Treasury slashes Sh70 billion from county allocation, freezes loans

Commission on Revenue Allocation (CRA) Chairman, Micah Cheserem (right) and Vice chairperson Fatuma Abdulkadir go through the revenue sharing document recently. [PHOTO: BEVERLYNE MUSILI/STANDARD]

The Treasury is headed on a collision path with counties after proposing to allocate them Sh307 billion in the next financial year. This is nearly 20 per cent less from what the Commission on Revenue Allocation (CRA) recommended.

Details from the 2016 Budget Policy Statement (BPS) show that counties will receive Sh70 billion less compared to what had been proposed by CRA.

In its explanation, Treasury says that in order to arrive at county governments’ equitable share of revenue for 2016/17 financial year, the baseline was adjusted by an agreed revenue growth factor of 9.85 per cent.

“Based on this adjustment, county governments’ equitable share of revenue in 2016/17 is estimated to be Sh285.4 billion. In addition to this, county governments will receive Sh22.1 billion through various financing streams,” the BPS reads in part.

This means the total allocation to counties in the year that starts in July will be Sh307 billion, if Parliament approves the plan. CRA said recently it had recommended the allocation of Sh377.5 billion to the 47 counties in the next financial year, up from the Sh276 billion in the current fiscal year. The CRA allocation includes Sh331.7 billion total equitable share for the counties and a further Sh44.7 billion as conditional grants.

Treasury also plans to audit all loans counties have taken as it moves to shield taxpayers from shouldering unnecessary debt burden should a county fail to repay. The Auditor-General had indicated some county governments are borrowing domestically without National Government guarantee.

In 2013/14, four counties procured commercial loans totalling Sh1.9 billion, majority of it accruing to Nairobi County, which in 2014/15, took out additional Sh300 million debt. “This raises concerns most critically that the debt is not guaranteed by the National Government as required by the Constitution (Article 212) and the Public Financial Management Act (Sections 58 and 59). Neither has the debt been approved by Parliament,” the document notes.

“The National Treasury is mandated to institute an audit of such debt. In the meantime, all bank and non-bank financial institutions are being alerted to cease plans for further extension of credit to counties, commence recovery of unguaranteed loans, and familiarise themselves with constitutional, legal and regulatory provisions on county borrowing.”

The Government is also moving to tighten the loose ends that have seen counties misappropriate public funds. Treasury also lists the payment of debts inherited from defunct Local Authorities (LAs) without validation of liabilities by the Transition Authority as another challenge.

The other issue, also captured by the Auditor General has been the mismanagement of imprest and advances to county personnel and irregular recruitment of personnel especially casual labour. “Experience from the last two financial years highlights an increase in idle cash resources held by counties, predominantly at their respective County Revenue Funds (CRF) accounts at the Central Bank of Kenya (CBK). At the beginning of 2014/15, counties had aggregate opening balances of Sh39.2 billion, a thirteen-fold increase from 2013/14,” the BPS adds.

A big proportion of this balance was held in counties’ bank accounts, with the rest either in the form of accounts receivables, (such as imprests and advances to public officials, which were not surrendered or accounted for) or cash.

At the beginning of 2015/16 financial year, the fund balance brought forward dropped to Sh34.2 billion, most of it again in CRF accounts at the CBK or in commercial bank accounts. The statement says that accounts receivables increased one-and-a-half times to Sh2.2 billion, largely due to a 33 per cent growth in unreconciled imprests.

County spending in 2014/15 grew by 44.6 per cent to Sh269.8 billion, equivalent to nearly 5 per cent of Kenya’s GDP. Personnel emoluments grew by 20.6 per cent to Sh103.4 billion, making it still the biggest component of county spending (although its proportion dropped to 38.3 per cent from 46 per cent in 2013/14).

The Public Financial Management (County Governments) Regulations, 2015, requires county governments to maintain employee compensation levels at no more than 35 per cent their equitable revenue share.

However, a number of counties defied this, whereby 35 counties exceeded 35 per cent of their respective equitable share transfers. “The need to minimise overlaps and waste remains a major priority of government,” Treasury said in the BPS.