I beg to move that Mr. Speaker do now leave the chair.

Mr. Speaker, over recent years our economy slowed down to unacceptable low growth rate. This has lead to increased unemployment and poverty. Recognizing the need for bold steps to reverse the situation, H.E President Daniel Arap Moi took action to introduce greater effectiveness in the management of the economic affairs of the country by announcing, in July 1999, major public sector reform initiatives. I wish to take this opportunity to sincerely congratulate and thank H.E the President for that foresighted action which started to bear fruit to which my speech will bear testimony.

I also wish to thank all the Hon. Members of this House, the Cabinet and the Parliamentary Committees for their support which has facilitated my work over the past year.

Mr. Speaker, the most critical economic challenge facing Kenya today is the achievement of a broad-based, sustainable improvement in the standard of living and welfare of all Kenyans. Today, about 52% of Kenyans live below the poverty line. Living conditions of a large proportion of Kenyans, both in rural as well as urban, have either stagnated or worsened. Many have no access to basic amenities such as clean water and adequate shelter. As a result of the economic decline in recent years, we have not been able to sustain gains achieved in the past decades in education, health and other social areas. Our problems have been compounded by the heavy toll taken by the HIV/AIDS epidemic. Economic decline and increased poverty have also become a source of rising social tension and escalating crime and insecurity. More recently these problems have been worsened by an emerging drought, which has decimated food surplies, caused water shortages, and drastically reduced our hydroelectric supply. Clearly, this situation is not tenable and must be reversed as a matter of urgency. The Government is taking actions to give effectively and comprehensively with the drought –related emergencies, while at the same time implementing policy measures and programmes to initiate a sustainable economic recovery. The Government is putting in place the conditions needed to achieve sustainable rapid private- sector- lead economic growth, which is essential to experience a significant reduction in poverty and unemployment.

Mr. Speaker, the theme of the budget this year is Poverty Reduction through Sustainable Economic Growth. It focuses on achieving sustainable improvements in the performance of the economy and the quality of life of all Kenyans. To realize these objectives, we have adopted a longer-term approach to our budget process that better links the budget to achieving our national development objectives.

Mr. Speaker, the 2000/01 Budget is the first prepared under the Medium Term Expenditure Framework. (MTEF). This is anew approach to planning and budgeting. It emphasizes full stakeholders’ participation in setting national priorities, expenditure priotisation, and transparency and accountability in public expenditures with the goal of achieving enhanced service delivery. The MTEF will ensure that the Government spends taxpayers’ money well by radically changing the way it allocates and manages public resources. While revenue collection efforts have been efficient over the years, the delivery of services has deteriorated. The MTEF will restore credibility, predictability and effectiveness of the Budget and the actual delivery of the public services to Kenyans.

Mr. Speaker, the objectives of the MTEF budgeting approach are:

1. To define a realistic three-year medium-term macroeconomic and fiscal framework to form the basis of forecasts of revenues and grants.
2. To set expenditure ceilings for each sector; to convert these sector ceilings to ministerial ceilings; and to prepare detailed budgets for ministries and departments using these hard resource ceilings, which had approval at the highest levels of the Government at an early stage .
3. To allocate expenditures to agreed top priorities, identified as most likely to have the highest positive impact on economic growth and poverty reduction.
4. To link the three-year budget program to the longer term objectives and plans.
5. To make funding for priority projects and programmes more predictable over a three year period; and
6. To formulate the budget in the context of a more consultative process involving all ministries, departments and other stakeholders in the economy in identifying the highest priorities to be funded to achieve our national objectives.

Mr. Speaker, this MTEF is a three-year rolling plan covering the fiscal years 2000/01 – 2002/03, based on a realistic assessment of resource availability. The first year of the planning period has been translated into the detailed annual estimates. With this new budgetary system, Government Ministries will be able to undertake there planned activities with greater predictability while Permanent Secretaries will be given greater autonomy to manage their resources, but will also be expected to be directly accountable for performance and output of the various programmes while adhering to hard budget ceilings.

Mr. Speaker, I now want to turn the economic environment in which we are developing our budget framework. On the international front, there are some brighter prospects. The Asian and Latin American currency crises led to declining world commodity prices and slower growth in the world economy. Kenyan business was faced with severe international price competition and the economy experienced declining terms of trade in both 1998 and 1999. Today, prospects are generally positive for stronger growth in ht OECD countries as well as many of the newly industrialized countries. Commodity prices are starting to recover. Pulp and paper prices, for example, are on a sharp increase as world demand has absorbed the excess supply of recent years. New opportunities are also presenting themselves. The passage of the US Trade and Development Act offers new trade options, particularly in sectors such as clothing and textiles which Kenya intends to pursue vigorously. The recent steep rise in world oil prices, however, has become a major burden for oil-importing countries such as Kenya. The impact in the coming year will be even more adverse as we will be forced to increase our oil imports for power generation to make up the short fall in hydroelectricity supply.

The economic environment in sub – Saharan Africa is a mixed one. Military conflicts and political instability are still disrupting economic development in our region and elsewhere. Drought has emerged as a major adverse factor in the near term in the EGAD region. On the bright side, the prospects for expanded trade and development within the COMESA and East African co-operation still remain attractive. 
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