The Relationship Between Financial Management Reforms and the Economic Performance of Public Sector in Kenya

Abstract

Financial Management Reforms are developments and changes overtime in the field of finance. They are important since they lead to prudent allocation of financial capital. Economic performance deals with the changes on the economic value for money, wealth, debt and investment. The study used the economic unit performance contracting results as the measure of performance. Despite increased reforms in public sector financial management approaches, the Kenyan economic performance has not been impressive leading to a situation referred to as “the paradox of plenty” i.e. plenty financial reforms without much impact in the economy. The study therefore sought to answer the question whether there was relationship between financial management reforms and the economic performance of the public sector in Kenya. The study’s main objective was to determine the relationship between financial management reforms and the economic performance of the public sector in Kenya. The study used descriptive survey design. The population was the 42 ministries and departments that were in existence during the period of the study. The study was carried in Nairobi. Data was collected from secondary and primary sources. Primary source was from senior managers from administration, finance, accounting, audit departments through the use of questionnaires. Information was obtained for five (5) years between financial years 2007/2008 – 2011/2012. Analysis was done using multiple regression and SPSS for quantitative analysis. The study established three types of financial reforms .They include budgetary, accounting and auditing reforms. It further established that there was notable increase in the number of financial reforms undertaken by the Ministries within the study period. The study also showed that majority of the financial reforms were part of the performance contracting targets. In addition, the study revealed that majority of the respondents agreed that the financial reforms achieved more than 50% of their intended objectives. The study indicated an improvement in the economic performance on the Ministries/departments over the five (5) years. The study further revealed that there was a strong positive correlation between financial management reforms undertaken and the economic performance of various Ministries and departments. There was therefore a demonstration that there should be an increase in the number of financial reforms for improved economic performance that are part of performance targets of the public sector and also see to it that the reforms meet their intended objectives through proper monitoring and evaluation of the reforms prior and after being undertaken. This would greatly improve the performance of the public sector which translates to better economic performance of the country