Two main sources of external assistance are: -a)Bilateral aid i.e. two friendly nations assist each other e.g. Kenya got financial and technical aid from Japan.b)Multilateral aid involves many countries that have informed trading blocs to help poor nations e.g. IMF, World Bank, European Union, Commonwealth etc.Challenges facing the Government in its effort to raise revenue1.Many individuals, companies and organization evade paying tax.2.People give wrong information on the wealth declaration forms, reducing the amount of taxation.3.Government officers who gather tax collude with unscrupulous citizens to cheat about their incomes
4.Many rich individuals keep their money in foreign accounts than investing in Kenya5.People lack information on how they can invest within the government through treasury bills, post office bonds, or shares at Nairobi stock exchange.On external aid, the government also faces the following1.Donors conditions must be fulfilled e.g. receiving countries are to privatize, liberalise their economies, go multi-party or devolve their currency. Many at times receiving countries have resisted and assistance has been withdrawn.2.Loans are issued at high interest rates which makes servicing them a burden to the economy3.The tendency to rely on foreign aid to meet the country’s budgeting deficit increases the government debt and non-payment lead to debt crisis.4.Donor nations compel recipients to import goods from them, therefore lending aims at helping create international markets, therefore denyingthe country the choice of trading partners.How the Government spends its revenue1.Capital expenditureThis is the money set aside in the national budget for development projects.Through proper annual planning the government allocates money for infrastructural development such as roads, airports, bridges, railways, seaports and harbours.It also identifies essential facilities to be set up such as schools, colleges, universities, dams, irrigation schemes etc.It is also used to provide social services such as health and education.2.Recurrent expenditureIt refers to money used by the government to sustain and maintain the existing facilities and services. The category includes:i) Wages and salaries. It is done through regular payment of salaries and wages of civil servants, teachers, armed forces etc.ii) General repair and maintenance. The government has the duty of maintaining public property throughout the country by allocating necessary funds, roads, airports, colleges and bridges need constant repairs.The free education programme of 2003 is on e.g. of howgovernmentallocated money on a regular basis.It is also used to buy books, chalk, pens etciii) Debt Servicing. The government borrows money as grants, loans and paysit with interest. This is done by the IMF, World Bank, Commonwealth, African Union and European Union. It is then repaid after the agreed period.