National government cuts counties funding to Sh326.5bn 

Counties are in for a shock as they will not receive the promised Sh370 billion in equitable share in the next financial year.

The pledge by President Uhuru Kenyatta would have raised their share by about 16.9 percent from the Sh316.5 billion allocated to the devolved units this fiscal year.

The national government is, however, offering a new baseline of Sh326.5 billion, Sh10 billion increase, according to the 2021 draft budget policy statement (BPS) released by the National Treasury yesterday.

The draft to be passed by Parliament after the mandatory public participation, signals the start of the budget for the 2021/22 season — the ninth year of devolution since the promulgation of the 2010 Constitution.

The National Treasury cites low revenue collection occasioned by the Covid-19 pandemic as the reason the government cannot meet its side of the bargain.

“Owing to the sustained underperformance in ordinary revenue, now worsened by economic and fiscal repercussions of the Covid-19 pandemic, a 16.9 percent growth in counties’ 2021/22 equitable revenue share allocation is not fiscally achievable,” the draft BPS says.

The counties’ budget for the 2021/22, including conditional grants from the national government and loans from development partners could, however, has increased to Sh383.8 billion compared to Sh369.9 in the current financial year, if the National Assembly approves the draft.

To have the document enacted, the National Treasury requires the input of the Commission on Revenue Allocation (CRA), the county governments and the Controller of Budget (CoB).

Others are the Parliamentary Service Commission (PSC), Judicial Service Commission (JSC), the public and any other interested persons or groups before the draft is presented to the Cabinet for approval.

Once approved by the Cabinet, the document will be transmitted to Parliament for consideration and enactment.

While drawing the 2021/22 budget, the National Treasury is bound by the law to be guided by the recommendations of the Budget and Appropriations Committee (BAC) as adopted by the National Assembly. 

In the deal brokered by President Kenyatta last year to break the stalemate over the delay in passing the revenue formula for the devolved units, the president gave an undertaking to have counties allocated at least Sh370 billion in equitable share in the 2021/22.

The President made the promise after senators protested the Sh316.5 billion allocated in the current financial year as too little to the needs of the counties compared to the Sh335 billion baseline figure proposed by the Commission on Revenue Allocation (CRA).

Economic performance

They threatened to shoot down the formula, a move that would have crippled the devolved units.
Parliament went on to pass the formula in September 2020 after a record 11 attempts, with Sh316.5 billion as the baseline figure.

Their gesture was on condition that the formula’s implementation would be preceded by a Sh53.5 billion increase in the counties’ equitable revenue share as promised.

Although the President, in a statement, was unequivocal that the increase would only come to pass based on the country’s economic performance, it could mean that the senators may have been left holding the short end of the stick. 

However, it is not all doom and gloom for the counties as the National Treasury has promised to have the equitable share increased to Sh343.9 billion if the draft BPS is passed by the National Assembly in its current form.

The National Treasury is proposing that four existing conditional allocations funded from the national government’s revenue share be converted to unconditional allocations to be disbursed to the counties as part of their equitable revenue share.

According to the National Treasury, the deal came after extensive consultations with the sector ministries. 

The four conditional allocations include the Road Maintenance Levy Fund (RMLF), the grant to level-5 hospitals, the compensation for user fees foregone and the rehabilitation of village polytechnics grants.

“If approved by Parliament, this will guarantee county governments an equitable revenue share allocation of Sh343.9 billion in FY 2021/22,” the document says.

Other than the equitable share, the counties will also receive Sh7.5 billion for leasing of medical equipment and construction of county headquarters and Sh32.34 billion in allocations from external loans and grants.

According to the National Treasury, conversion of the four conditional allocations to counties’ equitable revenue share has advantages. “It will afford the counties more autonomy to budget and prioritise allocation of resources and achieve a more consolidated approach to funding of devolved functions, while also enabling better tracking of performance and attribution of outcomes,” the document says.

The Third Basis formula, which is applicable financial years 2020/21 to 2024/25, takes into account various parameters to guide the horizontal share.

They include population 18 percent, health index 17 percent, agriculture 10 percent, urban five percent, poverty 14 percent, land area eight percent, roads eight percent, and a basic share of 20 percent.

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