Abstract
The main aim of budgeting by the government is to create plans on how to source, allocate and spend public resources prudently to meet allocation, development and stabilization objectives. All government expenditure should be controlled if both development and recurrent objectives are to be met. This is however not the case with the public sector wage bill in Kenya since it has been at a spiraling level in the recent past. The wage bill to GDP ratio was 12.1% in the year 2012/13 as compared to the internationally accepted level of 7%. The wage bill to revenue ratio was 47% in the year 2012/13 as compared to the internationally accepted levels of between 30% and 40%. The wage bill to expenditure ratio was 57% in the year 2012/13 as compared to the conventionally accepted levels of utmost 40%. This implies fiscal unsustainability of public expenditure. Public sector wage bill reforms like retrenchments, salary cuts and introduction of Salaries and Remuneration Commission to bring fiscal guidelines in wage Bill has not worked in managing the public sector wage bill in Kenya. This study aimed at assessing the effect of budgeting on public sector wage bill management in Kenya as another intervention in wage sanity. The study relied on Principal agent theory of budgeting, Top Down theory of budgeting, Bottom up theory of budgeting and incrementalism theory of budgeting which postulate that budgeting is a tool for control of expenditure. The specific objectives of the study were to establish whether the revenue forecast, recurrent expenditure budgetary projections, capital expenditure budgetary projections and expected growth in GDP have effects on public sector wage bill management. Causal research design was used to establish the cause and effect relationship between the independent and dependent variables. Purposive sampling was employed in selecting 13 fiscal year budget data. Step-wise multiple linear regression models were employed in establishing the degree and magnitude of the relationship between the variables. Student’s t-test and F-ratio were respectively applied to test hypotheses and overall significance of the regression models at 5% level of significance. The findings of this study indicates significant effect of revenue forecast, development expenditure projection and GDP on wage bill to revenue ratio and wage bill to GDP ratio and no significant effect on wage bill to recurrent expenditure ratio. It therefore implies a budget can be a control tool for expenditure. This study recommends the need for the government of Kenya to adopt program based budgeting system that factors output factor to control the wage bill.
Highlights
The word ‘budget’ originated from a French word ‘bougette’ meaning a little bag [26]
Is the wage bill to recurrent expenditure ratio for period t, α0 represents the constant figure of the wage bill to recurrent expenditure ratio when the revenue forecast, extent of growth in GDP, projected recurrent expenditure budget and projected capital expenditure budget is zero. 1, α2, α3 and α4 are the individual effect of revenue forecast, extent of growth in GDP, projected recurrent expenditure budget and projected capital expenditure budget on the wage bill to recurrent expenditure budget for period t respectively
This is because the p-values for revenue forecast, GDP, Recurrent expenditure projection, development expenditure projection, wage bill to recurrent expenditure ratio, wage bill to revenue ratio and wage bill to GDP ratio are 0.929, 0.982, 0.784, 0.762, 0.459, 0.658 and 0.731 respectively
Summary
The word ‘budget’ originated from a French word ‘bougette’ meaning a little bag [26]. It can be noted that budgeting should influence the public sector wage bill This has been achieved in Germany in Euro area and Japan which used the budget to manage their wage bill to GDP ratio at an average of 7% and 6.4% respectively [21]. This led to problems in managing the budget if some agreements were reached at, after the budget had already been prepared To solve this challenges, the government of Ghana in the budget statement of 2007, set up a committee to develop a framework for wage and salary administration with the goal to determine optimal number of workers to effectively and efficiently support the delivery of public services and introduction of a contingency vote to cover the anticipated cost of new pay scales [6]. This study aims at identifying the effect of budgeting on public sector wage bill management
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