverty analysis, with updated information about the dynamics of poverty and inequality.
- Further strengthen the discussion of structural reforms, including governance, public financial management, and public sector reforms.
- Prioritize the sector programs, and improve the synergy between them and the overarching objectives of growth and poverty reduction.
- Strengthen the monitoring and evaluation framework, especially with respect to the performance measures and indicators for subnational governments.

*Source: Joint Staff Advisory Note (JSAN) reviewing the Kenya Vision 2030 First Medium-Term Plan 2008–12.*

### 1.      This Joint Staff Advisory Note (JSAN) reviews the Kenya Vision 2030 (the

### Joint Staff Advisory Note (JSAN) review of the Kenya Vision 2030 First Medium-Term Plan (MTP) 2008–12

### Purpose and scope
- Reviews the Kenya Vision 2030 (the Vision) First Medium-Term Plan (MTP) 2008–12 prepared by the Government of the Republic of Kenya.
- The MTP was prepared in 2007 and submitted to IDA and the IMF on October 9, 2009, in the context of preparation for the World Bank Country Partnership Strategy 2010–13 for Kenya.
- The MTP follows the Investment Programme for the Economic Recovery Strategy for Wealth and Employment Creation (IP-ERS) 2003–07; a JSAN of the IP-ERS was discussed by the World Bank and IMF Executive Boards on May 6 and May 10, 2004.

### Structure of the Vision and MTP
- Organized around three pillars: economic, social, and political.
- Economic pillar focuses on six sectors: tourism, agriculture, manufacturing, trade, information technology, and financial services.
- Social pillar covers: education, health, environment, water and sanitation, population, urbanization and housing, and gender, vulnerable groups, and youth.
- Political pillar addresses: governance and the rule of law and decentralization plans.
- Cross-cutting themes: investment in physical infrastructure and information and communications technology; land and public sector reforms; human resource development, labor and employment; and security, peace building and conflict resolution.

### Key assessment findings (overall)
- Sector-specific objectives are generally compelling and broadly compatible with Millennium Development Goals (MDGs).
- Two main weaknesses identified:
  - Marked lack of prioritization among many programs outlined.
  - Numerical goals (e.g., growth rate of investment) are highly optimistic relative to past experience; headline targets are better viewed as aspirations rather than practical targets for planning and accountability.

### II. Background — political and economic context
- Post-2007 events:
  - 2007 post-election violence occurred prior to MTP issuance; a Grand Coalition government was subsequently established.
  - Kenya experienced spillover effects of the international economic crisis; many macroeconomic assumptions underlying the MTP are no longer realistic.
- Governance and public trust:
  - 2008 Afrobarometer survey: 48 percent said “most” or “all” government officials are involved in corruption; an additional 43 percent said that “some” are corrupt.
- Economic performance:
  - Average real GDP growth of 6 percent in 2004–07, peaking at 7 percent in 2007.
  - In 2008, real GDP growth fell to 1¾ percent.
  - Kenya requested IMF assistance under the Rapid Access Exogenous Shocks Facility in the amount of about US$200 million in May, 2009.
- Debt and financial sector:
  - Total debt is now about 40 percent of GDP, down from 75 percent in 1992–93 to about 20 percent currently (external debt decline achieved without debt relief).
  - Financial Sector Assessment Program (FSAP) update: banking sector remains well-capitalized and adequately provisioned; weaknesses in supervision/regulation of cross-border transactions, increasing regionalization, and regulation of pension schemes.

### III. Poverty trends and characteristics
- Poverty rates (based on 2005–06 household survey):
  - Overall poverty rate: 47 percent.
  - Extreme poverty rate: 20 percent.
  - Rural poverty: 50 percent; urban poverty: 34 percent.
  - Official poverty rate essentially unchanged from 1981.
- Inequality:
  - Gini coefficient: 45.2.
  - National figures show widening inequality between 1997 and 2005.
  - Urban female-headed households poverty rate: 46 percent; households headed by men: 30 percent.
- Nonmonetary welfare trends:
  - Preliminary 2008–09 KDHS results: under-5 mortality fell to 74 deaths per 1,000 live births (from 115 in 2003).
  - Infant mortality declined from 77 to 52 deaths per 1,000 live births over the same period.
  - Introduction of free primary education appears to have increased primary attendance rates; official data show a recent decline in adult HIV prevalence (both findings await KDHS analysis confirmation).
- Binding constraints and drivers:
  - Diversification of household activities is a positive driver out of poverty.
  - Access to credit is weak: 70 percent of Kenyans unable to secure any form of credit.
  - High poverty rates among landless agricultural laborers; inequality in land ownership increased between 1997 and 2005.
  - Improved infrastructure, especially roads, is associated with movements out of poverty.
- Land reform agenda (MTP focus):
  - Key elements: establishment of a land registry and land information management system; development of a National Land Use Master Plan; accompanying legal and institutional reforms; devolution of land administration and management; improved access to land administration by the poor.
  - Staffs consider implementation could provide long lasting solutions to property rights, land use, inequity in access, and land ownership.

### IV. Poverty reduction strategy — Macroeconomic framework
- Achievements noted:
  - History of strong and stable macroeconomic policies since the early 2000s.
  - Low fiscal deficits maintained since the 1990s.
  - Reduction in total debt levels without debt relief.
- MTP macro targets and policy intentions:
  - Targets increase in annual real GDP growth from 4.5 percent in 2008 to 10 percent by 2012, with sectoral growth targets.
  - Fiscal policy aims for a gradual decline in the fiscal balance to achieve a domestic debt to GDP ratio of 18.3 percent by 2012/13, from 22.2 percent in 2007/08.
  - Public financial management (PFM) reforms, monetary policy targeting low inflation, financial sector reforms to increase national savings, and external sector policy to increase capital inflows and foreign reserves accumulation.
- Staff assessment of feasibility and risks:
  - Staffs believe targeted growth rates are unlikely to be achieved; targets were extremely ambitious when developed in 2007 and were not revised after the global economic crisis.
  - Downside risks: weather-related shocks, political environment, slower-than-expected global recovery.
  - Recommendation: strengthen macroeconomic coverage by adopting a consistent framework that accounts for risks and quantifies macroeconomic implications and policy challenges.
- Investment and financing:
  - MTP projects investment growth from 22.9 percent of GDP in 2007/08 to 32.6 percent by end of plan period, driven by flagship projects (agriculture, manufacturing, business process outsourcing, financial sectors).
  - Staffs endorse private-sector-driven focus but caution investment rates are unrealistically high and growth of capital-intensive projects may disproportionately benefit certain geographic areas.
  - Staffs recommend building a level playing field to support broad-based, sustained growth and equitable social development.
- Domestic financing risks:
  - Domestic financing projected to rise modestly due to a domestic debt-to-GDP target capping this source.
  - MTP assumes MTEF budgetary process can be strengthened to reallocate public spending to flagship projects; staffs caution reallocation scope may be limited.
  - Risks if domestic borrowing substitutes for financing shortfalls: upward pressure on interest rates, crowding out private sector, risk of adverse debt dynamics with rising domestic debt and debt service costs.
  - Public-private partnerships (PPPs) commendable but require careful consideration of costs, financing, and tax obligations; long-term leases/PPPs could be equivalent to nonconcessional financing.
- External financing and debt dynamics:
  - MTP projects increases in official external support and private sector commercial financing; issuance of a benchmark sovereign bond expected to attract private inflows.
  - Staffs view projected donor flows as optimistic relative to historical trends.
  - Caution that an international bond carries risks: current market conditions, high carrying cost, foreign exchange risk.
  - High reliance on FDI flows, corporate borrowing from abroad, and public sector financing could worsen overall debt dynamics.
  - Recommendation: concessional loans are first-best option for financing public-investment component; authorities advised to reengage donors and avoid excessive external borrowing.
- Exchange rate and competitiveness considerations:
  - Large inflows needed to support investment could exert upward pressure on the real value of the shilling, especially if imports are intensive.
  - Staffs advise managing and smoothing externally financed nontraded investment impacts to mitigate appreciation pressures.
  - Need for consistent macroeconomic strategy and structural policies to maintain external competitiveness.
  - Sectoral strategies should be grounded in an overarching macroeconomic and policy framework emphasizing macroeconomic stability and a favorable business climate.

### Governance, public financial management, and public sector reform
- Governance is a critical constraint to growth; MTP acknowledges weaknesses and low public confidence post-2007 elections.
- Strategic governance transformation areas in Vision and MTP:
  - (a) rule of law; (b) public participation; (c) decentralization; (c) transparency and accountability; (d) public administration and service delivery; and (e) security, peace building and conflict management.
- Political cohesion and institutional reform:
  - MTP focuses on constitutional reform (new draft constitution), an independent Truth, Justice and Reconciliation Commission, an Electoral Review Committee, and a permanent Ethnic and Race Cohesion Committee.
  - Staffs endorse addressing past grievances to foster national cohesion and a stable environment for economic objectives.
  - Staffs caution that Parliament and the Judiciary need reforms to restore efficiency, trust, and confidence; lack of coalition consensus could limit capacity to address fundamental issues.
  - Recommendation: authorities should forge a durable political consensus to aid achievement of economic growth objectives.

*Source: Joint Staff Advisory Note (JSAN) reviewing the Kenya Vision 2030 First Medium-Term Plan 2008–12.*

### 23.      Transparency of public financial management is essential in the implementation

### Transparency of public financial management is essential in the implementation of the MTP

### Transparency and public financial management (PFM)
- Progress noted in: public procurement, debt management, linkages between macroeconomic objectives and fiscal planning, budget formulation, integrated payroll and personnel database (IPPD), internal and external audit.
- Cautions and risks:
  - Planned incentives for investors in flagship projects could complicate sound PFM principles.
  - Staffs caution against creating special incentives or privileges for certain sectors.
  - All projects should be subject to similar budget scrutiny and selected through the regular budget prioritization processes (especially the MTEF) without special budgeting, ring-fencing, or fast-tracked decisions.
  - Earmarking revenues for certain flagship projects and placing them outside the regular budget should be avoided because it may create distortions in the budget prioritization process as budget priorities evolve.
  - All flagship projects should be subject to the same procurement policies, in line with recent reforms to improve transparency of the procurement process.

### Accountability, results-based management, and transparency
- Endorsements and priorities:
  - Staffs commend authorities’ commitment to strengthen accountability and transparency.
  - MTP plans to build on the Results for Kenyans Reform Programme (conceived and designed over the 2004–2006 period) to entrench results-based management (RBM).
  - Proposed measures include performance contracting, improved public access to information and data, civilian oversight of key legal/justice/security institutions, and strengthening Parliament’s legislative oversight capacity.
- Staff recommendation:
  - Performance measures for these objectives should be more explicitly stated in the implementation plan, with more precise performance indicators and milestones.

### Sectoral assessments (select sectors)
- Infrastructure:
  - MTP emphasizes shifting budgetary resources from recurrent expenditures to infrastructure and plans to double resources on infrastructure during the MTP period.
  - MTP does not specify how sector funding for water will be channeled despite noting negative impacts of poor water supply and sanitation.
- Agriculture:
  - MTP and Agricultural Sector Development Strategy (ASDS) focus on food security, productivity and value addition, ASALs development, producer organizations and market linkages, and legal/policy reforms.
  - Staffs encourage high priority on reforms to improve service delivery, investments in irrigation and livestock marketing infrastructure, and fast-tracking reform and privatization of parastatals (e.g., sugar factories and livestock parastatals).
- Education and training:
  - MTP builds on elimination of school fees and increased primary enrollment.
  - Proposed efficiency measures include: (i) differentiating staff norms between primary and secondary education levels and between high and low potential areas; (ii) reducing teaching loads at secondary level; (iii) sharing teachers across schools; and (iv) retraining and redeploying teachers.
  - Weakness: lack of prioritization and reference to a financing framework; challenge of improving quality and relevance remains.
- Health:
  - MTP goals: provide affordable and high quality health care by devolving funds/management to districts and communities and shifting resources from curative to preventive care.
  - Priority outcomes: reduce incidence of HIV/AIDS, malaria, and TB; lower infant, child, and maternal mortality rates.
  - Flagship projects include rehabilitation of health facilities; strengthening procurement and distribution through KEMSA; establishing community-based information system; human resources for health; equitable healthcare financing mechanisms; and de-linking ministries of health from service delivery.
- Gender:
  - Strong focus on gender equality; strategies proposed across sectors to address gaps in education, representation, access to credit, land policy, gender-based violence, female genital mutilation, and maternal mortality.
  - Noted gap: gender-sensitive strategies less evident for the agricultural sector and modern sector wage employment.
  - Poverty prevalence cited: female-headed households (46.2 percent) versus male-headed households (30 percent).
- Financial services:
  - Objectives: stimulate savings and deepen financial intermediation.
  - Targets and assumptions:
    - Increase savings rate from around 17 percent to 30 percent of GDP by the end of the plan period.
    - Lower share of population without access to finance by around 15 percentage points.
    - Increase stock market capitalization by 40 percentage points.
    - Key assumption: up to 10 percent of GDP in savings for investment could be raised from remittances, FDI, and sovereign bonds.
  - Plans include facilitating transformation of small banks via increased capitalization, pension fund reforms, expanding bond and equity markets, and tapping international capital.
  - Staff concern: unclear linkage between proposed actions/legal and regulatory framework and achievement of objectives; pension reform (including NSSF) important because money-losing pension plans are equivalent to dissaving.
- Tourism:
  - MTP targets expansion in arrivals and income; arrivals rising after the 2007 dip but unclear impact on spending per tourist or price discounting.
  - Ministry of Tourism task force for sustainable tourism to propose recommendations on wildlife protection and park organization.
  - Strategy lacks clear prioritization and clarity on how measures (including flagship programs and legal/regulatory reforms) will meet targets and address sector constraints.

### Monitoring and evaluation (M&E)
- Institutional framework:
  - Monitoring through National Integrated Monitoring and Evaluation System (NIMES), administered by the Ministry for Planning, National Development and Vision 2030, producing quarterly and annual progress reports.
  - A handbook of indicators (separate volume) lays out performance and monitoring framework divided into four main blocs and indicates outcome measures by year for national socioeconomic and governance objectives, flagship projects, gender monitoring, and sub-national targets.
  - Framework provides for quarterly or annual progress reports and indicates responsible reporting agencies.
- Staff endorsement and caveats:
  - Staffs endorse the framework and planned reporting frequency and welcome specific annual milestones.
  - Most annual quantitative outcome indicators need realignment to account for change in the baseline due to adverse economic developments of 2008.
  - Framework as it applies to subnational and gender-related objectives appears incomplete and needs updating.
- Capacity concerns:
  - Most M&E data would be generated under the National Statistical System (NSS) headed by Kenya National Bureau of Statistics (KNBS).
  - KNBS reforms are encouraging but incomplete; insufficient progress in national accounts and external sector data.
  - Key upcoming data sources: 2008–09 Demographic and Health Survey, 2009 national population census, and an upcoming new round of the Integrated Household Budget survey expected for 2010–11.
  - Without further KNBS reform progress, evaluation of MTP progress may be challenging in some areas.

### Risks and conclusions
- Main risks:
  - Weak governance, an uncertain political future, and exogenous shocks (perennial drought, changes in terms of trade).
  - Perception of corruption remains very high.
  - Post-election violence of 2007–08 and subsequent coalition government focus on constitutional reform and next election have created uncertain environment constraining structural reform progress.
  - Heavy reliance on foreign financing: lower-than-expected investor and donor interest could jeopardize key MTP elements.
- Outlook:
  - International economic crisis and post-election instability reduced growth rates from the high levels seen from 2005 to 2007.
  - Near-term growth prospects remain depressed; medium-term outlook is broadly balanced.
  - Recent accomplishments relevant for the poor include elimination of primary school fees and a decline in child mortality.
  - Kenya Vision 2030 and the MTP present a blueprint for the future.
- Staff suggestion:
  - Authorities could consider strengthening engagement with development partners to help achieve diversification and resilience objectives.

### Key staff recommendations (as list in the advisory note)
- Update the underlying macroeconomic framework to take account of:
  - the recent decline in growth and subsequent changes to the baseline scenario due to the global financial crisis;
  - the over-optimistic growth targets, investment plans, and financing assumptions; and
  - the key risks that Kenya faces, especially from exogenous shocks.
- Strengthen the poverty analysis, with updated information about the dynamics of poverty and inequality.
- Further strengthen the discussion of structural reforms, including governance, public financial management, and public sector reforms.
- Prioritize the sector programs, and improve the synergy between them and the overarching objectives of growth and poverty reduction.
- Strengthen the monitoring and evaluation framework, especially with respect to the performance measures and indicators for subnational governments.

*Source: IMF staff advisory note excerpt on the MTP implementation and public financial management.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10133.pdf_