1. FISCAL POLICY REFORMS FOR AN INCLUSIVE GREEN ECONOMY “KENYA EXPERIENCE” Presentation During a Regional Workshop on “ Inclusive Green Economy for Poverty Reduction and Sustainable Development in Africa: From Inspiration to Action” - Cairo Egypt- 28 th Feb-1 st March, 2015 by Peter O. Odhengo, Senior Policy Analyst, The National Treasury KENYA

2. Presentation Outline  Introduction  Ongoing major fiscal reforms aimed at promoting green investments in Kenya  Implications of the reforms  Institutional arrangements for the reforms  Challenges and safe guards

3. Introduction  In Kenya, growth prospects:-  remain strong,  inflation has been contained at single digit,  interest rates are trending downwards,  exchange rate is broadly stable,  public debt remains sustainable and  both fiscal and external buffers have been strengthened, despite the downside risks associated with the sluggish global recovery

4. Cont’..  The resilience built over the year on account of sound macroeconomic management has helped to sustain growth.  The economy rebounded from 0.2 % in 2008 to 8.4 %in 2010, before slowing down to 6.1 % and 4.5 %in 2011 and 2012, respectively.  In 2013, the economy grew by 5.7 % and 5.3 % in 2014 respectively,  It expected to rising to 6.9 percent in 2015 and 7.0 percent over the medium.

5. Fiscal Policy Reform Environment  Kenya’s economy is highly dependent on its natural resource base;  This makes our country highly vulnerable to climate change, and threatens our Vision 2030 goal of creating a globally competitive and prosperous nation with a high quality of life;  Addressing climate change requires that we transform our economy by reforming our fiscal policies to bring in paradigm shift to promote green investments across multiple sectors.  This will lower greenhouse gas emissions, reduce economic shocks and deliver poverty reduction gains.

6. Fiscal Reforms  Removal of inefficient and environmentally harmful subsidies is one of the most promising avenues to promote transition green economy.  Energy subsidy reforms —removing both direct subsidies and implicit subsidies from the failure to charge for environmental externalities —could generate significant revenues for fiscal consolidation, lowering other burdensome taxes, or funding green investments i.e. introduction of FiT,  Well targeted “green fiscal reforms” are able to discourage excessive energy consumption and generate additional resources for green investments – green taxation

7. Cont’  Fiscal consolidation- the need to push forward on financial oversight and regulation, and the importance of comprehensive structural reforms to support green economy and growth

8. Major Challenges  There are many challenges affecting reforms:-  Lack of political good will for imlementation,  Inclusiveness and social integration  De-risking green investment  Active participation of the private sector.  Sustaining political stability beyond the ideological strife;  Increased conflicts on scarce natural resource- pasture, water, etc.

9. Cont’..  Barriers to introduction of new financial mechanisms e.g. introduction of green bond  Lack of human and institutional capacity,  Standards and enforcement

10. Mitigation Measures  Prudent monetary policies-have reduced inflation and built foreign reserve buffers,  Fiscal reforms – bolstered by debt relief – have reduced budget deficits and lowered public debt.  This has greatly helped the country to deal with the external and domestic shocks;  Financial inclusion is advancing rapidly, giving millions of people a stake in the economic- landscape-Mpesa

11. Cont’..  Amendment to the PFM Act, 2014 –for increased accountability and reduction of corruption;  Policy measures to Improve Management of Public Resources;  Raise the efficiency and quality of public spending  Development of Green Economy Strategy and Implementation Plan to drive transformation to low carbon-green economy pathway  Proposed introduction of Green Bond to mobilize resources for green investments through NSE  Fiscal policies targets to the newly created devolved units with clear requirement for green growth agenda

12. Mitigation Measures  Ongoing fiscal decentralization provides which opportunity to improve accountability and the quality of service delivery, but its success will depend on building capacity at the county level  Anchoring economic stability through sound fiscal and monetary policies and market-oriented reforms

13. Institutional Arrangements PFM Oversight Institutions:  Good progress has been achieved in strengthening the institutional capacity of the public financial management oversight agencies to:-  ensure efficiency,  effectiveness,  transparency and  accountability in the use of public finances.

14. Cont’.. Going forward  Further capacity building and system development will be undertaken in:-  The National Treasury,  Office of Controller of Budget,  Office of the Auditor General and  Public Procurement Oversight Authority.  The four oversight agencies undertake capacity building actions for timely financial reporting to national and county governments in order to enhance transparency and accountability.

15. ASANTE SANA