CoB flags low budget absorption amid slow e-procurement rollout

Accounting officers have been urged to fast-track implementation of electronic Government Procurement System (e-GPS) as part of enhancing transparency and cost-effectiveness in the use of public resources and timely implementation of planned activities.

 Deputy Controller of Budget (CoB), FCPA Stephen Masha said that challenges in the adoption of the new procurement system has contributed to low absorption of funds in the first quarter of Financial Year 2025/26.

"The e-GPS has posed challenges to the procurement process due to a learning curve, resistance from some users, integration issues with internal systems and vendor-related problems," Masha said.

He made the remarks when he appeared before the Budget and Appropriations Committee chaired by Alego Usonga Mp, Samuel Atandi regarding budget execution for the first quarter of Financial Year 2025/26.

He said that the Public Procurement Regulatory Authority issued Circular No.04 2025, dated August 12 on Enforcement of compliance with the Mandatory use of E-GPS by all public procuring entities.

Public entities were expected to be effective July 1 to undertake all public procurement and asset disposal transactions through E-GPS.

“Analysis of submitted financial and non-financial budget performance reports shows that requisition processes through the e-GPS were ongoing, thus the low budget absorption of funds. The e-GPS has posed challenges to the procurement process due to a steep learning curve, resistance from some users, integration issues with internal systems, and vendor-related problems that impact efficiency, competitiveness, and timely service delivery,” Masha told the committee.

The committee members, however, raised concerns on the approval of Article 223 requests by the Controller of Budget, exemptions granted to some government entities from the use of e-GPS and ballooning pending Bills by Counties despite full disbursement of funds by the National Treasury.

But Masha defended the move, saying it has eliminated voiding of transactions and safeguarded diversification of funds.

He also told the committee that Government borrowing is intended to finance development expenditures that create long-term assets and drive economic growth but the current spending patterns indicate a significant portion of resources is absorbed by recurrent expenses such as wages, operations and debt servicing.

According to Masha, this weakens the linkage between borrowing and development outcomes, as funds that should spur infrastructure and productive investment are diverted to consumption, the result of which is rising debt without corresponding growth in revenue-generating assets, undermining fiscal sustainability.

He said that as of September 30, the public debt stock stood at Sh12.04 trillion, comprising Sh5.39 trillion owed to external lenders (45 per cent) and Sh6.65 trillion due to domestic lenders (55 per cent) representing 69 per cent of the Gross Domestic Product (GDP).

In Financial Year 2025/26 the national government budget amounts to Sh4.69 trillion, comprising Sh744.84 billion for ministerial development, Sh1.80 trillion for ministerial recurrent and Sh2.14 trillion for Consolidated Fund Services expenditure.

Masha explained that the allocation to public debt amounts to Sh1.90 trillion, representing 41 per cent of the total budget, which is the highest proportion of the annual budget while ministerial development expenditure accounted for 16 per cent of the budget.

“A significant portion of the government’s budget is allocated to debt servicing, leaving less money for other development expenditures. In the first three months of FY 2025/26, Kenya’s total public debt service (redemptions + interest + other charges) amounts to Sh507.98 billion, a proportion of 87 per cent of ordinary revenue (Tax Revenue + Non-tax revenue + Other Domestic Financing),” Masha explained.

External debt servicing amounted to Sh213.09 billion, comprising Sh141.10 billion on principal payments, Sh71.68 billion on interest payments, Sh255.37 million on commitment fees, and Sh50.28 million on other charges.

The total domestic debt payment was Sh294.89 billion, consisting of Sh110.70 billion and Sh184.20 billion for principal and interest payments, respectively.

“To enhance fiscal impact and ensure debt sustainability, borrowing should be strictly aligned with development projects that have measurable economic and social returns. Recurrent expenditure should be contained through expenditure rationalisation, efficiency gains, and stronger public financial management controls,” Masha said.

The CoB also called for full automation and integration of the public debt management system to reduce the frequency of errors in the data produced by the semi-manual system currently in use.

All foreign currency-denominated debt is presently being processed manually through the exchequer, whereas the rest of the exchequers are automated.

For effective management of Public Debt, the office of Controller of Budget said that the government should implement comprehensive audits of debt procurement, utilisation, and sustainability.

This includes auditing the public debt stock, reconciling loan books and tagging loans to projects.

“Regularly review and flag unsustainable debts to ensure transparency and accountability in public borrowing. Audit findings should guide future borrowing and repayment strategies, aligning them with national development priorities,” the Deputy CoB said.

He also explained the status of the Consolidated Fund Services (CFS), which comprises funds allocated towards repayment of Public Debt (domestic and foreign) and government-guaranteed loans to parastatals, pensions and gratuities, salaries and allowances to constitutional officeholders and miscellaneous services and subscriptions to international organisations.

According to Masha, the allocation to CFS in FY 2025/2026 amounted to Sh2.14 trillion, representing 42 per cent of the gross national budget, an increase compared to Sh2.11 trillion allocated in the first three months of FY 2024/2025.

CoB has stated that the Public debt allocation of Sh1.9 trillion is 72.24 per cent of the tax revenue target, while the exchequer issues of Sh509.59 billion is 92.04 per cent of the tax revenue receipts.

In the first three months of FY 2025/2026, exchequer issues to CFS amounted to Sh546.76 billion, representing 26 per cent of the annual net estimates, compared to 17 per cent (Sh359.48 billion), issued in a similar period of FY 2024/2025.

Public debt received the highest proportion of exchequer issues to annual net estimates at 27 per cent, while the Salaries, Allowances and Miscellaneous Services received the lowest at 13 per cent.

In the FY 2025/26, the Equitable Shareable Allocations to County Governments as per the County Allocation of Revenue Act, 2025 is Sh415 billion.

Total exchequer issues from the Consolidated Fund to the County Revenue Fund amount to Sh66.13 billion, representing 16 per cent of the annual net estimates of the equitable share allocation.

In the first three months of the FY 2025/26, the exchequer issues were mainly towards public debt repayment payment of salaries and use of goods and services by Ministries, Departments and Agencies.

Similarly, the first three months of FY 2025/26 shows that the amount received for donor-funded programmes amounts to Sh24.41 billion, representing 22 per cent of the estimated amount (Sh110.90 billion).

The total disbursement amounts to Sh23.35 billion, comprising Sh2.23 billion as grants and Sh21.2 billion as loans.