RESEARCH PROJECT AND PROPOSALS, Study Guides, Projects, Research of Project Management

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Poverty Reduction and Sustainable Development: Through Education, Economic, Social And Political Practices Location GARISSA COUNTY Proposal Period Continuous Year JULY 2020 PRESENTER’S DETAILS PRESENTER’S NAME: ANAB DAGANE FARAH SIGN __________________________________ Reg NO: BA/1016/2017 DATE SUBMISSION : 5/07/2020 Academic Year 2017/2018 SUPERVISOR’S NAME : ___________________________________________ SIGNATURE : _____________________________________________ DATE : _________________________________________________ KTDC - Kenya Tourist Development Corporation LAOB - Local Authority Oversight Board LATF - Local Authority Transfer Fund M&E - Monitoring and Evaluation MCH - Maternal and Child Health MICS - Multiple Indicator Cluster Survey MTEF - Medium Term Expenditure Framework MTS - Multi-Lateral Trading System NACC - National Aids Control Council NASSEP - National Sample Survey and Evaluation Programme NCF - National Consultative Forum NGOs - Non-Governmental Organizations NIC - Newly Industrialised Country NII - National Information Infrastructure NPEP - National Poverty Eradication Plan NSC - National Steering Committee NSSF - National Social Security Fund PAMFORK - Participatory Methodologies Forum in Kenya PEC - Poverty Eradication Commission PPAs - Participatory Poverty Assessments PRSP - Poverty Reduction Strategy Paper PWDs - People with Disabilities SACCOs - Savings and Credit Co-operative Organisations SAGA - Semi-Autonomous Government Agency SAM - Social Accounting Matrix SBP - Single Business Permit SME - Small and Medium Enterprises STIs - Sexually Transmitted Infections SWGs - Sector Working Groups UN - United Nations UNDP - United Nations Development Programme USA - United States of America VAT - Value Added Tax WMS - Welfare Monitoring Survey WTO - World Trade Organisation WWW - World Wide Web iv EXECUTIVE SUMMARY The consultation process to all the districts the involvement of the civil society private sector and all other stakeholders The prioritisation process and activities for each of the sectors Highlights of all the cross cutting issues Poverty reducing strategies proposed The cooperation required by all stakeholders The need for participative monitoring and evaluation The charter for social integration v INTRODUCTION A. BACKGROUND 1. The challenge facing Kenya today is to reduce poverty and achieve sustained economic growth for healthy national development. The Government is committed to address this challenge in consultation with key stakeholders in the economy, especially the private sector, civil society organizations and other development partners. The strategy to achieve this entails the participation and inclusion of all Kenyans, especially the poor, in the design and implementation of strategies aimed at tackling the challenges of poverty. This is in recognition of the fact that it is the poor who understand at first hand the causes, nature and extent of poverty. 2. This Poverty Reduction Strategy Paper (PRSP) outlines the priorities and measures necessary for poverty reduction and economic growth. It is a product of broad-based and in-depth consultations among all key stakeholders, in particular the poor, at all levels. These comprehensive consultations have ensured that the PRSP fosters national ownership that is necessary to support and implement poverty reduction and economic growth initiatives. The PRSP builds on past efforts aimed at poverty alleviation and in particular the Interim Poverty Reduction Strategy (IPRSP) which identified interim measures and strategies necessary for facilitating sustainable and rapid economic growth, improving governance; raising income opportunities of the poor; improving the quality of life; and improving equity and participation. These principles remain valid and relevant and form the basis of the PRSP. 3. The PRSP has the twin objectives of economic growth and poverty reduction. This is in recognition that economic growth is not a sufficient condition to ensure poverty reduction. In this regard, measures geared towards improved economic performance and priority actions that must be implemented to reduce the incidence of poverty among Kenyans have been identified. The paper identifies strategies that integrate sectoral objectives and ensure that priority actions are consistent with the goals of spurring growth and reducing poverty. Economic policies and strategies earmarked for implementation under the PRSP outline a three-year macro-economic framework aimed at promoting robust economic growth and poverty reduction. 4. This PRSP is central to the development of a pro-poor and pro-growth Medium Term Expenditure Framework (MTEF) budget. The three years MTEF will implement the priorities aimed at improving the quality of expenditure and the shifting of resources towards pro-poor activities and programs. The monitoring and evaluation component of the PRSP will seek to ensure effectiveness and efficiency in the allocation of economic resources to pro-poor development initiatives. 5. The PRSP is at the Centre of the long-term vision outlined in the National Poverty Eradication Plan (NPEP). The NPEP proposes a fifteen (15) year time horizon to fight poverty and has adopted the International Development Goals (IDGs), which aim at reducing global poverty by half. The IDGs provide the vision for this country to eradicate poverty. The PRSP on the other hand is a short-term strategy, which seeks to implement the NPEP in a series of three year rolling plans. As such it is an instrument to implement key national development policies such as the NPEP; the National Development Plan and other key development strategies and plans. In between the 1 Technical Secretariat comprising of professionals from the government, civil society, private sector and technical advisors from the donor community. 19. In addition, Participatory Poverty Assessments (PPAs) were conducted in 10 districts to document the voices of the poor with regard to participation, inclusion and ownership of development programmes and projects and in prioritising activities that directly affect their well-being. The PPA process involved listening to street children, persons with disabilities, pastoral communities, unemployed youths, farmers, traders, jua kali artisans, the private sector, fishing communities, urban slum dwellers, coastal communities, women, local leaders, professionals, local administration and Government Ministries. 20. Upon completion, the first draft of the strategy paper was circulated to a wide cross-section of stakeholders, subject matter specialists, and Government Ministries for comments and feedback. The draft paper was further subjected to public review and scrutiny by a National Stakeholders Forum. (iv) Outline of the Report 21. This paper is presented in two volumes. Volume I contains the substantive components of the PRSP while Volume II comprises annexes. Chapter 2 of Volume I presents a review of the implementation of IPRSP focussing on progress achieved, bottlenecks encountered, and analysis of whether set targets were met. Chapter 3 discusses poverty dimensions covering the definitions, magnitude, characteristics and causes. The Chapter also presents the poverty reduction strategies and targets to be achieved over the next three years. Chapter 4 sets out the macroeconomic framework and its implication to the poverty reduction measures. Chapter 5 details national priorities and issues as derived from (a) district consultations, (b) sectoral consultations, (c) thematic groups and (d) participatory poverty assessments. Chapter 6 discusses the sectoral priorities in detail providing the strategies to be implemented over the medium to the long term in addressing poverty reduction. The last chapter of this volume focuses on a monitoring and evaluation strategy and how it would link to the implementation of the PRSP. Volume II presents nine (9) annexes focussing on implementation matrix, method and consultation framework, national priorities, sector priorities and issues, thematic group issues, experiences from PPAs, district ranking of priorities and weighting criteria for resource allocation. 4 REVIEW OF THE IMPLEMENTATION OF THE IPRSP A. INTRODUCTION 22. In view of the poor performance of the economy and increasing levels of poverty, the Government adopted the Interim Poverty Reduction Strategy Paper (IPRSP) in June 2000. The IPRSP outlined measures aimed at revamping economic growth and poverty reduction by focusing on (i) Facilitating sustained and rapid economic growth; (ii) Improving governance and security; (iii) Increasing the ability of the poor to raise their income levels; (iv) improving the quality of life of the poor; (v) improving equity and participation. 23. Specific measures were put in place to monitor progress and implementation of the IPRSP. These included macroeconomic management, sectoral and governance measures, and consultations to develop a full PRSP through a participatory process. In each of these areas, targets were set and indicators identified to assist in the monitoring and evaluation of progress. 24. In the subsequent sections, a review of the implementation of the IPRSP is presented, paying special attention to (i) Progress made in the implementation of the strategies identified, (ii) Impediments that hindered the achievement of targets set and (iii) Brief assessment of any impact on poverty reduction and growth. B. IMPLEMENTATION OF IPRSP (i) Macroeconomic Management 25. In the area of macroeconomic management, the Government committed itself to the reduction of the budget deficit, domestic debt, interest rates, and maintaining a stable and low inflation regime. Significant progress was made in all these areas but challenges were also encountered. The debt stock to GDP ratio stood at 49.5 per cent as at the end of December 2000, against the set target of 53 per cent. During the 1999/2000 financial year, KShs.3.472 billion of legitimate and verified pending bills were settled through Treasury Bonds. The budget deficit was kept within manageable levels to reduce pressure on domestic interest rates and the money supply growth kept within target levels to ensure price stability. The level of interest was maintained at stable and relatively low levels compared to the previous year. Attainment of our macroeconomic objectives remained elusive. Preliminary results indicate that the economy grew by less than 1 per cent compared to a target of 2.6 per cent. A number of factors contributed to this, such as the severe drought, the withholding of donor support, and the subsequent unsustainable fiscal position. (ii) Sector Policies 26. The implementation matrix of the IPRSP clearly outlined sector objectives, strategies, monitoring indicators, costing, implementing agencies and time frame. The matrix contained measures that aimed at reviving growth and contributing to poverty reduction. a) Agriculture and Rural Development 27. In agriculture and rural development, the government committed itself to reforms and increasing resource allocation to improve the performance of the sector. Budget provision for water supply was increased to support expanded supply of water and rehabilitation of water projects. The pace of institutional reforms in the rural sector, which aimed at giving ownership and control to stakeholders, was accelerated. First, Cabinet approved a draft policy on the coffee sub-sector reforms aimed at privatisation of marketing services performed by Coffee Board of Kenya (CBK) while CBK retained the regulatory function. This was after consultation with stakeholders. Second, liberalization of the tea sub-sector has been completed. Kenya Tea Development Authority has been transformed to Kenya Tea Development Agency Limited through amendment of necessary legal provisions. The new institution has been incorporated under the Companies Act as an independent and private enterprise owned by small-scale farmers through respective tea factory companies effective 1st July, 2000. Third, consultations with stakeholders on both the Sugar Policy and Bill were completed in June 2000. The Sugar Policy has been finalised and submitted to the Cabinet. 28. Fourth, the IPRSP set out to implement and enforce environmental plans, institutionalise environmental impact assessment, pollution and waste management, reduction of loss of biodiversity and control of water hyacinth and other invasive weeds in Kenyan lakes. The Government enacted the Environmental Bill and the National Environmental Management Agency Act has been put in place and will involve poor communities in environmental restoration programmes. Fifth, the fisheries policy and legal frameworks were finalised while work on the policy review of other commodities including cotton, horticulture, forestry, pyrethrum, irrigation, dairy, animal health and beef continues. The control of water hyacinth was also completed during the first year of IPRSP. The sector also undertook preparation of the Kenya Rural Development Strategy (KRDS) to provide a common/shared vision and framework for rural development. 29. In spite of the progress made in this sector, problems continued to be experienced in a number of sub-sectors. The drought adversely affected water and energy supplies. Other problems were related to governance issues; primarily the poor management of agricultural co-operatives and agro- based industries like sugar, rice, tea, dairy products, coffee and lack of, or poor access to, cheap credit to farmers as well as lack of proper extension services. specify three different tiers of micro finance institutions, the regulatory and supervision regimes. 32. As Communication is a key component for enhancement of trade, tourism and industry there are now additional direct international flights to Mombasa and Eldoret as well as chartered flights to Kisumu and Malindi. The process of revitalising growth sectors has also been initiated, the tourism police unit has been established and sections of the Local Government Act have been reviewed leading to the establishment of a Single Business Permit (SBP). 33. The greatest challenges for the sector remain those of poor infrastructure, insecurity and poor access to financial services required by investors. There has been also poor inflow of foreign direct investment into the sector. c) Public Sector Reforms 34. Public sector reforms especially the ministerial rationalisation, reduction of the size of government, and restricting ministries to their core functions were completed. The reforms focused on the broad issue of improving public sector management. Several actions were implemented and 22,190 civil servants were retrenched in the first phase. Additional staff retrenchments were effected in the Kenya Revenue Authority (KRA), public universities and other parastatal bodies. Some progress has been made in improving the terms and conditions of civil servants within an affordable wage bill. Parts of the Harmonisation Commission recommendations for improving remuneration of public servants were effected. Progress has been achieved in establishing a code of conduct for public servants and judicial officers. A public service code of conduct was published in June 2000 and is being revised to secure further improvements. A committee appointed by the Judicial Service Commission has looked into the code of ethics for judicial officers and submitted their recommendations to the Chief Justice in February 2001. Decentralisation of some key functions, some to district level, is on-going. 35. A number of targets, such as the implementation of highflier scheme, approval of benchmarks for result oriented performance, and systematic conducting of examination as the basis of recruitment and promotion were not met. This was primarily because of the slowdown in the implementation of the reform programme related to public sector restructuring and delayed implementation of phase two of the retrenchment programme. Bad publicity due to a misconception of the retrenchment programme, low levels of compensation benefits and slow disbursement of compensation benefits also continued to bog down the process. d) Privatisation of Parastatals 36. In privatisation, the Cabinet approved an updated privatisation strategy in June 2000. A number of studies have been completed and progress has been made in the privatisation of Kenya Commercial Bank (KCB), Telkom and Kenya Railways. Significant progress was made in implementing the concessioning of the container terminal and other non-core services of the Port. Work on separation of assets of Kenya Power and Lighting Company (KPLC) and Kenya Electricity Generating Company Limited (KENGEN) has been completed. A Cabinet paper on the privatisation of Kenya Pipeline has already been prepared. 7 37. The privatization of Telkom and commercialization of postal services were not completed because of delays in the approval by the Cabinet and problems related to procedural guidelines of completing the process. In general, these procedural guidelines also hampered the completion of other privatization plans for a number of parastatals. e) Human Resources Development 38. The IPRSP outlined several measures to improve education, health, HIV/AIDS and labour. Most of the indicators can only be assessed after undertaking surveys. In the education sector, the primary and secondary schools curriculum have been reviewed to reduce the number of examinable subjects and the costs to parents. To ensure equity, the Equality Bill has been published and the Affirmative Action Bill approved by Cabinet. The Rights of the Child Bill has been approved by Cabinet and is awaiting publication. Cabinet has also approved the Family Protection Bill. To improve statistics about the child, a Multiple Indicator Cluster Survey (MICS) and Child Labour Module of the Integrated Labour Force Survey of 1988/99 have been completed and both have generated up-to-date information on child labour and other social statistics. In the health sub-sector, the Ministry of Health put in place the Health Sector Policy Framework that outlines in detail specific measures for implementation. 39. The National Aids Control Council has been established to strengthen capacity and co- ordination in responding to HIV/AIDS pandemic at all levels. Aids Control Committees have been established in all ministries, provinces and constituencies. Failure to sign the World Bank credit of US$50 million on time delayed the start of recruitment of professional staff as well as the start of the major operations of the Council and activities at the district level. f) Local Government 40. One of the main objectives of the IPRSP was to improve economic governance and service delivery in local government. Specific strategies were to operationalise the Local Authority Transfer Fund (LATF), improve financial management and revenue mobilisation, strengthen participatory planning, establish financial management control board and rationalisation of Local Authorities legal and management framework. 41. The LATF was operationalised and transfers were made. The Local Authority Oversight Board (LAOB) was established although operationalisation encountered some difficulties at the implementation stage. Private sector led oversight board has been appointed to assist streamline City of Nairobi operations. Efforts to continue the Local Authorities reform are being continued in the current PRSP. g) Public Safety, Law and Order 42. The Public Safety, Law and Order sector set out to achieve predictable and impartial justice system and to mainstream gender in development. Some progress was achieved in the area of strengthening the independence of the judiciary. Computerisation of the critical legal registers, court recording, and financial management systems is in progress. A number of bills were drafted and are awaiting presentation and approval by Parliament. Several targets have not, however, been met e.g. approval of the National Gender Policy and increasing to at least 30 per cent women in decision- making process. The implementation of the Kwach and Effie Owuor reports has been slow due to resource constraints. 8 h) Governance Measures 43. The Anti-Corruption Bill was published and discussed by Parliament. The budgetary allocations to the Judiciary have been enhanced to accommodate commercial courts and increase the number of judges. Measures have been taken to increase the independence of the Controller and Auditor-General (C&AG) office. The office has been allocated increased budgetary resources. A draft of the proposed Kenya National Audit Office Act has been prepared. Cabinet approved updated comprehensive procurement regulations for implementation in all public institutions in June 2000. The Government has published a legal notice that redefines the procurement procedures and guidelines. The notice decentralises the tendering procedures giving more powers and responsibilities to the accounting officers and removing the powers of the District Commissioners. 44. In the area of strengthening budget, financial management and ensuring transparency, the posts of Finance Officers were created and filled, and action has been taken to develop an Integrated Financial Management System. Procedures for disbursement, management, and monitoring of LATF has been put place. 45. A major setback in the fight against corruption was the decision by the High Court that the set up of KACA was illegal, the rejection in Parliament of the Economic and Crimes Bill and the Code of Ethics for Civil Servants. These drawbacks affected the pace of progress in dealing with cases of corruption. (iii) Participatory Plan 46. The Government committed itself to the preparation of a full PRSP through a participatory process. The plan set out to establish a national consultative structure, conduct local level consultations, conduct district level consultation, provincial workshops, and national level. All these commitments have successfully been completed as outlined in the methodology in developing this PRSP (see Annex 1). In addition, efforts have been made to hold parliamentary consultations. Similarly, a Monitoring and Evaluation (M&E) team comprising of Ministry of Finance and Planning and other various stakeholders including Poverty Eradication Commission will be responsible for monitoring and evaluation and similar Sub-Committees will be established in line Ministries. A thematic group on M&E has also been put in place to co-ordinate M&E activities with the participation of all stakeholders. (iv) Data for Monitoring Poverty and Growth 47. With regard to data for poverty monitoring and evaluation, the Central Bureau of Statistics achieved several things it set out to do. Jointly with K-Rep, CBS conducted a survey on small and medium enterprises with useful benchmarks on the sector. The Bureau also produced the basic reports of the 1999 population and housing census and these were released in January 2001. A preliminary report of the Multiple Indicator Cluster Survey (MICS) has been completed and its results incorporated in the Common Country Assessment (CCA) of the UN system. The detailed analysis of the database has been initiated and will be completed within the first half of the 2001/2002 fiscal year. The third Participatory Poverty Assessments were undertaken and have been integrated into this PRSP. The second volume of Poverty Report of the 1997 Welfare Monitoring Survey (WMS) was released and the analysis of the basic report and agriculture module are underway. An update of the poverty level is planned through a fourth WMS within 9 58. Unemployment and low wages was singled out by communities both in urban and rural areas as a cause of poverty. Communities explained that although their children had completed schooling, many had failed to secure meaningful employment due to lack of opportunities and skills for gainful employment and lack of crucial resources for production such as electricity. Lack of credit due to the inability to obtain collateral was mentioned as a hindrance to self-employment. In the case of women, access to credit is conditional upon their husbands’ consent. Moreover women tend not to own land or other tangible forms of security to secure a loan. Corruption and nepotism have worsened the situation as poor households are often unable to pay the bribes demanded by potential employers. Lack of employment implies lack of income necessary for meeting the basic needs such as food, shelter, clothing, education and medical services. Recent reforms in the country like liberalization of the economy, private and public sector reforms particularly retrenchment have worsened the problem of unemployment. Liberalization of the economy brought about increased market competition. This coupled with poor management has led to collapse of sugar factories, cotton ginneries, coffee and sisal factories, and livestock processing industries among others. 59. Bad governance is another cause of poverty cited by communities. This manifests itself in lack of transparency and accountability in management of the resources and funds meant to benefit communities. Communities singled out mismanagement of bursary and harambee funds, mismanagement of co-operatives, relief food distribution, funds for women, youth and the disabled. This has denied households and communities crucial resources and services that would improve their well-being. This has tainted self-help programmes and increased poverty. Many households also complained of harassment by local administration. 60. Land issues: Landlessness was identified by many communities as a major underlying cause of poverty. In rural areas many communities depend on land for production. However, the majority have been rendered landless or squatters. The causes of landlessness vary from community to community. While in some communities this is a result of high population growth, in others it is due to poor land tenure systems such as communal land ownership. For example, in North Eastern Province, farmers and pastoralists clashed over grazing and watering points, thereby causing poor utilization of the land resources. In the coastal region in particular, many households reported having no land title deeds. Lack of land increases women’s vulnerability to low incomes and poverty. Ownership and access to land in rural areas is a critical factor influenced by the interplay of customary and civil law. Although women can legally inherit land, African customs essentially support a patrilineal mode of inheritance. If a woman is divorced or separated, most assets, which were initially jointly owned, revert to the husband’s possession. In addition, many local cultures do not guarantee a wife’s right to inherit her husband’s property upon his death. Studies in Kenya indicated that 12 61 percent of women slum dwellers left their rural homes because their marriages broke down, 8 percent because they were widowed and 8 percent because of the pressures of single motherhood. Related to landlessness is the fragmentation of land into small uneconomical units in parts of the country. This is predominant in high and medium potential areas where there is high population growth. 62. Inadequate roads: Many communities complained of the poor road network. They lamented that they generally lacked roads and the existing few were in pathetic conditions and impassable. In other areas, bridges were not available while others were on the verge of collapsing. This makes access to markets, hospitals and schools impossible/very difficult. Farmers are therefore not able to market their products and end up being exploited by middlemen. 63. The Cost of Social Services: Cost sharing in health facilities were said to have “lost meaning”, as the situation in most public health facilities has become worse as reflected by lack of drugs, collapse of Maternal and Child Health (MCH) services, absence of health personnel, increased cost of drugs and general insensitivity/unfriendliness of staff, coupled with corruption. 64. The cost of education especially in primary schools is a huge burden on many households. The many school requirements such as several textbooks for every subject, school uniform, school development fund, additional hiring of teachers by Parent/Teacher Associations and other frequent and unplanned levies have all acted to deplete the meagre household incomes. For many parents who cannot afford the high cost of education, their children drop out of school and work to supplement households’ budgets. The situation is worse for the girl child who becomes the first victim to drop out of school due to the boy child preference in a situation of reduced resources. All these factors limit opportunities for employment and involvement in income generating activities by women, thus increasing their poverty. 65. Communities cited HIV/AIDS as a recent development problem causing poverty. Prostitution, especially in urban areas, wife inheritance in some communities, use of communal/traditional circumcision tools, lack of proper discussion of the disease at an early stage were given as some of the major causes of the disease. The disease has aggravated The situation is worsened by deteriorating economic conditions that make it difficult for women to access health and social services. Young women are particularly vulnerable to HIV/AIDS as they often lack the power to successfully negotiate “safe sex”. Women also bear the main burden of caring for the ill. 66. Gender Imbalance was cited as a key factor in propagating poverty. Lack of ownership and control over productive assets such as land by women was given as a factor contributing to poverty in agriculture. In some cases, women cannot make strategic decisions like selection of the part of the land to cultivate even when the man is away 13 . In many households property is normally registered in the name(s) of male(s). Traditions in many societies do not give women the right to own property or to have property registered in their names. Related to this is lack of access to credit facilities by women due to lack of collateral. This makes female-headed households (divorcees/widows) more vulnerable because they are single breadwinners. The analysis carried out during the participatory poverty assessment indicate that men dominate the access and control of household resources/assets and decision making patterns while women control only minor resources and assets such as chickens, furniture and utensils. 67. Many communities also highlighted disability as cause of poverty. People With Disabilities (PWDs) were reported to be socially marginalised, neglected and intimidated in many parts of the country. PWDs are poorly represented in many decision-making bodies/institutions hence their interests are not catered for. PWDs have been denied access to public utilities, good healthcare, basic education and vital information leading to lack of employment opportunities resulting from lack of relevant skills and knowledge. These factors have further led to their inability to fend for themselves and have made them dependent on other members of their households. This makes other family members drive their valuable time from gainful economic activities. At the household level, their rights to inherit property are either abused or neglected. These factors combined cause poverty to both PWDs and their households. F. POVERTY REDUCTION STRATEGY AND TARGET 68. Kenya’s poverty eradication plan was formulated in line with the goals and commitments of the international development goals (IDGs), notably to reduce the proportion of people living in extreme poverty by half by 2015. Kenya’s Poverty Plan sets a framework for institutionalising poverty eradication in Kenya with a target of reducing the incidence of poverty to less than 30 percent of the total population by 2015. 69. The magnitude of the poverty problem in Kenya is enormous with more than half of the population living below the absolute poverty line. The Government has therefore adopted a new strategy that incorporates wider consultations and broader participation of various stakeholders including the poor in planning and implementing poverty interventions. The immediate challenge is to stop the increase in the incidence of absolute poverty and gradually reduce the current level. The poverty issues and priorities identified by districts and sectors during the consultations are geared towards promoting economic growth and sustainable development. This would help improve the quality of life and reduce poverty. 5: Determinants of Poverty • National Income: Falling per capita income has led to a rise in poverty. The sectors where the poor are to be found, notably the agricultural sector, declined drastically and reduced personal incomes as well as national income. 14 iv. Deficit and Financing Strategy: The strategy will focus on eliminating the deficit by 2003/04. Domestic debt is expected to decline from 20.8 per cent of GDP in June 2000 to 14.5 per cent in June2004. Over the same period, external debt will decline from 51 per cent of GDP to 44 per cent, despite an increase in the overall level of borrowing. D. PRO-POOR GROWTH POLICIES 72. Growth targets for poverty reduction: The macroeconomic framework adopted by the Government will allow for a pro-poor growth strategy that will lay emphasis on a growth process that directly addresses poverty and leads to sustainable poverty reduction. For growth to reduce poverty permanently, and also ensure that the growth process is sustainable, it has to be accompanied with economic policy measures and public investments that enlarge economic opportunities for the poor in marginal and vulnerable regions. This recognizes the fact that growth, poverty reduction and inequality are interdependent. The objective adopted by the government is to effect poverty reduction through changes in resource distribution. This will be achieved by enhancing equity and access to economic resources by providing viable incentives to the poor, small-scale producers, small-holder peasants and traders. This objective reflects the fact that growth policies without effective resource distribution will have a limited impact on poverty reduction. Similarly, the growth process will not yield expected results if it is not accompanied with distributional measures. There are several aspects of this Pro-Poor Growth Strategy that will be the focus of government policy: i. Promoting access to markets and market opportunities for the poor. This requires infrastructure provision, access to credit, employment, etc. This will ensure that markets work better for the poor; ii. Improve the overall effectiveness of public resources geared towards poverty reduction; 23 iii. Enhance the security of the poor by addressing the critical issues of marginal groups in marginal areas and protect the vulnerable groups. This is important in dealing with crisis and shocks; iv. Emphasise and allocate increased resources targeted on human capital development. This is an aspect that has to be addressed in the PRSP; and v. Generate employment, improve productivity and improve conditions in the labour market. 73. This PRSP attempts to address these issues. 17 E. MACRO ECONOMIC POLICIES FOR 2001 TO 2004 74 In formulating macroeconomic policies that will break the cycle of short-term stop-go solutions that have proved unsustainable, it will be necessary to identify those policies that have short- run implications, medium-term implications and long-term implications and ensure that they are consistent. An advantage in this framework is that it allows for an effective monitoring and evaluation process. (i) Short run measures for revamping economic growth 75. Government will take measures to facilitate realignment of GDP composition to bias it towards investment. The PRSP strategy is to improve the composition of public expenditure by increasing the share allocated to investment. The 32 Feasible way in this approach is first to continue with the retrenchment exercise that reduces the wage bill and increases public investment to support both private investment and human capital development. 76. Improving the quality of expenditure in line with poverty reduction goals: Improving the quality of government expenditure has positive impact on economic growth and is consistent with poverty reductionì The government will address the institutional arrangements used to source external resources in order to ensure maximum flexibility with respect to counterpart funding on one hand, and that soliciting for resources is focussed on support sectors, sub-sectors and priority areas identified through the PRSP consultative process, on the other. 24 77. Reducing domestic debt to a sustainable level: In order to dislodge the domestic debt overhang in the medium term, the government will initiate practical measures to reduce domestic debt. Measures will be taken to target pension funds as a source of long-term investment in long-term government bonds and appropriate marketing mechanisms of long-term government securities. The other medium term measures that will be taken to reduce the stock of domestic debt and reinforce the above measures include: i. A buy-back scheme, that will be effected through the establishment of Domestic Debt Fund finances from privatisation proceeds and external resources. 18 ii. Conversion of a proportion of domestic debt into long-term stocks of 10 to 20 years attracting a favourable interest rate. This measure will be supported by pursuit of appropriate inflation targets that supports the increased monetary base. This measure will remove fiscal pressure from domestic debt management, remove the distortion on interest rate and exchange rate and allow a moderate inflation rate in the medium term that would support growth. iii. In contrast, the external debt is mostly borrowed on concessional terms with significant grace periods, low interest rates and maturities as long as 40 years. Furthermore, Kenya has in recent years been making net repayments out of the foreign debt (redemptions exceeding new borrowings) to the tune of 1 per cent of GDP in 1997/98, 1.2 per cent in 1998/99 and 1.9 per cent in 1999/2000. These are huge outflows, which have led the country to borrow heavily. 78. In light of the above, a sustainable debt policy will focus on: - i. Maintaining an overall framework of budget surpluses or minimal deficits to ensure that the debt/GDP ratio declines significantly in the coming years; ii. Net reduction of domestic debt in the short run with a domestic debt/GDP target of 15 per cent by 2003/04; iii. Substantially scaling back of reliance on Treasury Bills as a budget-financing instrument in the medium term so that they can be limited to monetary policy implementation; iv. Developing long term financing instruments; v. Reversing the net out-flows reflected in the external debt repayments in recent years; vi. In the short to medium term, the Government will restrict itself to concessional external borrowing with a view to reducing overall interest payments and providing a more stable debt profile. 25 79. The Government will put in place appropriate taxation policies. These will among others: i. Target exempting or zero rating essential goods consumed by the poor. ii. Target reducing import duties on raw materials and capital equipment to encourage local and inward investment by reducing production costs and thereby enhancing competitiveness within the COMESA and EAC region; 19