A TERM PAPER

COMPARE AND CONTRAST THE BUDGET PROCESS IN

KENYA, USA AND CHINA.

BY

NUH MOHAMED

REG NO.: BBA/00108/020

SCHOOL OF BUSINESS AND ECONOMICS,

MASENO UNIVERSITY

BEC 421: PUBLIC FINANCE AND FISCAL POLICY

LECTURER;

DR. OBANGE

2023
 ABSTRACT
This term paper examines the budget processes in the United States, Kenya, and China,
comparing and contrasting their approaches to budget formulation, enactment, and
implementation. The paper analyzes the similarities and differences in each country's budget
mechanisms, stakeholder engagement, public participation, and budget transparency. The
findings highlight the importance of understanding these processes to enhance budgetary
practices and promote transparency and accountability in public finance management.

This paper will compare and contrast these processes in terms of budget formulation, enactment,
and implementation, as well as stakeholder engagement, public participation, and budget
transparency. By examining these aspects, the paper aims to provide a comprehensive
understanding of the budget processes in these countries and identify areas for improvement.
Table of Contents
ABSTRACT.................................................................................................................................................. 2

INTRODUCTION ........................................................................................................................................ 4

LITERATURE REVIEW ............................................................................................................................. 5

Components of the Budget ....................................................................................................................... 5

Budget Process in the USA ....................................................................................................................... 6

Budget Process in China ........................................................................................................................... 6

Budget process in Kenya .......................................................................................................................... 6

COMPARISON AND CONTRAST............................................................................................................. 8

CONTRAST ............................................................................................................................................. 8

COMPARISON ........................................................................................................................................ 9

CONCLUSION ........................................................................................................................................... 10

REFERENCES ........................................................................................................................................... 11
 INTRODUCTION
The budget process is a critical component of public finance management in any country. It
involves the formulation, enactment, and implementation of the government's spending plans and
revenue projections. This term paper focuses on comparing and contrasting the budget processes
of three countries: the United States, Kenya, and China. Understanding these processes will shed
light on the similarities and differences, identify best practices, and provide insights for
policymakers and researchers.

Objectives Government budget

Allocation efficiency: Expenditures ought to be done on the basis of government strategic

priorities, and on considerations of effectiveness and equity. This requires a coherent linkage
between policy, planning and budgeting both within and across sectors.

Fiscal discipline: This involves decisions regarding total revenues, expenditures and

financing arrangements to determine the size and form of government intervention in the

economy. Aggregate expenditure ceilings should be set before any decisions on budget items

to avoid obliging all spending demands, and should be sustainable over the medium-term.

Operational efficiency: Spending agencies should utilize resources in order to maximize their
outputs and outcomes. Predictable disbursements, building adequate capacity and correcting
perverse institutional incentives can assist in this respect.
 LITERATURE REVIEW
Components of the Budget
The components of a budget typically include various elements that together form a
comprehensive financial plan. Here are the primary components:

Revenue: This includes all sources of income or revenue, such as sales, taxes, investments,
grants, fees, etc. It encompasses both anticipated and actual income.

Expenses/Costs: These are the anticipated or actual costs incurred in running operations or
fulfilling obligations. Expenses can be categorized into fixed (such as rent, salaries) and variable
(such as raw materials, utilities), and they also include interest payments, depreciation, and other
financial obligations.

Operating Budget: This budget outlines the day-to-day expenses required to run an organization
or a business. It typically includes costs for personnel, marketing, utilities, rent, and other
operational expenses.

Capital Expenditure Budget: This component covers long-term investments in assets such as
property, equipment, machinery, or technology. It includes planned expenditures for acquiring,
maintaining, or upgrading fixed assets.

Cash Flow Statement: This reflects the movement of cash in and out of the organization. It
accounts for cash receipts (income) and cash disbursements (expenses), highlighting the liquidity
position of the entity.

Budgeted Profit and Loss Statement (Income Statement): This component outlines the
expected revenues and expenses over a specific period, resulting in the projected profit or loss. It
helps in understanding the financial performance of the organization.

Budgeted Balance Sheet: It presents the financial position of the entity at a specific point in
time by listing assets, liabilities, and equity. It shows the financial health and net worth of the
organization.
Budget Process in the USA
The budget process in the USA is guided by the Budget and Accounting Act of 1921 and the
Congressional Budget and Impoundment Control Act of 1974. The budget process in the USA
starts with the President submitting the budget proposal to Congress in February of each year.
The budget proposal outlines the President's priorities and expenditure over a one-year period.
After the budget proposal is submitted, the Congressional Budget Office (CBO) reviews and
analyzes the budget proposal to determine its impact on the economy. The CBO then submits a
report to Congress, which is used to guide the budget debate. The next step in the budget process
is the preparation of the budget resolution by the House and Senate Budget Committees. The
budget resolution outlines the government's macroeconomic framework, revenue projections,
and expenditure priorities. The budget resolution is then debated and amended by both the House
and Senate. After approval by both the House and Senate, a conference committee is formed to
reconcile the differences between the House and Senate versions of the budget resolution. The
budget resolution is then signed into law by the President. The budget process in the USA is
characterized by extensive public participation, with the public having multiple opportunities to
provide input in the budget process.

Budget Process in China

The budget process in China is guided by the Budget Law of the People's Republic of China. The
budget process in China starts with the State Council submitting the budget proposal to the
National People's Congress (NPC) in March of each year. The budget proposal outlines the
government's priorities and expenditure over a one-year period. After the budget proposal is
submitted, the NPC reviews and approves the budget. The budget is then implemented by the
various government ministries, departments, and agencies (MDAs). The budget process in China
is characterized by limited public participation, with the public having minimal input in the
budget process.

Budget process in Kenya

Kenya's budget process is guided by the Public Finance Management Act (PFMA) 2012, which
outlines the budget cycle. The budget cycle in Kenya starts in September and ends in June of the
following year. The first step in the budget process is the preparation of the Medium-Term
Expenditure Framework (MTEF), which outlines the government's priorities and expenditure
over a three-year period. After the MTEF is approved, the Cabinet Secretary for the National
Treasury submits the budget policy statement to Parliament for review. The budget policy
statement outlines the government's macroeconomic framework, revenue projections, and
expenditure priorities. The next step in the budget process is the preparation of the budget
estimates by the various government ministries, departments, and agencies (MDAs). The budget
estimates are submitted to the National Treasury for review and consolidation. After the budget
estimates are consolidated, the National Treasury submits the budget estimates to Parliament for
review and approval. The budget is then debated in Parliament, and after approval, it is signed
into law by the President.

Kenya have unbalanced budget due to the following reasons;

Corruption and mismanagement: Rampant corruption and mismanagement of public funds can
also contribute to an unbalanced budget. When funds meant for critical projects or services are
embezzled or misappropriated, it results in a budget deficit.

High levels of public expenditure: Kenya may have excessive government spending on various
sectors, including infrastructure development, public services, and social welfare programs. If
expenses exceed revenue, it can lead to an unbalanced budget.

Inadequate revenue collection: A significant reason for an unbalanced budget is the inability to
generate sufficient revenue. Kenya may face challenges in effectively collecting taxes, such as
income tax, value-added tax (VAT), and corporate tax, resulting in a revenue shortfall.

Dependence on external borrowing: Kenya may heavily rely on external borrowing, including
loans from international financial institutions or bilateral lenders. Excessive borrowing can lead
to a growing debt burden, which makes it difficult for the government to balance its budget.
COMPARISON AND CONTRAST

CONTRAST
The United States follows a decentralized budget process, where the President initiates the
budget formulation and Congress enacts it through the appropriations process. Kenya, on the
other hand, has a more centralized process, with budget formulation led by the National Treasury
and Planning, followed by approval from the Cabinet and Parliament. In China, the Ministry of
Finance takes the lead in budget formulation, with the State Council and the National People's
Congress involved in the approval and enactment process.

Budget Implementation: The budget implementation process also differs among the three
countries.

In Kenya, budget execution faces challenges related to budget absorption capacity, procurement
processes, and accountability.

In the USA, the budget implementation is carried out by various federal agencies and
departments, with oversight from congressional committees.

In China, budget implementation is largely controlled by the central government, with limited
transparency and accountability mechanisms.

Political System: Kenya has a presidential system, where the President and the Executive
Branch have significant authority in the budget process. The budget is prepared by the Executive
Branch and approved by the National Assembly, which serves as the legislative body.

In the USA, there is a system of checks and balances with a separation of powers among the
executive, legislative, and judicial branches. The President submits a budget proposal to the
Congress, which has the authority to approve, modify, or reject it.

In China, the budget process is more centralized, with the government playing a dominant role
in formulating and implementing the budget decisions.

Budget Transparency and Public Participation: While public participation in the budget
process has gained importance in all three countries, the extent and mechanisms of public
involvement may differ.

In Kenya, there has been a growing emphasis on budget transparency and public participation in
recent years. The government has taken step to improve public access to budget information and
involves civil society organizations and the public in the budget process through public hearings
and consultations.

In the USA, the budget process is generally transparent, with the public access to budget
information and opportunities for public input during congressional hearings and committee
meetings. civil society organizations and interest groups also play a significant role in advocating
for their priorities during their budget process.

In China, budget process is less transparent, with limited public access to budget information
and opportunities for public participation. Budget decisions are largely made by the government
and the NPC, with limited input from civil organizations or the public.

Budget Execution and Monitoring: In Kenya, the budget execution and monitoring are carried
out by the National Treasury, which oversees the implementation of the approval of the budget
and monitors expenditure against set targets. Regular reports on budget performance are
submitted to the parliament for review.

In USA, the budget execution is the responsibility of the relevant federal agencies, which
implement the budget based on appropriations passed by congress. The Government
Accountability Office (GAO) conducts audits and evaluations to ensure compliance with
budgetary laws and regulations, and reports its findings to congress.

In China, the budget execution is carried out by various government departments and local
governments under the guidance of the Ministry of Finance. The National Audit Office conducts
audits of budget execution and reports to the NPC.

COMPARISON

Annual Budget Cycle: All three countries use an annual budget cycle where government
spending is reviewed and planned for a fiscal year.

Executive Responsibility: Each country's executive branch has the primary responsibility for
drafting and submitting the budget proposal to the legislative body for approval.

Role of the Legislature: The legislature has the responsibility of scrutinizing and approving the
budget proposal. For instance, in the USA, the Congress reviews the budget proposal, while in
Kenya, the National Assembly reviews the proposal.
Public Participation: All three countries provide a forum for public participation during the
budget process. For instance, the public can provide input during public hearings or when invited
to provide feedback on draft proposals

Budgetary Allocation: The budget process in all three countries involves an allocation of
resources, indicating the amount of money allocated to various sectors, projects or programs

Independent Audit and Evaluation: All three countries have an independent audit and
evaluation mechanism to ensure that the budget is implemented according to plan, and that any
deviations are accounted for. In summary, despite the differences in the political system and
economic development of these countries, their budget processes share key similarities.

CONCLUSION
In conclusion, the budget processes in the United States, Kenya, and China exhibit similarities
and differences in their approaches to budget formulation, enactment, and implementation. While
all three countries share common objectives of promoting economic growth and social welfare,
they have varying degrees of stakeholder engagement, public participation, and budget
transparency.

The United States follows a decentralized approach, where the President proposes the budget and
Congress enacts it through appropriations. Kenya has a more centralized process, with the
National Treasury leading budget formulation and Parliament enacting it. China's budget process
is also centralized, with the Ministry of Finance taking the lead and the National People's
Congress playing a key role in enactment.
Stakeholder engagement, public participation, and budget transparency are crucial components
of a robust budget process. Kenya and the United States have made efforts to enhance these
aspects through public consultations, hearings, and the publication of budget documents. China
has made progress in increasing transparency, but further improvements are needed.

REFERENCES

Chege, M. (2008). Economic relations between Kenya and China, 1963-2007. J. Cooke, US and
Chinese Engagement in Africa: Prospects for Improving US-China-Africa
Cooperation,(Washington, DC: Center for Strategic and International Studies).

Deng, S., & Peng, J. (2011). Reforming the budgeting process in China. OECD Journal on
Budgeting, 11(1), 75-89.

Winfree, P. (2019). A History (and Future) of the Budget Process in the United States: Budget by
Fire. Springer Nature.

Kipkirui, G. C. (2009). Analysis of the budgetary process in Kenya and recommendatons for
improvement (Doctoral dissertation, KDI School).

Bastida, F., & Benito, B. (2007). Central government budget practices and transparency: An
international comparison. Public Administration, 85(3), 667-716.