Is there a nexus between budget transparency and sound fiscal management in Kenya?

Abdinur, Hashim

Is there a nexus between budget transparency and sound fiscal management in Kenya?

Master Thesis

2019

Abstract

Public finance reforms have been a key area of focus both locally and internationally. With implementation of several reforms in the public finance sector it was expected that there would be improved transparency and accountability levels in the public sector. Some of the immediate output in the field of public finance reforms include favorable changes in tax revenue collections, increased inflow of foreign grants and reduced budget deficits. The main aim of this study was to review the various public finance management reforms that have taken place between the years 2000 and 2017 in Kenya and thereafter determine whether these revenues enhancing public finance reforms have an impact on the public finance transparency and accountability levels. The study employed time series techniques to examine the effect of public finance reforms on transparency and accountability. In this study, budget absorption was used as a proxy for the transparency and accountability levels while tax revenue, foreign grants and budget deficits were the explanatory variables of the study as proxies for public finance and fiscal reforms. The bounds test established presence of a long run relationship between the depended variable (budget absorption rates) and the explanatory variables namely: grants revenue, tax revenue and budget deficit. The disequilibrium in the short run model was corrected for rates between 71% and 100% which was indicative of the relative speed to which the long run equilibrium adjustments take place. Based on the long run regression results, it is therefore concluded that revenue enhancing fiscal management reforms in tax and grants had a positive impact on budget accountability and transparency. Based on the findings of the study, it is recommended that the national Government in Kenya should continue to implement the public finance reforms at the subnational level to improve budget transparency and accountability for the devolved units.

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