The National Treasury Cabinet Secretary Njuguna Ndung'u has called for engagement of stakeholders to resolve the thorny issue of equitable sharing of revenue between national and county governments.
Prof Ndung'u, who appeared before the Senate Finance and Budget Committee in Parliament Buildings, Nairobi, yesterday, said that the National Treasury, Parliamentary Budget Office, Office of the Auditor General and the Commission on Revenue Allocation need to work together to solve the issue of classification of ordinary revenue as per the Commission on Revenue Allocation Act to end the financial crisis in counties.
The CS told the committee that the National Treasury is caught between dwindling revenues and narrowing borrowing headroom, a situation that has affected several government programmes, including the disbursement of funds to the counties.
“The proposed allocation of Sh385 billion to the counties meets the requirement of Article 203 (2) of the Constitution that equitable share to counties should be 15 per cent of the last audited revenue raised nationally, as approved by the National Assembly,” said Njuguna.
The CS explained that the National Treasury is grappling with a high level of debt financing and financing constraints due to limited access to finance in domestic and international financial markets.
Njuguna promised to disburse money owed to the counties for January by end of next week after plans to disburse the funds this week hit a snag due to underperforming revenues. Counties are owed in excess of Sh96 billion for the last three months.
He concurred with the senators that conditional grants should be removed from the equitable share equation.
“Due to the challenges we have been facing in cash flow, the National Treasury has faced challenges in dispatching the equitable share allocation to counties on time. However, we believe that the problem will be solved as the economy gets better and we are able to collect more revenue,” said Njuguna.
The Senate Finance Committee Chairperson Ali Roba asked the National Treasury to increase the current allocation to Sh407 billion, which will be Sh22 billion more in the next financial year. He said that the proposed amount for this year was not enough for counties to run their affairs.
Mr Roba, who is the Mandera senator, raised concerns that the road maintenance levy fund had been included in the equitable share revenue and asked the National Treasury to remove it and instead have it treated as an additional allocation to the counties.
“The Senate Finance and Budget Committee is concerned that some additional grants were put together with the equitable shares, which we consider as an error done last year and is being repeated again this year. We are calling on the National Treasury to have it corrected,” he said.
The senator said that the country has witnessed 'natural' inflation in the past few years and it would be unfair for the National Treasury to base allocation on the 2019-2020 financial year "considering that there is a regular development within the payroll system".
The Division of Revenue Bill 2023 proposes the counties be allocated Sh385 billion, which the county governments are saying is not sufficient to run their programmes. The national government gets Sh2.17 trillion while Sh8.36 billion goes to marginalized counties as Equalization Fund.
The proposed allocation to the counties, according to the Treasury, represents 24.5 per cent of the last audited and approved accounts of Sh1.57 trillion for the 2019-20 financial year. But the senators faulted the calculations and reasoning behind the proposed allocation of Sh385 billion to the devolved units.
The committee vice chairperson, Nominated Senator Tabitha Mutinda and senators Richard Onyonka(Kisii), Tabitha Karanja (Nakuru) and Boni Khalwale (Kakamega) also grilled the CS over the delayed disbursement of funds to counties.