New Bill Targets Enhanced Financial Accountability

The Kenyan government is moving to tighten financial controls over public funds through a proposed amendment to the Public Finance Management (PFM) Act, 2012. The Public Finance Management (Amendment) Bill, 2025, sponsored by Rongo MP Paul Abuor, mandates that all government projects operate dedicated bank accounts. This significant legislative change aims to ensure that funds allocated for specific projects are used solely for their intended purpose, thereby enhancing transparency and curbing misuse.

Under the proposed law, all funds appropriated for specific projects in the national budget would be deposited directly into these project-based accounts. This measure is designed to prevent the diversion of funds, a challenge that often arises with supplementary budgets or budget cuts.

Historical Context and Policy Drive for Transparency

The push for greater financial accountability in Kenya is not new. For years, concerns about corruption and the mismanagement of public funds have plagued development projects, leading to calls for stricter oversight. The current PFM Act, 2012, provides a framework for managing public finances, but the proposed amendments seek to strengthen its provisions, particularly concerning project-specific funding.

International partners, including the World Bank, have consistently supported Kenya's efforts to improve public financial management. The Second Strengthening Governance for Enabling Service Delivery and Public Investment (GESDeK II) Program for Results, a $250 million initiative funded by the World Bank, aims to enhance revenue mobilization, strengthen accountability and transparency in public finance management, and improve coordination of priority programs.

Legal Framework and Governance

The Public Finance Management (Amendment) Bill, 2025, proposes to insert a new clause into Section 83 of the existing PFM Act, making it mandatory for all project funds to be managed through exclusive accounts. This legal embedding is intended to ensure continuous and specialized financial training for Treasury officers, a gap identified in the current Act.

The Controller of Budget (CoB) will play a crucial role in overseeing disbursements to these dedicated accounts and will be responsible for ensuring that ministries, departments, and agencies submit quarterly compliance reports. Furthermore, the Bill introduces stricter penalties for accounting officers or Authority to Incur Expenditure (AIE) holders found guilty of diverting funds, including a penalty of 150% of the misused amount, immediate suspension, and potential dismissal from public service, along with a possible five-year imprisonment upon conviction.

Financial institutions facilitating unauthorized withdrawals or transfers from these project-specific accounts will also face significant penalties and legal actions as determined by the Central Bank of Kenya (CBK).

Stakeholder Perspectives and Implications

Analysts and stakeholders have largely welcomed the proposed changes, viewing them as a positive step towards combating financial mismanagement and ensuring that development funds reach their intended beneficiaries. The move is expected to foster greater public trust in government projects and improve the efficiency of public spending.

However, clarity on implementation timelines, associated costs, and robust safeguards will be crucial for the successful rollout of these new provisions. The National Treasury has been working towards a Treasury Single Account (TSA) system, with the Central Bank of Kenya scheduled to upgrade its T24 system in July 2025 to support TSA functionalities. This broader initiative aims to track cash flows within state organs, control wastage, and reduce excessive government borrowing.

Unanswered Questions and Next Steps

While the intent of the Bill is clear, some details remain to be fully elaborated. These include the precise mechanisms for establishing and managing hundreds, if not thousands, of new dedicated bank accounts, and the capacity building required for all relevant government personnel. The potential impact on the liquidity of commercial banks, which historically held significant government deposits, will also be a point of interest.

The Finance Bill, 2025, which includes these amendments, was presented to Parliament on Thursday, April 30, 2025, and is expected to undergo public and stakeholder comments before it becomes law. President William Ruto assented to the Finance Bill 2025 into law on Wednesday, June 26, 2025, with implementation set for Monday, July 1, 2025.

What to Watch

The coming months will be critical in observing the practical implementation of these new financial controls. Stakeholders will be keenly watching how effectively the dedicated accounts are established and managed, the impact of the stricter penalties on financial misconduct, and the overall improvement in transparency and accountability in government project execution. The role of the Controller of Budget in enforcing compliance and the response of financial institutions to the new regulations will also be key areas to monitor.