Five more counties joined the list of those flouting public finance rules on wage expenditure as a percentage of revenue, deepening the pending bills problem that has left devolved units owing suppliers and contractors Sh182 billion.
New disclosures by the National Treasury in the Draft 2024 Budget Review and Outlook Paper show that only Tana River, Narok, and Kilifi counties kept their wage spend below 35 percent of revenue in the year ending June 2024.
The top five spenders on wages as a percentage of revenue were Machakos at 62.6 percent, Kisii at 62.1 percent Nyamira (58.4 percent), Nairobi (58 percent), and Embu (57.1 percent).
The Public Finance Management (County Government) Regulations, 2015 requires that expenditure on wages and benefits for public officers shall not exceed 35 percent of the total revenues. The measure was put in place to protect the ability of the counties to offer critical services to the public, including healthcare.
In the previous fiscal year, there were eight counties—Migori, Nakuru, Samburu, Kilifi, Mandera, Kwale, Turkana, and Tana River— that were within the required wage-to-revenue ratio. The decline in compliance reflected the inability of counties to grow revenue even as their wage bills expanded.
“During the review period, a number of fiscal risks were identified in revenue and expenditure performance (including) high expenditure on wage bill that lowers the ability of county governments to meet financial obligations on operations & maintenance and development requirements,” said the National Treasury.
“There is also underperformance in own source revenue, which results to unfunded budgets resulting to the accumulation of pending bills…that negatively affects effective delivery of public services as well as local business development.”
In the period, counties saw their cumulative revenue fall by 7.3 percent or Sh34.7 billion to Sh440.7 billion, while the wage bill rose by 7.5 percent or Sh14.7 billion to Sh209.8 billion.
This inability to live within their means even in the face of declining revenue thus resulted in an increase in wage-to-revenue ratio to 47.6 percent in the year to June 2024, from 41.7 percent a year earlier.
Tightening belts has proven a difficult task for counties, due to political implications of cutting jobs, a need to reward supporters and in some units, the presence of ghost workers.
The resultant high recurrent expenditure has therefore hurt development spending and settlement of pending bills, compounding of cash-flow hitches for businesses—especially Small and Medium Enterprises (SMEs)—forcing some of them out of operation.
County pending bills rose to Sh182 billion by the end of June 2024, from Sh164.76 billion in June 2023.
On the expenditure side, 38 out of the 47 counties failed to meet the minimum threshold of spending 30 percent of their total budgetary outlay on the development vote.
