This is the first Budget Implementation Review Report for the financial year 201212013. It outlines the performance of the Ministries, Departments and Agencies (MDAs) for the period July to September 2012. It also outlines the government's macroeconomic performance, revenue inflows, exchequer issues released and expenditure. This is aimed at informing the Parliament, the Executive and the general public in-year on budget execution as mandated by the Constitution under Article 228. Chapter two of the report briefly outlines the macroeconomic highlights under which the budget is being implemented. The Gross Domestic Product (GDP) grew by 3.3 per cent in the period March to June 2012 compared to 3 .4 per cent over the same period in 201 I. Kenya's overall inflation has been declining since the beginning of this year. The inflation rate for the period July to September averaged 6.4 per cent compared to 16.5 per cent in over the same period last year. The Kenya shilling strengthened against major world currencies. For instance, from March to June 2012 the exchange rate averaged Kshs 84.75 against the US dollar compared to Kshs. 94.85 during the same period last year. Chapter three of the report outlines the revenue performance, exchequer issues released and the sectoral expenditure analysis for both recurrent and development expenditure for the period July to September 2012. According to the figures released by the Kenya Revenue Authority (KRA) revenue collections stood at Kshs. 168.9 billion against a target of Kshs. 193.6 billion. The under performance in revenue collection was attributed to macroeconomic under performance. The Office of the Controller of Budget (OCOB) during the period under review released exchequer issues totaling Kshs. 232.8 billion for recurrent, development and CFS expenditure representing2l.T per cent of the total net estimates compared to 19 per cent over the same period last financial year. Exchequer issues amounting to Kshs. 122.9 billion was released for recurrent expenditure which represents 21.4 per cent of the net estimates while Kshs. 61.2 billion was released as exchequer issues for development expenditure which represents 223 per cent of the net estimates compared to 14.5 per cent over the same period last financial year. The total recurrent expenditure for MDAs for the period under review stood at Kshs. 121.8 billion which represents an absorption rate of 18.6 per cent compared to 14.7 per cent for the same period last financial year. The total development expenditure for the period under review was Kshs. 57.8 billion which represents an absorption rate of 12.7 per cent compared to 8.6 per cent in the last financial year. Chapter four highlights some of the issues affecting budget implementation and chapter five gives recommendations on the way forward. Some of the main challenges noted are; inadequate monitoring and evaluation framework for MDAs to ensure supervision of programmes and projects, low absorption of development resources by MDAs, delay in roll out of management information systems to the counties and delay in enacting enabling legislation for county structures. To improve budget execution for MDAs the Controller of Budget recommends that the enabling legal framework should be put in place to ensure harmonious transition to the decentralized system. Secondly, MDAs should ensure they have an effective and efficient monitoring framework that ensures there is adequate supervision of the budgeted programmes and project activities to enhance accountability and absorption of resources. In conclusion, the OCOB notes that despite the slight improvement in the absorption of resources by MDAs, this is still below the targeted rate of 25 per cent for the quarter. The resolutions reached during the meeting of Accounting Officers organized by the office of the Prime Minister, Treasury and our office on low absorption held in July 2012 should be fully implemented.

It gives me great pleasure to present the first quarter Budget Implementation Review report for the period July to September 2012 which is the first in the series of budget implementation reports for the financial year20l2l20l3. This report provides information on the execution of the budget of the national government for the period July to September 2012.It highlights the performance of revenue collection, exchequer issues released and expenditure of Ministries, Departments and Agencies (MDAs). It also provides highlights of the macroeconomic environment under which the budget implementation was executed. This Report is prepared pursuant to Article 228 of the Constitution of Kenya 2010 which established and mandates the Office of the Controller of Budget to oversee implementation of the budgets of the national and county governments by authorizing withdrawals from the Consolidated Fund (Article 206), Revenue Fund (Article207) and Equalization Fund (Article 204). Further, the office is required to prepare quarterly budget implementation reports for both national and county governments. Reporting on budget implementation will create awareness among stakeholders and enable them identify any financial or policy slip-up. Further, this in-year reporting function is part of govemment's efforts to promote budget openness, transparency and credibility as key components of our public financial management reforms. Consequently, I urge the readers of this report to continue to take active interest in carefully monitoring the implementation of the national budgets and in scrutinizing government's delivery on its promises as these provide the necessary impetus for the optimal utilization of public resources for the benefit of all Kenyans.