Why Parliamentary Budget Office has issues with counties' Sh4.67 trillion spending

Kenyan currency in notes.[File, Standard]

The Parliamentary Budget Office (PBO) has called out county governments for years of spending in what has amounted to trillions of shillings that has however not translated into better living conditions for Kenyans. 

The PBO, which advises MPs on budget matters, said counties should now refocus their areas of priority and spend more on programmes that have an impact on their residents and reduce poverty levels, which have in recent years worsened. It put the county governments on the spot for spending excessively on non-essentials while denying development activities much needed cash.

It has recommended that MPs compel counties to spend a minimum amount on sectors such as agriculture and irrigation that can play a part in alleviating poverty.

PBO noted that by this June, Kenya will have spent Sh4.67 trillion on counties since the start of devolution in the 2013/14 financial year, but the trillions have not translated to better lives for Kenyans. It faulted the counties on high spending on personnel emoluments and at the same time allocating negligible amounts to development activities. 

PBO further called for tighter oversight on spending by counties while recommending tying future spending to financial discipline and service delivery. It also notes that focus should shift from the push to increase allocations to counties to demanding stronger accountability within Kenya’s devolved system.

“For devolution to become a true engine of prosperity, the debate must be shifted from an increase in annual allocation levels and focus on how the funds are spent, what the funds are spent on, and how the expenditures translate into jobs, incomes, and economic transformation,” said PBO. 

“County Governments should be mandated to reorient their expenditures towards spending in economic transformation programmes, including agriculture value chains, irrigation, agro-processing, and infrastructure that links producers to markets. In addition, county governments should also be mandated to allocate resources annually to the County Emergency Funds.”

Counties are expected to receive Sh420 billion over the 2026/27 financial year as an equitable allocation. PBO has recommended that the Commission on Revenue Allocation (CRA) and Parliament put in place measures that would compel counties to spend a minimum amount on areas such as agriculture, roads, water, irrigation and county emergency funds. It cites these as high-impact sectors that could start to turn around the plight of many Kenyans. 

“The policy option is likely to increase productivity of the agriculture and manufacturing sectors, and crowding-in of the private sector due to better access to markets and reduced logistical costs,” said  PBO.

“The PBO estimates that there will be an increase of 0.1 percent in GDP growth if this policy is implemented.”

According to PBO, between the 2012/13 financial year and the 2025/26 financial year, county governments have been allocated Sh4.67 trillion by the national government. 

“Despite this level of financing to county governments and the needs-oriented revenue-sharing formulas for horizontal allocation, poverty, inequality, unemployment, and underdevelopment persist across many regions.

The PBO report also notes that poverty is still deeply entrenched and if anything, poverty levels have, in recent years, gone up. Citing data by the Kenya National Bureau of Statistics (KNBS), the parliamentary think tank noted that overall poverty headcount has increased to 39.8 percent of the population in 2022, compared to 33.6 percent in 2019. 

“This indicates that approximately 20 million Kenyans are unable to meet their basic needs,” said PBO, adding that the Arid and Semi-Arid Lands (ASAL) counties still have the highest levels of poverty rates despite the fourth basis of horizontal revenue sharing putting significant emphasis on poverty. 

“This means that the economic expectations from the equitable sharing of revenue for counties have not matched the outcomes.”

It further said that the lower-than-expected contribution of county governments to the socio- economic development of the country could be attributed to the weak expenditure quality. 

In its analysis, PBO notes that in the last five financial years, county government spent Sh429 billion, of which Sh215 billion (50 percent) was spent on personnel emoluments, while another Sh105 trillion (25 Percent) was spent on operation and maintenance.

Only Sh. 109 trillion (25 percent) was spent on development expenditure, an indication that many counties are running contrary to the Public Finance Management Act of 2012, which requires the government to spend at least 30 percent of its budget on development activities. 

“The high share of personnel emolument and low share of development expenditure indicates that most counties have not adhered to the Public Finance Management (PFM) Act, 2012 requirements of allocating a maximum of 35 percent and a minimum of 30 percent of the total budget to personnel emoluments and development expenditures, respectively,” said PBO.

“Therefore, a larger proportion of the county government’s expenditure is being utilized on consumption-oriented services rather than productive capital investments.”