Structural adjustment in Kenya needs to be evaluated

Audit report covers the period 6/83-6/84 and is based on document review and interviews with GOK and USAID/K officials. Although the project has provided balance of payments and budget support to the GOK for FY83 as planned, it cannot be determined whether A.I.D. funds and local currency generations have been used to support structural economic adjustments and to finance development activities (as is required by the project"s seven conditions precedents and eight covenants). Project funds have been commingled with other GOK funds, making it difficult to determine the exact purposes of their disbursement. Also, GOK compliance with conditions precedents and covenants has been, for the most part, undocumented; only minimal evidence of actions completed has been provided. Most of the conditions precedent are so vaguely written that any action can be construed as compliance, and those agreements requiring specific action have no means of enforcement or evaluation. An evaluation of economic reform was to have taken place before signing the FY84 funding agreement. USAID/K indicated that such an evaluation was made, but no documentation has been prepared to support the evaluation"s conclusions. Therefore, it is recommended that an indepth technical evaluation of structural economic reforms be conducted before approving the FY85 funding increment. It is also recommended that controls be developed to ensure that local currency generations are spent for development purposes as agreed.