Public Finance Management Act 2012

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SPECIAL ISSUE

Kenya Gazette Supplement No. 94 (Acts No. 18)

REPUBLIC OF KENYA

KENYA GAZETTE SUPPLEMENT

A CTS, 2012

NAIROBI, 27th A ugust, 2012

CONTENT

ActPAGE

The Public Finance Management Act, 2012 871

NATIONAL COUNCIL FOR LAW REPORTING

RECEIVED

71)17P.

NAiR'CL31, KER

TEL: 2719231 FAX: 27


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THE PUBLIC FINANCE M ANAGEM ENT ACT

No. 18 of 2012

Date of Assent: 24th July, 2012

Date of Commeticement:Provisions Relating to County GovernmentsSee Section 1

All Other Provisions: 27th August, 2012

ARRANGEMENT OF SECTIONS

Sections

PART IPRELIMINARY

1Short title and commencem ent.

2Interpretation.

3Object of this Act.

4 Declaration of entities as national government entities.

5 Declaration of entities as county government entities.

6 Act to prevail in certain matters.

PART IIPARLIAMENTARY OVERSIGHT OF NATIONAL

FINANCES

Responsibilities of Committees of Parliament

7 Responsibilities of the National Assembly budget committee in publicfinance matters.

8Responsibilities of the Senate budget committee in public financematters.

Parliamentary Budget Office

9Parliamentary Budget O ffice continued.


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13Powers of the National Treasury.

14Secondment of public officers by National Treasury to a County

Treasury.15The National Treasury to enforce fiscal responsibility principles.

16National government deviation from financial objectives.

Responsibilities of the National Treasury with respect to NationalPublic Funds

17The National Treasury to administer the Consolidated Fund.

18The National Treasury to administer the Equalisation Fund.

19Source of the Contingencies Fund.

20Cabinet Secretary to administer the Contingencies Fund.

21Advances from the Contingencies Fund.

22Cabinet Secretary to seek parliamentary approval for payments madefrom the Contingencies Fund.

23Financial statements in respect of the Contingencies Fund.

24Establishment of Parliamentary Fund and other national governmentpublic funds.

Responsibilities of the National Treasury with respect to the budgetProcess

25National Treasury to prepare annual Budget Policy Statement.

26National Treasury to prepare Budget Review and Outlook Paper.

27 Publication of pre- and post-election economic and fiscal reports byNational Treasury.


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31Cabinet Secretary to report on all loans.

32The Cabinet Secretary to report on National government guarantees.

33Cabinet Secretary to submit National government debt managementstrategy to Parliament annually.

34The National Treasury to provide Parliament with additional reportswhen required.

National Government Budget Process

35Stages in the budget process.

36Cabinet Secretary to manage budget process at national level.

37Submission of budget estimates and related documents for approval.

38Submission of other budget documents to the National Assembly.

39National Assembly to consider budget estimates.

40 Submission and consideration of budget policy highlights and theFinance Bill in the National Assembly.

41Passing of the Finance Bill.

42Consideration by Parliament of Division of Revenue and CountyAllocation of Revenue Bills.

43Limited powers of accounting officer of national government entityto reallocate appropriated funds.

44National government to submit supplementary budget to Parliament.

45Appropriations to lapse if unspent at the end of the financial year.

Responsibilities of the Cabinet Secretary and functions of the nationalgovernment with respect to grants and loans


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49Authority for borrowing by national government.

50Obligations and restrictions on national government guaranteeing and

borrowing.

51Bon -Ow ing' by National government entities.

52Persons uthorised to execute loan documents at nationalgovernment level.

53Issuance of securities by national government.

54Exemption from stamp duty.

55Establishment of the office of Registrar of national governmentsecurities.

56Power of national government to enter into derivative transactions.

57Power of national government to lend money.

58Power of Cabinet Secretary to guarantee loans.

59Cabinet Secretary to submit a statement on loan guarantee toParliament.

60Money payable in respect of a guarantee to be a charge onthe Consolidated Fund.

61Recovery of amounts paid on a guarantee.

The Public Debt Management Office

62Establishment and objectives of the Public Debt ManagementOffice.

63Functions of the Public Debt Management Office.

64Role of Cabinet Secretary in Public Debt Management Office.


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Commissions and Independent Offices.

Respons ibilities of the accounting officers, the na tional government and

the national government entities

67Designation of accounting officers for national government.

68Responsibilities of accounting officers for national governmententities, Parliament and the Judiciary.

69Accounting officer of a national government entity may write- offloss.

70Spending authority of accounting officer.

71Accounting officer for national government entity may make cashadvances.

72Accounting Officer to manage assets and liabilities of national

government entities.

73 National government entity to m aintain internal auditingarrangements.

74Disciplinary measures against public and accounting officers.

Receivers and collectors of National government revenue

75Designation of receivers of national government revenue.

76Receiver may authorise a public officer to be collector of nationalgovernment revenue.

77Powers of the Cabinet Secretary to waive or vary tax, fees or charges.

78 Kenya Revenue Authority to be a collector of national governmentrevenue.

Obligations ofpublic officers

79 Public officers to comply with laws relating to government resources.


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statement.

81 Annual reporting by accounting officers.

82 Annual reporting by receivers of revenue.

83Accounting officer to prepare quarterly reports for Nationalgovernment entity.

84 Adm inistrators of national public funds to prepare annual financialstatements.

85Quarterly reporting by administrators of national public funds.

Establishment and dissolution of State Corporations and additionalrequirements for state corporations and Government-linked corporations

86 Establishment and dissolution of a State Corporation.

87 Restrictions on National government investing in government-linkedcorporations.

88 Cabinet Secretary in charge of state corporation to monitor itsperformance.

89Annual reporting by the Cabinet Secretary responsible for mattersrelating to public investments.

90 Parliament may extend time limit.

91 Definitions for purposes of sections 86, 87, 88 and 89.

Resolution of operational and financial problems ofnational government entities and county governments

92Responsibility for avoiding, identifying and resolving financial


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96 Stoppage of funds process in county government.

97 Procedure for stoppage of funds.

98 Renewal of decision to stop funds and termination of stoppage.

99 Provision for a recovery plan.

100 Establishment of the Joint Intergovernmental Technical Comm ittee.

101 Termination of intervention.

PART IV COUNTY G OVERNMEN T RESPONSIBILITIESWITH RESPECT TO THE MANAGEM ENT AND CONTROL

OF PUBLIC FINANCE

102 County government responsibilities in public finance.

103 Establishment of county treasuries.

Responsibilities and powers of a County Treasury

104 General responsibilities of a County Treasury.

105Powers of a County Treasury.

106 Secondment of public officers by County Treasury to NationalTreasury.

107 County Treasury to enforce fiscal responsibility principles.

108County government deviation from financial objectives.

Responsibilities of County Treasury with respect to County Public Funds

109Establishment of a County Revenue Fund for each countygovernment


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112 Power of County Executive Comm ittee member to make paymentsfrom Emergency Fund.

113 Limitations on power of County Executive Committee member forfinance to make payments from Emergency Fund.

114County Executive Committee member for finance to seek approvalfor payments from Emergency Fund.

115County Treasury to submit a report to Auditor-General in respect toEmergency Fund.

116 Power to establish other County public funds.

Responsibilities of county governments with respect to the CountyBudget process

117 County Treasury to prepare County Fiscal Strategy Paper.

118County Treasury to prepare a County Budget Review and OutlookPaper.

Other responsibilities of County Treasury

119 Banking arrangements for county government and its entities.120 Management of cash at the county government level.

121 Procurement for county government entities.

122 County Treasury to maintain record of county government loans.

123 County Treasury to submit county government Debt Management

Strategy to County Assembly.124County Treasury to provide County Assembly with additional

reports when required.

The County Government Budget Process


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128 County Executive Committee mem ber for finance to manage budgetprocess at county government level.

129County Executive Committee member to submit budget estimatesand other documents to County Executive Committee for approval.

130 County Executive Comm ittee member for finance to submit budgetdocuments to County Assembly.

131County Assembly to consider budget estimates.

132 Submission and consideration of the revenue raising m easures in thecounty assembly.

133 Approval of the Finance Bill.

134 Action to be taken in case of delay in enacting CountyAppropriation Bill.

135 County government to submit to county assembly supplementarybudgets in certain circumstances.

136 Appropriation of money for county government purposes to lapse ifunspent.

Establishment of Forum for consultation by county governments137 Establishment of county budget and econom ic forum for county

budget consultation process.

Responsibilities of County Executive Comm ittee Mem ber for finance andfunctions of the county government in respect to public finances

138Conditions for receiving grants and donations by countygovernment or its entities or third parties.

139 Regulations on grant administration.

140Authority for borrowing by county governments.


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143Persons who are authorised to execute loan documents at county,government level.

144 County government may issue securities only if authorised by thisAct.

145 County government authorised to lend money.

146 County government joint infrastructure investment.

Responsibilities of an accounting officer of a county assembly inmanagement of public finances

14i Role of Accounting officers in management of public finances.

Responsibilities of the accounting officers of county government andcounty government entities

148Designation of accounting officers to county government entities bythe County Executive Committee member for finance.

149 Responsibilities of accounting officers designated to countygovernment entities.

150 Accounting officer of a county government entity may write offany loss.

151 Spending authority of accounting officer.

152Power of accounting officers for county entities to make cashadvances.

153Accounting officer to be responsible for managing assets andliabilities of county government entity.

154Limited power of an accounting officer to reallocate appropriatedfunds.

155 County government entity to maintain internal auditing


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158 Receiver may authorise public officer to be collector of revenue.

159Powers of the County Executive Committee member for finance to

waive or vary tax, fees or charges.

160 Kenya Revenue Authority may be appointed collector.

161 County government revenue raising measures to conform to Article209 (5) of the Constitution.

Obligations of county government officers

162Obligations of public officers with respect to county governmentresources.

Financial reporting by county governm ents entities

163County government to prepare annual financial statement.

164Annual reporting by accounting officers.

165Annual reporting by receivers of revenue.

166 Accounting officer to prepare quarterly reports for countygovernment entity.

167Annual reporting by Administrators of county public funds.

168Quarterly reporting by administrators of county public funds.

Financial management in urban areas and cities

169Application of this par to urban areas and cities.

170Accounting Officer of urban area or city.

171Urban area or city accounting officer responsibilities in revenuemanagement.


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174Principles to be observed by urban areas or cities in managingpublic finances.

175Budget and budget process for urban areas or cities.

176Response to delays in approval of annual budgets by urban areas orcities.

177Borrowing by urban areas or cities.

I78Conditions in which urban areas or cities may receive grants.

179Urban areas or cities bank accounts.

180 Reporting by urban areas or cities.

181Transitional arrangements.

Establishment and dissolution of County Corporations and additionalrequirements for county corporations and county government-linkedcorporations

182Establishment and dissolution of county corporations.

183Restrictions on county government investing in county government-

I inked corporations.

184Responsibility for monitoring financial performance of countycorporations.

185Annual reporting by the County Treasury on county corporations.186Definitions for purposes of sections 182, 183 and 184.

PART VR ELATIONSHIP BETWEEN NATIONAL ANDCOUNTY GOVERNMENTS ON BUDGET AND ECONOMICMATTERS

Establishment of the Intergovernmental Budget and Economic Council


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The process of sharing revenue

189The process of sharing revenue.

190Recommendations of the Commission on Revenue Allocation.

191Division of Revenue Bill and County Allocation of Revenue Bill.

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PART VI THE PUBLI C SECTOR ACCCOUNTING STANDARDS

BOARD

192Establishment of the Board.

193Composition of the Board.

194Functions of the Board.

195Vacation of office and remuneration of Board members.

PART VI I -ENFORCEMENT PROVISIONS

196Offence by public officers.

197Offence of financial misconduct.

198Other offences by public officers.

199Penalties for offences.

200Duty of Principal Secretary to report suspected offences to relevantlaw enforcement authority for investigation.

201Duty of the county Chief Officer to report suspected offences.

202Liability of public officer for certain losses sustained by nationalgovernment.


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PART VIIIMISCELLANEOUS PROVISIONS

205Powers of Cabinet Secretary to make regulations.

206Protection of public officers from liability.

207Public participation.

208Repeal of certain Acts.

209Consequential amendments to other Acts.

210Savings and transitional provisions.

FIRST SCHEDULE CONSEQUENTIAL AMENDMENTS TOOTHER ACTS

SECOND SCHEDULE SAVINGS AND TRANSITIONALPROVISIONS


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AN ACT of Parliament to provide for the effectivemanagement of public finances by the national andcounty governments; the oversight responsibility ofParliament and county assemblies; the differentresponsibilities of government entities and otherbodies, and for connected purposes

ENACTED by the Parliament of Kenya, as follows

PART I

PRELIMINARY1. (1) This Act shall' be cited as the Public Finance

Management Act, 2012.

(2) Subject to Article 116 (3) of the Constitution, allprovisions relating to county governments under thisAct shall come into operation upon the finalannouncement of the results of the first elections underthe Constitution.

2.(1) In this Act, unless the context otherwise requires

"accounting officer" means

(a) an accounting officer of a national governmententity referred to in section 67;

(b) an accounting officer of a county government entityreferred to in section 148;

(c) in the case of the Judiciary, the Chief Registrar ofthe Judiciary; or

(d ) in the case of the Parliam entary Serv iceCommission, the Clerk of the Senate;

d d d h bl

Short title andcommencement.

Interpretation


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fund; or

(b) authority granted by a county assembly to pay,money out of the relevant County Revenue Fund orout of any other county public fund;

"appropriation Act" means an Act of Parliament or of acounty assembly that provides for the provision of money topay for the supply of services;

"authorised officer"

(a) in relation to the National Treasury, means any of itsmembers or officers authorised by the NationalTreasury in accordance with section 13; or

(b) in relation to a County Treasury, means any of itsofficers authorised by the County Treasury inaccordance with section 105;

"borrower" means a person to whom a loan has been or

is to be made;"Budget Policy Statement", in relation to a financial

year, means the Budget Policy Statement referred to insection 25;

"Cabinet Secretary" means the Cabinet Secretaryresponsible for matters relating to finance;

"chart of account" means a structured list of accountsused to classify and record budget revenue and expendituretransactions as well as government assets and liabilities on astandard budget classifications system;

"Chief Officer" means the person appointed by theCounty Governor to administer the County departmentresponsible for financial affairs;

"commitment" means entering into a contract or otherbinding arrangement under which expenses or liabilities maybe incurred;

"collector of revenue"

(a) in relation to the national government means a


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"county corporation" means a public corporation withina county established by an Act of Parliathent or countylegislation;

"County Emergency Fund" means a Fund establishedunder section 110;

"County Exchequer Account" means a CountyExchequer Account referred to in section 109;

"County Executive Committee member for finance"means the member of a County Executive Committee

responsible for the financial affairs of the County and for theCounty Treasury;

"County F iscal Strategy Paper" , in relation to a countygovernment, means the County Fiscal Strategy Paper referredto in section 117;

"county government entity" means any departmentor agency of a county governm ent, and any authority,.body orother entity declared to be a county government entity undersection 5(1);

"county government revenue" means all moneyderived by or on behalf of a county government from levies,rates, fees, charges or any other source authorised by theConstitution or an Act of Parliament;

"county government security" means a security issuedby the county government under section 144 and includes atreasury bill, treasury bond, treasury note, government stockand any other debt instrument issued by the countygovernment;

"County Public Debt" means all financial obligationsattendant to loans raised and securities issued by the county

government;"County Treasury" means a County Treasury

established under section 101;

"development expenditure" means the expenditure forthe creation or renewal of assets;


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(a) the financial statements referred to in Part III andPart IV of this Act; and

(b) the financial statements prescribed by theAccounting Standards Board;

"fiscal responsibility principles" means the principles ofpublic finance specified in Article 201 of the Constitution,together with

(a) the principles of fiscal responsibility referred to insection 15, in relation to national government; and

(b) the principles of fiscal responsibility referred to insection 107, in relation to a county government;

"financial objectives" means the financial objectives set outin a Budget Policy Statement of the national government orin the County Fiscal Strategy Paper of the countygovernments;

"Intergovernmental Budget and Economic Council"means the Council established under section 187;

"internal auditing" means an independent,objective assurance and consulting activity designed to addvalue and improve an organisation's operations, which helpsan organisation accomplish its objectives by bringing a

systematic, disciplined approach to evaluate and improve theeffectiveness of risk management, control, and governanceprocesses;

"medium term" means a period of not less than threeyears but not more than five years;

"National Exchequer Account" means the NationalExchequer Account referred to in section 17;

"national government entity" includes any departmentor agency of the national government and any authority, body


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"national government security" includes a securityissued by the national government under section 53 and atreasury bill, treasury bond, treasury note, government stockand any other debt instrument issued by the national

government;

"National Treasury" means the National Treasuryestablished by section 11;

"Principal Secretary", in relation to the NationalTreasury, means the person responsible for the administrationof the National Treasury;

"public money" includes

(a) all money that comes into possession of, or isdistributed by, a national government entity andmoney raised by a private body where it is doing sounder statutory authority; and

(b ) money held by national government entities intrust for third parties and any money that cangenerate liability for the Government;

"publicise", in relation to a document, means to makeknown to the public, through the national or local media

(a) the general nature of the document; and

(b) how and where it may be accessed and read bymembers of the public;

"publish", in relation to a document, includes

(a) publishing the docum ent in a new spaper,Government Gazette or other publication of generalcirculation in Kenya; or

(b) publication of an abridged or summary versions ofthe documents without loosing the core content ofthe document; or

(c) making the document available for reference atpublic libraries or offices of national governmententities or in archives of those institutions; or


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or any of its entities-

(i) publishing the document in a newspaper or otherpublication of general circulation in the County;

(ii) making the document available for reference atpublic libraries or offices of the countygovernment or those entities; or

(iii) posting the document on the Internet on acounty government website;

"receiver of revenue"

(a) in relation to the National government, means aperson designated to be a receiver of revenue undersection 75;

(b) in relation to the county government, means aperson designated to be a receiver of revenue undersection 157;

"recurrent expenditure"

(a) in relation to the national government, means thee/ipenditure that is incurred in operating the servicesprovided by the national government; and

(b) in relation to a county government, means theexpenditure that is incurred in operating the servicesprovided by that county government,

but does not include expenditure incurred in creating orrenewing assets belonging to or m anaged by thatgovernment;

"regulations" means regulations made under this Act;

"short term borrowing" means borrowing by agovernment by way of Treasury Bills, bank-overdraft or other


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centralised bank account system where all depositsand payment transactions are processed for StateDepartments, Commigsions and IndependentOffices, and any national government entity whichdraws directly from the Consolidated Fund;

(b) in relation to the county government, means acentralised bank account system established in eachcounty where all deposits and payment transactionsare processed for county departments and any othercounty entity which draws directly from the County

Revenue Fund;

"Urban Board" means a city or municipal board withinthe meaning of the Urban Areas and Cities Act, 2011;

"vote" means money authorised by an appropriationAct for withdrawal from the Consolidated Fund or a CountyRevenue Fund; and

"wasteful expenditure" means any expenditure that wasincurred which could have been avoided had due care anddiligence been exercised.

(2) Terms used in this Act which are also used in theConstitution have the same meaning as they have in theConstitution.

3. The object of this Act is to ensure that

(a) public finances are managed at both the national and

the county levels of government in accordance withthe principles set out in the Constitution; and

(b)public officers who are given responsibility formanaging the finances are accountable to the publicfor the management of those finances through

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Object of this Act.


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Declaration ofentities as countygovernment entities.

Act to prevail incertain matters.

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(2) A declaration made under subsection (1) shall bebased on criteria prescribed by regulations.

(3) The Cabinet Secretary shall, from time to time, andnot less than once each year, publish in the Gazette a list ofnational entities declared under subsection (1).

(4) The Cabinet Secretary may, from time to time withthe approval of the Cabinet and Parliament, by order in theGazette, declare that a national government entity declaredunder subsection (1) shall, with effect from the date of theorder, cease to be a national government entity for thepurposes of this Act.

5. (1) A County Executive Committee member forfinance may, with the approval of the county executivecommittee and county assembly, by order in theGazette, declare a county corporation, an authority orany other body whose functions fall under that countygovernment to be a county government entity for thepurposes of this Act.

(2) A declaration made under subsection (1) shall bebased on criteria prescribed by regulations.

(3) A County Executive Comm ittee mem ber forfinance shall, from time to time, and not less than once eachyear, publish in the Gazette a list of the county entitiesdeclared under subsection (1).

(4) A , County Executive Committee member forfinance may, from time to time with the approval of thecounty assembly, and by notice in the Gazette declare that a

county government entity declared under subsection (1) shallwith effect from the date of the order cease to be a countygovernment entity for the purposes of this Act.

6. This Act shall prevail in the case of any inconsistencybetween this Act and any o ther legislation, on thefollowing matters

(a ) preparation and submission of budget estimates,

including the time for doing so;

(b ) preparation and submission of accounts for audit,including the time for doing so;

(c) borrowing, lending and loan guarantees;


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and

(ii) table in the Na tional Assem bly a report

containing the views of the Cabirtct Secretaryin subparagraph (i); and

Responsibilities ofthe Senate budgetcommittee in public

finance matters.

(h) introduce the Appropriations Bill in the NationalAssembly.

8. (1) The Committee of the Senate established to dealw ith bud getary and financ ia l m at te r's hasresponsibilities for the following matters, in addition tothe functions set out in the Standing Orders-

.

(a) present to the Senate, subject to the exceptions in theConstitution, the proposal for the basis of allocatingrevenue among the Counties and consider any billdealing with county financial matters;

(b) review the County Allocation of Revenue Bill and theDivision of Revenue Bill in accordance with Article218(1)(b) of the Constitution at least two monthsbefore the end of the financial year;

(c) examine financial statements and other documentssubmitted to the Senate under Part IV of this Act, and

make recommendations to the Senate for improvingthe management of government's public finances;and

(d) monitor adherence by the Senate to the principles ofpublic finance set out in the Constitution, and to the

fiscal responsibility principles of this Act.

(2) In carrying out its functions under subsection (1) (a) and(b), the Committee shall consider recommendationsfrom the Commission on Revenue Allocation, CountyExecutive Committee member responsible for finance,the Intergovernmental Budget and Economic Council,


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Parliamentary Service Commission, the Budget Office shallconsist of persons appointed on merit by virtue of theirexperience in finance, economics and public policy matters.

10. (1) The Parliamentary Budget Office shall-

(a) provide professional services' in respect of budget,finance, and economic information to the committeesof Parliament;

(b) prepare reports on budgetary projections and

econom ic forecasts and m ake proposals toCommittees of Parliament responsible for budgetarymatters;

(c) prepare analyses of specific issues, includingfinancial risks posed by Government policies andactivities to guide Parliament;

(d) consider budget proposals and economic trends andmake recommendations to the relevant committee ofParliament with respect to those proposals andtrends;

(e) establish and foster relationships with the NationalTreasury, county treasuries and other national and

international organisations, with an interest inbudgetary and socio-econom ic matters as itconsiders appropriate for the efficient and effectiveperformance of its functions;

(f) subject to Article 35 of the Constitution, ensure thatall reports and other documents produced by theParliamentary Budget Office are prepared, publishedand publicised not later than fourteen days afterproduction; and

(g) report to the relevant committees of Parliament onany Bill that is submitted to Parliament that has an

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Responsibilities ofthe ParliamentaryBudget Office.


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(2) n carrying out its functions under subsection(1), the Parliamentary Budget Office shall observethe principle of public participation in budgetary

matters.

PA RT I II N AT I O N A L G O V E R N M E N T

RESPONSIBILITIES WITH RESPECT TO THE

MANAGEM ENT AND CONTROL OF PUBLIC

FINANCE

Establishment of the National Treasury

Establishment of the

National Treasury.11. (1) There is established, pursuant to Article 225

of the Constitution, an entity of the nationalgovernment to be know n as the National Treasury.

(2)The National Treasury shall comprise of

(a) the Cabinet Secretary;

(b) the Principal Secretary; and

Generalresponsibilities ofthe National

Treasury.

(c) the department or departments, office or officesof the National Treasury responsible for

economic and financial matters.(3) The Cabinet Secretary shall be the head of the National

Treasury.

12. (1) Subject to the Constitution and this Act, theNational Treasury shall

(a) formulate, implement and monitor macro-economicpolicies involving expenditure and revenue;

(b) manage the level and composition of nationalpublic debt, national guarantees and other financialobligations of national government within the


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budgetary requirements;

(e) design and prescribe an efficient financialmanagement system for the national and county

governments to ensure transparent financialmanagement and standard financial reporting ascontemplated by Article 226 of the Constitution:

Provided that the National Treasury shallprescribe regulations that ensure that operations ofa system under this paragraph respect and promotethe distinctiveness of the national and county levelsof government;

(f) in consultation with the Accounting StandardsBoard, ensure that uniform accounting standards areapplied by the national government and its entities;

(g) develop policy for the establishment, management,operation and w inding up of public funds;

(h) within the framework of this Act and taking intoconsideration the recomm endations of theCommission on Revenue Allocation and theIntergovernmental Budget and Economic Council,prepare the annual Division of Revenue Bill and theCounty A llocation of Revenue Bill;

(i) strengthen financial and fiscal relations between thenational government and county governments andencourage support for county governments in termsof Article 190(1) of the Constitution in performingtheir functions; and

(j) assist county governments to develop their capacityfor efficient, effective and transparent financialmanagement in consultation with the CabinetSecretary responsible for matters relating tointergovernmental relations.

(2) The National Treasury shall have the followingfunctions, in addition to those in subsection (1)-

(a) t t ff ti g t d

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(c) co-ordinate the preparation of annual appropriationaccounts and other statutory financial reports by thenational government and its entities;

(d) prepare annual estimates of revenue of the nationalgovernment, and co-ordinate the preparation of thebudget of the national government;

(e) consolidate reports of annual appropriation accountsand other financial statements of the nationalgovernment and county governments and theirentities;

(f) report every four months to the National Assemblyon the implementation of the annual national budgeton areas not reported on by the Controller ofBudget;

(g) be the custodian of an inventory of nationalgovernment assets except as may be provided by

other legislation or the Constitution;(h) monitor the management of the finances of public

enterprises and investments by the nationalgovernment and its entities;

(i) monitor the financial aspects of risk managementstrategies and governance structures for the nationalgovernment and national government entities;

(j) monitor the financial performance of tatecorporations; and

(k) issue guidelines to uational government entities withrespect to financial matters and monitoring theirimplementation and compliance.

(3) The National Treasury shall take such otheraction, not inconsistent with the Constitution, as willfurther the implementation of this Act.

Powers of theNational Treasury.

13. (1) The Cabinet Secretary may generally give to theNational Treasury such powers as are necessary to facilitate


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Organ or other public entity and inspect the entity'srecords and other documents relating to financialmatters after giving notice;

(c) require national government entities to complywith any specified applicable norms or standardsregarding accounting practices and budgetclassification systems;

(d) require any public officer in the nationalgovernm ent to provide information and ifnecessary, explanations with respect to mattersconcerning public finance:

Provided that a person providing informationshall not be liable if at the time of providing theinformation that person, in writing, objected toproviding such information on grounds that theinformation may incriminate him or her;

(e) provide any County Treasury with any informationas it may require to carry out its responsibilitiesunder the Constitution and this Act; and

(f) perform any other act as the Cabinet Secretary mayconsider necessary including power to intervenewhere a state entity or state organ fails to operate afinancial system that complies with requirements

provided for under this Act or is in serious materialbreach under this Act or in accordance with Articles190 and 225 of the Constitution.

(2) The National Treasury may authorise any of itsofficers in writing to carry out a responsibility or exercise apower specified in the authorisatiOn on behalf of the National

Treasury.(3) When acting in terms of subsection (2), an authorised

officer, if requested by the person in relation to whom theresponsibility or power is being carried out or exercised, shallproduce the authorisation for inspection and failure to


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and in case of a bank overdraft facility it shall not exceed fiveper cent of the most recent audited national governmentrevenue.

(4) The National Treasury shall ensure that the level ofNational Debt does not exceed the level specified annually inthe medium term national government debt managementstrategy submitted to Parliament.

(5) Regulations made under this Act may add to thelist of fiscal principles set out in subsection (2).

16. (1) The national government may, with the

approval of Parliament, deviate from the financialobjectives in a Budget Policy Statement on a temporarybasis where such deviation is necessitated by a majornatural disaster or other significant unforeseen event.

National governmentdeviation fromfinancial objectives.

(2) If there is a change of national government, the newgovernment may, with the approval of Parliament, deviatefrom the financial objectives in a Budget Policy Statementbut shall not deviate from the fiscal responsibility principles.

(3) The National Treasury shall provide a report toParliament regarding the deviation, and shall include in thereport

(a) the reasons for and the implications of thedeviation;

(b ) proposals to address the deviation;(c) the period the deviation is estimated to last; and

(d ) the status of development projects initiated by thenational government and if any project has beenstopped, the reasons for doing so.

(4) he National Treasury shall publish and publicisethe report made under subsection (3) within fifteen daysafter its submission to Parliament.

Responsibilities of the National Treasury with respect tonational public funds


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to Article 206(1) of the Constitution

(a) facilitate payment into that account all moneyraised or received by or on behalf of the natiortal

government; and

(b) pay from that National Exchequer Account withoutundue delay all amounts that are payable for publicservices.

The NationalTreasury to

(3) The National Treasury shall ensure that the NationalExchequer Account is not overdrawn at any time.

(4) Where a withdrawal from the Consolidated Fund isauthorised under the Constitution or an Act of Parliament forthe appropriation of money, the National Treasury shall makea requisition for the withdrawal and subm it it to theController of Budget for approval.

(5) The approval of a withdrawal from the ConsolidatedFund by the Controller of Budget, together with written

instructions from the National Treasury requesting for thewithdrawal, shall be sufficient authority for the Central Bankof Kenya to pay amounts from the National ExchequerAccount in accordance with the approval and instructionsprovided.

(6) The National Treasury shall, at the beginning of

every quarter, and in any event not later than the fifteenth dayfrom the commencement of the quarter, disburse monies tocounty governments.

(7) The disbursement referred to in subsection (6) shallbe done in accordance with a schedule prepared by theNational Treasury in consultation with the Intergovernmental

Budget and Economic Council, with the approval of theSenate, and published in the Gazette, as approved, not laterthan the 30 th May in every year.

18. (1) The N ational Treasury shall administer theEqualisation Fund in accordance with Article 204 of the


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(b) transfer from that Equalisation Fund, without unduedelay, all money for purposes specified in Article204(2) of the Constitution.

(3) The National Treasury shall ensure that theEqualisation Fund Account is not overdrawn at any time.

(4) Where a withdrawal from the Equalisation Fund isauthorised under an Act of Parliament that approves theappropriation of money, the National Treasury shall make arequisition for the withdrawal and submit it to the Controllerof Budget for approval.

(5) The approval by the Controller of Budget of awithdrawal from the Equalisation Fund, together with writteninstructions from the National Treasury requesting for thewithdrawal, shall be sufficient authority for the Central Bankof Kenya to pay amounts from the Equalisation Fund

Account in accordance with the approval and instructionsgiven.

(6) Any unutilised balances in the Equalisation Fundshall not lapse at the end of the financial year, but shall beretained for use for the purposes for which the EqualisationFund was established.

19. The Contingencies Fund shall consist of moniesappropriated from the Consolidated Fund by an appropriationAct in any financial year.

20. (1) The Cabinet Secretary shall administer theContingencies Fund.

(2) The permanent capital of the Contingencies Fund shall

not exceed ten billion shillings or such other amount asmay be prescribed by the Cabinet Secretary with theapproval of Parliament.

(3) The Cabinet Secretary shall keep the Contingencies Fundin a separate account, maintained at the Central Bank ofKenya and shall pay

Source of theContingencies Fund.

Cabinet Secretary toadminister theContingencies Fund.


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basis of the set criteria and the process and operationalguidelines of Article 208 (1) as prescribed inregulations approved by Parliament and the lawsrelating to disaster management, the Cabinet Secretaryis satisfied that an urgent and unforeseen need forexpenditure has arisen for which there is no specificlegislative authority.

(2) For the purposes of subsection (1), there is an urgent needfor expenditure if the Cabinet Secretary, guided byregulations and relevant laws, establishes that

(a) the payment which was not budgeted for because itwas unforeseen and cannot be delayed until alater financial year without harming the generalpublic interest; and

(b) the event was unforeseen.

(3) In addition to regulations and relevant laws, and forthe purposes of this section, an unforeseen event isone which

(a) threatens serious damage to human life or welfare;

(b) threatens serious damage to the environment; and

(c) is meant to alleviate the dam age, loss, hardship orsuffering caused directly by the event.

(4) An event threatens damage to human life or welfareunder subsection (3)(a) only if it involves, causes or maycause

(a) loss of life, human illness or injury;

(b) homelessness or damage to property;(c) disruption of food, water or shelter; or

(d) disruption to services, including health services.


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24. (1) There is established a fund to be known as theParliamentary Fund.

No. 18

Establishment ofParliamentary Fundand other nationalgovernment publicfunds.

(2) The Secretary to the Parliamentary ServiceCommission shall, on the directions of the Commission, openand operate such bank accounts as may be necessary for thepurposes of the Parliamentary Fund.

(3) Notwithstanding any other provisions of this Act,where a Fund is established under any other law for the

purposes of Parliament or a House of Parliament, theParliamentary Service Commission shall

(a) establish procedures and systems for proper andeffective management of the monies and propertyof the Fund;

(b) establish accounting procedures and systems forthe Commission to properly account for themonies and property;

(c) superintend the expenditure of the monies of theFund to ensure that the monies are properlyaccounted for;

(d) prepare and submit accounts for each financialyear in accordance with the written law for thetime being relating to audit for audit by theAuditor-General; and

(e) ensure that accounts prepared under paragraph (d)comply with the provisions of this Act.

(4) The Cabinet Secretary may establish a nationalgovernment public fund with the approval of the NationalAssembly.


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(7) The administrator of a national public fund shall ensurethat money held in the fund, including any earnings oraccruals referred to in subsection (6), is spent only for the

purposes for which the fund is established.(8) The Cabinet Secretary may wind up a national public

fund with the approval of the National Assembly.

(9) On the winding up of a national public fund

(a) the administrator of the national public fund shallpay any amount remaining in the fund into the

National Exchequer Account for the credit of thenational government; or

(b) the Cabinet Secretary shall pay any deficit in thefund from funds of the national government in theNational Exchequer Account with the approval ofthe National Assembly; and

(c) the Cabinet Secretary shall submit a finalstatement of accounts to Parliament.

(10) The administrator of a national public fund

(a) shall prepare financial statements for the fund foreach financial year in a form specified by theAccounting Standards Board; and

(b) not later than three months after the end of each

financial year, submit those statements to theAuditor-General and deliver a copy o f thestatements to the National Treasury, Commissionon Revenue Allocation and the Controller ofBudget.

(11) he regulations shall provide for the establishment,management, operation or winding-up of national public

funds.(12) his section applies to all other national public fundsincluding funds earmarked for specific purposes establishedby an Act of Parliament but does not apply to a public fundestablished by the Constitution.


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circumstances and the manner in which persons or groupsmay make written or oral representations about the contentsof the statement.

(7) Parliament shall, not later than fourteen days after theBudget Policy Statement is submitted to Parliament, tableand discuss a report containing its recommendations and passa resolution to adopt it with or without amendments.

(8) The Cabinet Secretary shall take into account resolutionspassed by Parliament in finalising the budget for the relevantfinancial year.

(9) The National Treasury shall publish and publicise theBudget Policy Statement not later than fifteen days aftersubmission of the Statement to Parliament.

26.(l) The National Treasury shall prepare andsubmit to Cabinet for approval, by the 30 h Septemberin each financial year, a Budget Review and Outlook

Paper which shall include-

(a) actual fiscal performance in the previous financial yearcompared to the budget appropriation for that year;

(b) updated macro-economic and financial forecastswith sufficient information to show changes fromthe forecasts in the most recent Budget PolicyStatement;

(c) information on how actual financial performance forthe previous financial year may have affectedcompliance with the fiscal responsibility principlesor the financial objectives in the latest BudgetPolicy Statement; and

(d) the reasons for any deviation from the financial objectivestogether with proposals to address the deviation and the timeestimated to do so.

(2) Cabinet shall consider the Budget Review and OutlookPaper w ith a view to approving it, with or withoutamendm ents, not later than fourteen days after itssubmission

National Treasury toprepare BudgetReview and OutlookPaper.


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(b) publish and publicise the Paper not later than fifteendays after laying the Paper before Parliament.

27. (1)The National Treasury shall arrange to be published-

(a) a pre-election economic and fiscal update not earlierthan four months before the polling day for any generalelection; and

(b) a post-election economic and fiscal update not later thanfour months after the polling day of any generalelection.

(2) The pre-election and post-election economic andfiscal update shall

(a) detail all election related spending including-

(i) direct election expenses such as those for theIndependent lectoral nd oundariesCommission for costs of elections and electionmaterials;

(ii) indirect election expenses such as allocationsto police and security forces for the electionyear; and

(iii) any other expenses related to the electionspecified in regulations or instructions; and

(b) be accompanied by a statement signed by thePrincipal Secretary stating that the economic andfiscal updates include-

(i) all policy decisions with material economic orfiscal implications that the national governmentmade before the day on which the contents ofthe economic and fiscal updates were finalised;

No. 18

Publication of preand post- electioneconomic and fiscalreports by NationalTreasury.


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updates were finalised.

(3) If the day of dissolution of Parliament is less than twomonths before the day appointed as polling day for thegeneral election, the Cabinet Secretary shall arrange forthe pre-election economic and fiscal update requiredunder this section to be published not later thanfourteen days after the day of the dissolution ofParliament.

Other responsibilities of the National Treasury

28. (1) The National Treasury shall authorise the opening,operating and closing of bank accounts and sub accountsfor all national government entities in accordance withregulations made under this Act.

(2) The National Treasury shall establish a Treasury SingleAccount into which all revenues received by nationalgovernment entities shall be deposited and from which all

payments of money to or on behalf of national governmententities shall be made.

(3) The Treasury Single Account shall not be operated in anymanner that prejudices any entity to which funds have beendisbursed.

(4) An accounting officer for a national government entityshall not cause a bank account of the entity to be overdrawn

beyond the limit authorised by the National Treasury or aboard of a national government entity, if any.

(5) Subject to subsection (3), an accounting officer whoauthorises the bank account of a national government entityto be overdrawn is liable for the full cost of the overdrawnamount, in addition to any other disciplinary measures that -

(a) the Cabinet Secretary may impose by regulations; or

(b) any other relevant authority may impose under theprovisions of any other legislation.

(6) The National Treasury shall keep complete and currentrecords of all bank accounts for which it is responsible underthe Constitution this Act or any other legislation

No. 18

Bankingarrangements fornational governmenentities.


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within which the national government shall manage its cashtransactions.

(2) Every national government entity, other than a state

corporation, shall submit an annual cash plan and forecastto

(a) the National Treasury in a form and manner and relatingto such periods directed by that Treasury; and

(b) the Controller of Budget.

(3) Subject to the Constitution, the Cabinet Secretary may,notwithstanding any previous authority given, limit orsuspend national government expenditure, if in the CabinetSecretary's opinion, the exigencies of the financial situationrender such a limitation or suspension necessary.

(4) The approval of the National Assembly for anylimitation or suspension under subsection (3) shall be soughtwithin two months of the decision being made.

(5) The National Treasury may invest, subject to anyregulations that may be prescribed, any money kept in a bankaccount of the national government.

(6) Except as otherwise provided by legislation

(a) interest received from investments made undersubsection (5); and

(b) money received from the redemption or maturity ofthose investments, and from the sale or conversionof securities relating to them, is payable into theNational Exchequer Account.

(7) The National Treasury may incur costs, charges andexpenses in connection with negotiating, placing, managing,

servicing, or converting any investment entered into undersubsection (5).

(8) Costs, charges or expenses referred to undersubsection (7) shall be paid from the Consolidated Fund inaccordance with Article 228 of the Constitution.


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2012 Public Finance Management

national government, national government entities andcounty governments, in accordance with Article 211(2)of the Constitution.

(2 ) Where either House of Parliament is canvassing amatter relating to the national debt, the Cabinet Secretaryshall submit to Parliament, a report of all loans made to thenational government, national government entities, andcounty governments, not later than seyen days after receivinga request to do so from either House of Parliament.

(3) At the end of every four months, the CabinetSecretary shall submit a report to Parliament stating the loanbalances brought forward, carried down, drawings andamortizations on new loans obtained from outside Kenya ordenominated in foreign currency, and such other informationas may be prescribed by regulations, specifying

(a) the names of the parties to the loan;

(b ) the amount of the loan and the currency in which itis expressed and in which it is repayable;

(c) the terms and conditions of the loan, includinginterest and other charges payable and the terms ofrepayment;

(d ) the amount of the loan advanced at the time thereport is submitted;

(e) the purpose for which the loan was used and theperceived benefits of the loan; and such otherinformation as the Cabinet Secretary may considerappropriate.

32. (1) The Cabinet Secretary shall submit toParliament, a record of all guarantees given by the national

government, not later than seven days after receiving arequest to do so from either House of Parliament.

(2) The Cabinet Secretary shall, with respect to everysuch guarantee, specify the following information inthe record

No. 18

Cabinet Secretary toreport on nationalgovernment

guarantees.


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(ii) terms of its repayment.

Cabinet Secretary tosubmit nationalgovernment debtmanagement strategyto Parliamentannually.

(3) Not later than two months after the end of each

financial year, the Cabinet Secretary shall publish andpublicise a report giving details of the guarantees given bythe national government during that year.

33. (1) On or before the 15' February in each year, theCabinet Secretary shall submit to Parliament astatement setting out the debt management strategy ofthe national government over the medium term with

respect to its actual liability and potential liability inrespect of loans and guarantees and its plans for dealingwith those liabilities.

(2) The Cabinet Secretary shall ensure that the medium-term debt management strategy is aligned to the broadstrategic priorities and policy goals set out in the BudgetPolicy Statement.

(3) The Cabinet Secretary shall include in the statementthe following information -

(a) the total stock of debt as at the date of the statement;

(b) the sources of loans made to the nationalgovernment and the nature of guarantees given bythe national government;

(c) the principal risks associated with those loans andguarantees;

(d) the assumptions underlying the debt managementstrategy; and

(e) an analysis of the sustainability of the amount ofdebt, both actual and potential.

(4) Within fourteen days after the debt strategy paper issubmitted to Parliament Under this section, the CabinetSecretary shall submit the statement to the Commission onRevenue Allocation and the Intergovernmental Budget andEconomic Council and publish and publicise the statement.


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consideration when preparing the budget;

(d) procedures setting out the manner , in whichmembers of the public shall participate in thebudget process;

(e) the format in which budget information anddocuments shall be submitted; and

(f) any other information that, in the opinion of theCabinet Secretary, may assist the budget process.

(4) Every national government entity shall comply with theguidelines, and in particular, such dates as are specified in

the schedule referred to in subsection (3)(a).(5) The Cabinet Secretary shall by regulations, prescribeprocedures specifying how, when and where members of thepublic shall participate in the budget process at the nationallevel.

(6) The Cabinet Secretary shall notify the members of theIntergovernmental Budget and Economic Council of thecommencement of the budget process.

Submission of

budget estimates andrelated documentsfor approval.

37. (1) The Cabinet Secretary shall, within a periodallowing time to meet the deadlines specified in thissection, submit to the Cabinet for its approval

(a) the budget estimates and other documentssupporting the budget; and

(b) the draft Bills required to implement the nationalbudget.

(2) The Cabinet Secretary shall submit tt the NationalAssembly, by the 30 th April in that year, the followingdocuments

(a) the budget estimates excluding those for Parliamentand the Judiciary;

(b) documents supporting the submitted estimates;

and

(c) any other Bills required to implement the national


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financial year

(a) submit to the National Assembly the budgetestimates for Parliament, including proposedappropriations; and

(b) provide the National Treasury with a copy of thosedocuments.

(4) The Chief Registrar of the Judiciary shall, not later thanthe 30th April in each financial year

(a) submit to the National Assembly the budgetestimates for the Judiciary, including proposedappropriations; and

(b) provide the National Treasury with a copy of thosedocuments.

(5) In preparing the documents referred to insubsections (3) and (4), the accounting officer for

the Parliamentary Service Commission and theChief Registrar of the Judiciary

(a) shall ensure that mem bers of the public are given anopportunity to participate in the preparation process;and

(b) may make and publish rules to be complied withby those who may wish to participate in the process.

(6) The Cabinet Secretary shall submit to the NationalAssembly not later than the 15 th May any comments of theNational Treasury on the budgets proposed by theParliamentary Service Commission and the Chief Registrarfor the Judiciary.

(7) The Cabinet Secretary shall ensure that the budget

process is conducted in a manner and within a timeframesufficient to permit the various participants in the process tocomply with the requirements of the Constitution and thisAct.

(8) As soon as practicable after the budget estimates and


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the NationalAssembly.

918


Assembly the following other budget documents foreach financial year

(a) a budget summary that includes-

(i) a summary of budget policies including policieson revenue, expenditure, debt and deficitfinancing;

(ii) an explanation of how the budget relates to thefiscal responsibility principles and to the financialobjectives; and(iii) a memorandum by the Cabinet Secretary

explaining how the resolutions adopted by theNational Assembly on the Budget Policy Statementunder section 25(7) have been taken into account.

(b) the format of the budget estimates shall include-

(i) a list of all entities that are to receive funds

appropriated from the budget of the nationalgovernment;

(ii) estim ates of revenue allocated to, andexpenditures projected from, the EqualisationFund over the medium term, with an explanationof the reasons for those revenue allocations andexpenditures and how these estimates comply

with the policy developed by the Commission onRevenue Allocation under Article 216(4) of theConstitution;

(iii) all revenue allocations to county governmentsfrom the national government's share in terms ofArticle 202 (2) of the Constitution, includingconditional and unconditional grants;

(iv) all estimated revenue by broad economicclassification;

(v) all estimated expenditure, by vote and byprogramme clearly identifying both recurrent


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estimates of the national government only in accordance withthe Division of Revenue Act and the resolutions adoptedwith regard to the Budget Policy Statement ensuring that

(a) an increase in expenditure in a proposedappropriation is balanced by a reduction inexpenditure in another proposed appropriation; or

(b) a proposed reduction in expenditure is used toreduce the deficit.

(4) Where a Bill originating from a member of the

National Assembly proposes amendments after passing thebudget estimates and the appropriations Bill by Parliament,the National Assembly may only proceed in accordancewith

(a) the Division of Revenue Act;

(b) Article 114 of the Constitution; and

(c) any increase in expend iture in a proposedappropriation is balanced by a reduction in expenditure inanother proposed appropriation or any proposed reduction inexpenditure is used to reduce the deficit.

(5) Not later than twenty-one days after the NationalAssembly has approved the budget estimates, the National

Treasury shall consolidate, publish and publicise the budgetestimates.

(6) The National Treasury shall take all reasonablypracticable steps to ensure that the approved budgetestimates are prepared and publicised in a form thatis clear and easily understood by, and readilyaccessible to, members of the public.

(7) Following approval of the budget estimates under thissection, and before the Appropriation Act is assented to, theNational Assembly may authorise withdrawals in accordancewith Article 222 of the Constitution, and such authority shallbe communicated to the Cabinet Secretary responsible for


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Public Finance M anagement 2012

(g) take into account the taxation and other tariffagreements and obligations that Kenya has ratified, includingtaxation and tariff agreements under the East African

Community Treaty.(6) The recommendations of the Cabinet Secretary insubsection (5) (f) shall be included in the report and tabled inthe National Assembly.

41. N ot later than ninety da ys after passing theAppropriation Bill, the National Assembly shallconsider and approve the Finance Bill with or without

amendments.42. Parliament shall consider the Division of Revenue

and County Allocation of Revenue Bills not later than thirtydays after the Bills have been introduced with a view toapproving them, with or without amendments.

43. (1) An accounting officer may reallocate funds fromthe authorised use but may not reallocate funds where-

(a) the funds are appropriated for transfer to anothergovernment entity or person;

(b) the funds are appropriated for capital expenditureexcept to defray other capital expenditure;

(c) the reallocation of funds is from wages to non-, wages expenditure; or

(d) the transfer of funds may result in contravention offiscal responsibility principles.

(2) An accounting officer for a national government entity,other than a state corporation, may reallocate fundsbetween programs, or between Sub-Votes, in the budgetfor a financial year if

(a) there are provisions in the budget of a program orSub-Vote which are unlikely to be utilised;

(b) a request for the reallocation has been made to theNational Treasury explaining the reasons for thereallocation and the National Treasury has approvedthe request; and

(c) the total sum of all reallocations made to or from a

No. 18

Passing of the

Finance Bill

Consideration byParliament ofDivision of Revenueand County

Allocation ofRevenue Bills.

Limited powers ofaccounting officer ofnational government

entity to reallocateappropriate funds.


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44. (1) The national government shall submit to Parliamentfor approval, a supplementary budget in support ofmoney spent under Article 223 of the Constitution.

(2) After Parliament has approved spending undersubsection (1), an Appropriation Bill shall be introduced forthe appropriation of the money spent.

(3 ) he supplementary budget shall include astatement showing how the additional expenditure relates tothe fiscal responsibility principles and financial objectives.

45. (1) An appropriation that has not been spent at the endof the financial year for which it was appropriated shalllapse immediately at the end of that financial year.

(2) Subject to any other legislation, where, at the end of afinancial year, a national government entity is holdingappropriated money that was withdrawn from the National

Exchequer Account but has not been spent, it shall repay theunspent money into the National Exchequer Account andshall prepare and submit a statement of the same to theController of Budget.

Responsibilities of the Cabinet Secretary and functions ofthe national government with respect to grants and loans

46. (1) The Cabinet Secretary shall, in addition to his or her

other functions under the Constitution, this Act and anyother legislation

(a) oversee the formulation of macro-economic andfinancial policies of the Government;

(b) by agreement, assist national government entities and

county governments in building capacity for efficient,effective and transparent financial management;

(c) where applicable, support the efforts of nationalgovernment entities and county governments to

t l th i fi i l bl

No. 18

National governmentto submitsupplementarybudget toParliament.

Appropriations tolapse if unspent atthe end of thefinancial year.

Overallresponsibility o f

Cabinet Secretary.


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this Act the Cabinet Secretary shall

(a) seek views from county governments on the proposedmacro-economic and financial policies using theIntergovernmental Budget and Economic Councilestablished under this Act;

(b) share with national government entities and countygovernments any findings that may assist nationalgovernment entities and county governments inimproving their financial management; and

Conditions forreceiving grants anddonations bynational governmentor its entities or thirdparties.

(c) upon detecting any emerging or impending financialproblems in a national government entity orcounty government, immediately alert the nationalgovernment entity or county government of theproblem.

47. (1) In this section and section 48

(a) "donation" means a gift or a contribution;

(b) "gr.ant" means financial or other assistance by a

development partner which is not repayable and

(i) under which public money is paid to or usedby a grant recipient;

(ii) which is intended to finance or facilitate thedevelopment of projects or delivery ofservices or otherwise assist the grantrecipient to achieve goals that are consistentwith the policy objectives of the nationalgovernment; and

(iii) under which the grant recipient is requiredto act in accordance with any terms or


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925No. lb2012 Public Finance Management

whom the projects or public services financed by agrant are intended to benefit;

(e) "third party" means any other person other than apublic officer.

(2) Subsections (3) to (10) apply to the nationalgovernment and a national government entity.

(3) The national government ora national government

entity may receive a grant or donation from a developmentpartner with the approval of the Cabinet Secretary and onlyas provided by this section.

(4) Funds received in the form of grants or donationsshall only be spent in accordance with Articles 221 and 223of the Constitution and this section.

(5) As soon as possible after receiving the grant ordonation, the recipient shall notify the Cabinet Secretary ofthe receipt.

(6) If a project that is being financed by a grant ordonation requires national government funding, the projectmay only be started when

(a) the required funding has been appropriated inaccordance with this Act or is authorised by otherlegislation; or

(b) the Cabinet Secretary has given a writtenauthorisation for the project to start.

(7) The Cabinet Secretary shall inform Parliament of theauthorisation given under subsection (6)(b) in accordancewith Article 223 of the Constitution.

(8) The recipient of a grant or donation from a


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laws and, administrative procedures; or

(b) any financial accounting rules and procedures for

money specified in the agreement between therecipient and the development partner.

Regulations on grant

administration

(10) The Cabinet Secretary may in addition to the auditunder subsection (9), permit a donor of a grant to audit suchfunds on the basis of its own financial accounting rules.

48. (1) Regulations approved by Parliament shall Providefor the administration, control and management ofgrants, including

(a) procedures to ensure that grants are spent on thebasis of the integrated national developmentplan;

(b) procedures for the allocation and disbursement ofthe grants;

(c) requiring that grants be used only to financeprogrammes within the integrated developmentplan;

(d) the publication of transparent criteria for theallocation of grants;

(e) requiring specific terms and conditions inagreements to which grant recipients aresubjected;

(f) procedures for the budgeting, financialmanagement, accounting and reporting of grantsby grants recipients;

(g) procedures under which a third party may beauthorised to receive control or pay public


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measures to ensure public disclosure, accountability andparticipation in relation to the grants, including

(a) timely public disclosure to intended beneficiariesof the allocation and disbursement of grants togrant recipients;

(b) timely public disclosure by grant recipients tointended beneficiaries of expenditure andperformance achieved in relation to the grant;

(c) measures to facilitate intended beneficiaries toparticipate in the design and management ofprojects or public services financed by the grant;

(d) measures allowing intended beneficiaries to reportinstances of non-compliance with the regulationsor grant agreement;

(e) sanctions to be imposed on grant recipients fornon-compliance with grant conditions by anygrant recipient; and

(f) obligations of a public officer or third partyauthorised to receive, control or pay publicmoney as grants.

(3) A third party shall not receive, have custody of, orpay public money otherwise than in accordance with anauthorisation given in accordance with regulationsmade under subsection (1).

(4) A third party who contravenes provision undersubsection (3), commits an offence and is liable onconviction to a term of imprisonment not exceeding twoyears or to a fine not exceeding one million shillings, orto both and shall make good the loss arising from theuse of public funds contrary to law.


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(b) the debt management strategy of the nationalgovernment over the medium term.

(2) A loan may be raised either within Kenya or fromoutside Kenya.

Obligations andrestrictions onnational governmentguaranteeing andborrowing.

50.(1) In guaranteeing and borrowing money, the nationalgovernment shall ensure that its financing needs andpayment obligations are met at the lowest possible costin the market which is consistent with a prudent degreeof risk, while ensuring that the overall level of publicdebt is sustainable.

(2) The national government may borrow money inaccordance with this Act or any other legislation and shallnot exceed a limit set by Parliament.

(3) The national government may borrow money only forthe budget as approved by Parliament and the allocations forloans approved by Parliament.

(4) The guarantee of debt shall be done in terms ofcriteria agreed with the Intergovernmental Budget andEconomic Council and prescribed in regulations approved byParliament.

(5) Parliament shall provide for thresholds for theborrowing entitlements of the national government andcounty governments and their entities.

(6) A public debt incurred by the national government is acharge on the Consolidated Fund, unless the CabinetSecretary determines, by regulations approved by Parliament,that all or part of the public debt is a charge on another publicfund established by the national government or any of itsentities.

(7) The Cabinet Secretary shall ensure that the proceeds ofany loan raised under this Act are paid into the ConsolidatedFund or into any other public fund established by the nationalgovernment or any of its entities as Cabinet Secretary may


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the Constitution and in accordance with national legislationon Public Procurement and Asset Disposal

(a) appoint advisers, agents and underwriters for thepurpose of raising loans and issuing, managing orredeeming national government securities; and

(b) enter into agreements with the advisers, agents andunderwriters appointed under paragraph (a) on therole to be undertaken by them and the remunerationto be paid to them.

(10) Any expenses incurred in connection withborrowing by the national government or the issue of nationalgovernment securities is a charge

(a) on the Consolidated Fund; or

(b) on such other public fund established by thenational government or any of its entities as theCabinet Secretary may determine by regulationsapproved by Parliament.

(11) The costs, interests and principal payments made bythe national government concerning loans to each level ofgovernm ent shall be passed on by the national government tothe relevant level of government.

(12) A copy of the details of the expenses and costsreferred to under subsection (10) and (11) shall besubmitted to the Controller of Budget and toParliament, at the end of each quarter.


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51. (1) A national government entity may borrow inaccordance with this Act or any other Act ofParliament.

No. 18

Borrowing bynational governmententities.

(2) A national government entity shall obtain the approvalof the Cabinet Secretary for its intended program ofborrowing, refinancing and repaym ent of loans

(a) over the medium term; and

(b) for the forthcoming financial year, prior to thebeginning of that financial year.

(3) A national government entity shall also obtain theapproval of the Cabinet Secretary before making any changesto its program of borrowing, refinancing and repaymentduring a financial year.

Persons authorizedto execute loandocuments atnational government.

(4) The national government is not liable to contribute

towards payment of any debt or liability of a nationalgovernment entity, unless the national government hasguaranteed the debt or liability.

52. (1) The Cabinet Secretary or any person designated bythe Cabinet Secretary in writing is authorised to executeloan documents for borrowing by the nationalgovernment.

(2) Despite the provisions of subsection (1), the followingpersons are authorised to execute loan documents forborrowing by a National government entity

(a) the accounting officer responsible for the entity; or

(b) any other specified officer authorised by legislationto execute such documents on behalf of the entity.

Issuance ofsecurities by national

53. (1) The national government may issue nationalf


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(3) Any national government securities issued by theCabinet Secretary under this section shall be within theborrowing limits set out by the National Assembly under

section 50(2).(4) The authority of the Cabinet Secretary to borrow

money includes the authority to borrow money by issuingnational government securities.

(5) National government securities may be issued in one ormore series and in accordance with prescribed regulations.

(6) An agreement to obtain a loan by a national governmententity may be amended from time to time and where theamendment results in further indebtedness or prejudice to theentity that borrowed, the amendment shall be approved byParliament.

(7) The Cabinet Secretary shall ensure that every nationalgovernment security issued under this section is given in the

name of the Republic of Kenya.

(8) A national government security may be executed onbehalf of the national government only by

(a) the Cabinet Secretary;

(b) a delegate appointed by the Cabinet Secretary; or

(c) a borrowing agent appointed for the purposes ofthis Act.

(9) For the purposes of subsection (8), it shall be sufficientif the signature of a person who is required to execute anational government security under this section is reproducedon the security.

(10) The Cabinet Secretary may authorise in writing theissue of a duplicate national government security to replace anational government security that is lost, damaged, ordestroyed, but only if the Cabinet Secretary is satisfied thatthe loss, damage or destruction has occurred.


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(12) Nothing provided in this section shall prevent,government securities to be issued and exist in electronicform as a debt entry.

(13) If the proceeds of a national government securityhave not been collected by, or cannot be paid to, the holder ofthe security because the whereabouts of the holder or, if theholder has died, the whereabouts of the holder's personalrepresentatives, are unknown, the Cabinet Secretary shallarrange for the National Treasury to credit the amount ofmoney due to the holder to an interest free account for the

holder's benefit.(14) If, after six years from the redemption date of a

national government security, the proceeds of the securityhave not been collected by, or paid to, the holder or theholder's personal representatives, the Cabinet Secretary shallreturn the uncollected amount to the National ExchequerAccount to form part of the Consolidated Fund in accordance

with regulations.

Exemption fromstamp duty.Cap. 480.

Establishment of theoffice of Registrar ofnational governmentsecurities.

(15) The right of any person who has a legitimate claim tothe proceeds of a security is not affected by the payment ofthe proceeds into the Consolidated Fund.

(16) The Cabinet Secretary shall publish and publicise

annually all payments made in terms of subsection (13).54. Duty is not chargeable under the Stamp Duty Act for

the issue of a national government security.

55. (1) There is established an office of the Registrar of theNational Government Securities which shall be anoffice under the Public Debt Management Office.

(2) The office of Registrar of the National GovernmentSecurities shall be headed by the Registrar who shall becompetitively recruited and appointed by the CabinetSecretary.

(3) The Registrar shall establish and maintain a register, tobe known as the Register of the National Government


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security, unless the contrary is proved.

(6)The holder of a national government security recordedin the Register may, in writing, request the Registrar toamend the entry relating to the security.

(7) If a request under subsection (6) is inaccordance with guidelines given by the Cabinet Secretaryfor the purposes of this subsection, the Registrar shall, inaccordance with the request, amend the entry in the Register

relating to the security.(8) The Registrar shall provide the holder of a national

government security with a consolidated statement in writing,showing all entries in the register relating to the security

(a) as soon as practicable after the security is issued;

(b) at least once during each year the security is held;and

(c) immediately after the security is redeemed.

(9) On receiving a written request from the holder of anational government security, the Registrar shall provide theholder with a statement showing all entries in the Registerrelating to the security.

56.(l) The national government may enter into derivative

transactions, either directly or indirectly through anintermediary, but only within the framework and limitsof the Budget Policy Statement and in a mannerprescribed by regulations.

(2) The Cabinet Secretary may, on behalf of the nationalgovernment in exceptional circumstances enter into a

Power of national

government to enterInto derivativetransactions.


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Assembly.

(4) Money required to be paid by the national governmentunder a derivative transaction entered into under this section

shall be a charge

(a) on the Consolidated Fund: or

(b) on some other public fund established for thepurpose of making such payments, if the CabinetSecretary determines so.

(5) Any expense incurred in connection with a derivative

transaction entered into by the national government or by theCabinet Secretary on behalf of the national government shallbe a charge on the Consolidated Fund and no furtherappropriation t

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Public Finance Management Act 2012

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