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Opinion: Devolution succeeding despite challenges

By Robert Maina | March 28th 2017

The introduction of the devolved system of government in 2010 heralded a major change in the country’s governance system. Four years on, remarkable economic improvements have been experienced in all parts of the country.

Decentralisation has led to equitable distribution of resources and development has picked up in areas that were previously marginalised.

Devolving leadership has also fostered national unity by enhancing inclusivity in national development, which has consequently reduced political and social risks that are brought about by marginalisation of certain areas.

These successes have been marked by challenges. The division of revenue between the national and county governments has particularly been a thorny issue. The Constitution has set a minimum threshold of 15 per cent of the revenue raised by the national government based on the most recent audited revenue approved by Parliament.

County governments’ equitable share of revenue raised nationally has, however, exceeded this threshold in each of the four financial years the county governments have been in existence.

The national government allocated Sh210 billion in 2013/2014, Sh227 billion in 2014/2015, Sh259.8 billion 2015/2016, Sh280.3 billion in 2016/2017 and Sh291.1 billion has been proposed for 2017/2018. County governments also receive other funds through various financing streams such as conditional allocations for level-5 hospitals, free maternal healthcare, leasing of medical equipment, and compensation for foregone user fees. In addition, they also receive a portion of the road maintenance fuel levy. A further amount is allocated through the Equalisation Fund to counties identified as marginalised by the Commission for Revenue Allocation (CRA).

County governments are required to comply with fiscal responsibility principles as set out in the Public Finance Management (PFM) Act, 2012. The PFM Act, 2012 requires that at least 30 per cent of budgets be allocated to the development expenditure.

This has been a challenge particularly for county governments that inherited an inflated workforce and debts from the now defunct city councils. According to the Controller of Budget, in FY 2015/16, some 45 counties complied with the requirement in the PFM Act, 2012 that at least 30 per cent of budgets be allocated to the development expenditure.

Eight counties managed to allocate more than half of their budgets to development. The eight are Turkana, Mandera, Kwale, Tana River, Wajir, Kilifi, Kitui and Makueni.

Those who were below the required threshold included Nairobi and Kiambu counties. The allocations towards development expenditure have been growing as counties finalise laying down the groundwork as well as set up the relevant infrastructure for proper functioning of the governments.

In 2015/16, development budget allocations grew by 10 per cent, while recurrent budget allocations grew by 15 per cent. Interestingly, development spending constituted 35 per cent of the total actual expenditure, growing by 14.5 per cent compared to the actual spending in the previous year.

The slow absorption of revenue allocated for development has hindered some counties from actualising the required minimum budgeted expenditure.

Disagreements between county executives and members of county assemblies as well as government bureaucracy in the procurement processes are partly to blame for the delays in executing development projects. Consequently, it has been observed that compliance with the principle during budgeting does not always translate into actual development spending.

On the other hand, the Public Finance Management (County Governments) Regulations, 2015, requires that counties’ wage bill be set at 35 per cent of total revenue.

This has particularly been a challenge as they grapple with the rapid increase in new recruitments in the counties. In FY 2015/16, aggregate personnel emoluments represented 40.2 per cent of combined county revenues, a 10 percentage-point increase from the previous year.

Counties have been facing challenges in own-source revenue generation hence relying on the Exchequer to meet most of their budgetary obligations.

This calls for a holistic assessment as they endeavour to increase their local revenues while at the same time fostering a conducive business environment. The introduction of additional levies and higher fees by county governments has been a major setback in the country’s quest to reduce the cost of doing business.

These have had far-reaching consequences on the cost of doing business in the counties and ultimately raising the cost of living.

In the face of limited resources from the national government, the county heads should come up with innovative ways of raising revenue to finance their budgets and strike a balance between revenue collection and maintaining their competitiveness by ensuring that they do not overburden businesses.

By and large, good progress has been made but there is room for further improvement to ensure the citizenry reap the full benefits of a devolved system of governance.


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