This is the second report on budget implementation by the Office of Controller of Budget. One of the functions of the office of the Controller of Budget (OCoB) as stipulated in the Constitution (Article 228(4)) is to oversee the implementation of the Budgets both at national and county governments. This function entails regularly undertaking monitoring and evaluation of programmes and projects both at the national and county level. The Constitution mandates this office to prepare and submit quarterly budget implementation reports to the legislature and executive. The Constitution further mandates the OCoB to publish and publicize the reports. The financial year 20lll20l2 Budget focuses on enhancing the efficiency of government expenditure in view of critical resource limitations and ensuring macroeconomic stability. One approach adopted in the budgeting process is the linking of key projects and programmes in the budget to Kenya's Vision 2030, Medium Term Plan (2008-2012) and the Millennium Development Goals. The macroeconomic environment for the fourth quarter of 20ll was generally stable. The overall inflation for the period under review showed a reduction trend, from 18.31 per cent in January ta 16.69 per cent in February and 15.61 per cent in March against the target of 5 per cent as indicated in the 2011 Budget Policy Statement. The exchange rate strengthened at 10.4 per cent from Ksh. 93.87 per dollar in the second quarter to Ksh. 84.14 in the third quarter. The current account deteriorated to a deficit of Ksh. 290.1billion from a deficit of Ksh. 187.7 billion in the same period of the previous year. This deficit was higher than the projected deficit of Ksh. 199.8 billion as per the 2011 Budget Policy Statement GDP at nominal value. This was mainly due to a widening visible trade deficit, which worsened further to stand at Ksh. 742.1 billion. However, the capital and financial account registered a surplus of Ksh. 349.7 billion on account of an increase in both long-term and short-term external support. The total revenue target for the fiscal year 20llll2 is Ksh. 789.5 billion (or 24.7Yo of GDP) comprising Ksh. 713.6 billion of ordinary revenue and Ksh. 75.9 billion of Appropriations in Aid (AIA). Cumulatively, revenue collection for the period l't July 2011 to 31't March 2012 stood at Ksh. 498.6 billion against a target of Ksh. 519.9 billion resulting in a revenue deficit of Ksh. 21.3 billion or an underperformance of 4.5 per cent. However, compared to the same period of FY 20l0lll there was a general growth in revenue of Ksh. 54.1 billion or 12.2 per cent. The total budget for the financial year 20lll20l2 was Ksh. 1,158.9 billion comprising Ksh. 552.8 billion for recurrent, Ksh. 396.5 billion for development and Ksh. 209.5 billion for consolidated fund services. A total of Ksh. 366.lbillion and Ksh. 142.7 billion was released to various Ministries, Departments and Agencies (MDAs), which represents 66.2 per cent and 35.98 per cent of the gross estimates to fund their recurrent and development expenditures respectively for the period ending March 2012. The development funds included donor releases amounting to Ksh.58.6 billion to undertake the various activities planned for this financial year. The total recurrent expenditure for the period under review cumulatively stood at Ksh. 365.5billion which represents 66.1 per cent of the gross estimates. The National Security sector had the highest absorption rate of 80.6 per cent, whereas the Physical Infrastructure had the least absorption rate of 38.2 per cent of their gross estimates for recurrent expenditure. The total expenditure for development for the same period was Ksh. 145.0 billion, which represents 36.6 per cent of the gross estimates, which is quite low. The Public Administration sector had the highest rate of absorption of 45.7 per cent, while Agriculture and Rural Development had the least absorption rate of 29.1per cent. The Office of the Controller of Budget has noted from the expenditure analysis that some of the MDAs have partially absorbed the resources available to them, which is a major concern, as the non-utilization of resources results in non-provision of goods and services to the public. The low absorption of resources for development activities can be improved if the government addresses the procurement difficulties experienced by the MDAs, relook at the donor conditionalities to ensure they are in line with government guidelines and procedures, governance issues that result in delays in obtaining no objection letters from the donors, adoption of the right project management practices and implementation of a series of government intervention policies aimed at instilling best practices in budget implementation. In conclusion, the government should put in place sound financial management information systems to address timely reporting for decision making both at national and county levels. This should include fast tracking of the legislation for financial management, devolution process and implementation of the Constitution in general to provide a proper legal framework for budget implementation for both national and county govenrments.

In our continuing efforts to improve on transparency and accountability in the public sector, the Office of the Controller of Budget (OCoB) is committed to continuously inform Kenyans on public implementation of the budget as mandated by Article 228(6) of the Constitution of Kenya 2010. This reporting effort is intended to contribute to improved fiscal management of Ministries Departments and Agencies (MDAs) performance by providing the fiscal responsibility. It is hoped that the Monitoring and Evaluation framework that the Office of the Controller of Budget will put in place by June 2012 will be instrumental towards improving the budget execution. The framework will equip the OCoB with necessary tools to conduct Monitoring and Evaluation exercises regularly to ensure that the budget is implemented transparently for the benefit of the citizens. This exercise will be conducted by the OCoB in collaboration with the MDAs, civil society organisations and all stakeholders to foster an environment of openness, transparency and accountability, thereby increasing efficiency and effectiveness of the MDAs to deliver on their targets in line with government policies. This third quarter budget implementation report present information on public finances and evaluates government's success in achieving its developmental plans through the annual budgets. This report consolidates the position of budget implementation for the first three quarters of FY 201112012, assesses the progress towards the attainment of goals set for the 20lll20l2 Budget in terms of exchequer releases and rate of absorption, and recommends on what needs to be done. It therefore gives me pleasure to present this report on budget implementation and urge the readers to examine its contents and give feedback so as to continuously improve it to match best practices. The review of the budget implementation helps in assessing the utilization of public finances and government's performance in delivering on its development goals. It is therefore my sincere hope that all MDAs and other stakeholders will find the information contained herein beneficial.