The power of PFM

Early moves

The reforms trace back to 2003, when the government kicked off efforts to rebuild an economy plagued by stagnation and inequality by introducing a medium-term expenditure framework that linked budgeting to national priorities, with an emphasis on poverty reduction and governance. As a result, economic growth surged from 0.6% in 2002 to 6% by 2007, alongside a 10% drop in poverty rates and improved health outcomes, including a 13% fall in malaria mortality.

Subsequent five-year strategies rolled out automation initiatives and strengthened procurement processes for value-for-money spending. The pivotal shift, though, was the 2010 constitution, which introduced equitable resource sharing between national and county governments, and empowered the 47 counties to manage their own budgets. The creation of the Commission on Revenue Allocation and the Office of the Auditor-General has also helped enforce accountability.

Bigger strides

The foundational changes set the stage for more ambitious strides. The 2018–23 strategy focused on creating a sustainable fiscal space, enhancing performance management and automating systems to align with International Public Sector Accounting Standards (IPSAS).

Professional accountants working in the sector now have a heightened role in advising on compliance, as the reforms emphasised results-oriented budgeting and public participation in fiscal decisions. The 2018–23 strategy’s seven thematic areas (ranging from resource mobilisation and budget execution to fiscal decentralisation and re-engineering for automation) incorporated lessons from joint reviews on fiscal transparency. By institutionalising public engagement, Kenya has ensured budgets reflect citizen needs, with feedback becoming routine.

The payoffs

The reforms have bolstered economic resilience, enabling Kenya to navigate shocks such as the Covid-19 pandemic by adapting its PFM tools for emergency spending and fiscal rules. E-procurement systems are among the digital tools that have curbed corruption by minimising human intervention, while cutting costs and enhancing transparency – a boon for auditors verifying expenditures.

In the health sector, PFM pilots under Universal Health Coverage have demonstrated how hybrid planning (blending top-down national directives with bottom-up county inputs) can sustain service delivery given timely disbursements and flexible budgeting. Kenya is now positioned as a leader in African PFM.

Challenges

Yet the road has not been smooth. Persistent corruption scandals underscore gaps in oversight despite robust frameworks. County-level delays in budget execution disrupt services, often due to capacity shortfalls in technical expertise and fragmented system integration. Pending bills ballooned to KSh181.98bn (US$1.04bn) by mid-2024, straining suppliers and eroding trust, while non-payment of over Ksh91bn in pension deductions poses risks to retirees.

Political interference and low public awareness further hamper progress, as do misalignments between national and county fiscal cycles, leading to inefficiencies in funds utilisation. For finance professionals, these issues highlight the critical need for strengthened internal controls and risk management – areas where ACCA expertise in forensic accounting and compliance can make a difference (see also ‘Ethics is our superpower’).

Future focus

Looking ahead, the Kenya Kwanza (‘Kenya First’) administration’s push for performance-driven governance puts fresh emphasis on digital transformation and sustainability. Key initiatives include a Treasury single account to centralise cash management and reduce idle funds. The shift from cash to accrual accounting, guided by IPSAS 33, promises better asset tracking and financial reporting, with pilots already underway. Green finance also features prominently, with support from the French Development Agency channelling €159m to modernise debt management and integrate climate considerations into budgeting.

The 2025/26 Budget statement targets a fiscal deficit reduction to 2.7% of GDP over the medium term. Public-private partnerships are being prioritised to ease debt burdens, while project evaluations are being automated.

These developments open doors to advisory roles in emerging areas such as climate-resilient financing and digital audits. As Kenya targets a 33% reduction in its debt-to-GDP ratio through structural reforms, professionals versed in IPSAS and risk assessment will be instrumental in bridging implementation gaps. Challenges such as pending bills and county capacities persist, but with tools such as the Budget Portal enhancing transparency, the trajectory is optimistic.

Ultimately, Kenya’s PFM story is one of resilience. Sound financial stewardship is not only safeguarding public resources but also propelling the nation toward equitable prosperity.