MPs may be forced to consider Gen Zs when determining revenues counties get to prevent events similar to last year’s protests, the Parliamentary Budget Office (PBO) has cautioned.
The PBO, which offers technical advice to parliament on economic issues, notes that while the Commission on Revenue Allocation’s (CRA) proposed revenue-sharing formula sets a county’s population as the major consideration for the revenues it gets from Treasury, the formula fails to break down how counties will benefit based on their population dynamics.
While noting that different age demographics in a county’s population would provide better insights on a county’s population needs, the PBO cited Gen Z protests that occupied the country last year cautioning that it should form a basis for the setting of revenue sharing formula in the year starting July 2025.
“Old people dominate some counties, while others are made up of the young generations (the GenZs). These groups of people's needs are considered diverse and require a different approach. It is imperative that going to the 4th generation basis and in light of the events of the Gen Z uproar in June 2024, such dynamics should be considered,” the PBO stated.
In the proposed fourth basis framework for revenue sharing (which will be applicable from July 2025), CRA raised the weight of population metric as a factor for determining the share of revenues a county gets from 18 percent to 42 percent.
This means that out of the equitable share of revenues the Treasury gives counties during a particular fiscal year, 42 percent will be disbursed based on a county’s population size up from 18 percent.
The PBO, however, argues that the CRA should have gone further to classify counties’ populations based on demographics such as age, to understand their needs better.
The office has also warned of a possibility of rogue government officials manipulating population data to appear to have more people, after the CRA more than doubled the population weight in the proposed revenue sharing formula.
“This cyclical trend is susceptible to abuse and can trigger manipulation of the population data, especially during the National Censuses,” the PBO has warned in a report reviewing CRA proposals.
The PBO says politicians from sparsely populated counties may resort to interfering with national census processes to manipulate their counties’ data, in order to benefit from huge disbursements.
In the fourth revenue sharing formula by the CRA, the commission proposed that 42 percent of the equitable share of revenues from the National Treasury to counties be based on population, followed by equal share (22 percent), poverty (14 percent), income distance (13 percent) and geographical size (nine percent).
MPs will make the final call on the share each metric gets when it comes to determining the formula to be used to transfer funds from Treasury to counties from the fiscal year 2025/26, and other changes.
PBO arguments are likely to have an impact in MPs’ decision-making since it is the body that provides them with advice on technical issues about the economy.
It says poverty has also been overstressed and risks disincentivising counties from development.
“Significant weight to a negative parameter such as poverty may disincentivise counties from development. A review of the trends in the weights of poverty in the last formulas narrows to playing advantage to less developed counties and a disadvantage to developed /developing counties,” it says.
On the income distance parameter, which the CRA has introduced for the first time to base 13 percent of revenues shared to counties on the economic productivity (Gross County Product) versus the county’s population, the PBO faults CRA’s reference of Nairobi as a yardstick for the per capita GCP for all the other counties.
The CRA proposed that during the 2025/26 fiscal year counties be given Sh417.4 billion as the equitable share of revenues, which is more than the Sh405 billion that has been proposed by the Treasury.
The commission has also proposed a stabilisation factor under the new formula which ensures that no county receives funds less than its allocation for the current (2024/25) fiscal year, “to protect counties from abrupt financial reductions that could disrupt their operations.”
The PBO tore down this metric as one that lacks scientific basis.
“The future of revenue allocation should point to some stability and predictability but not lean on holding harmless. It would be prudent if the transition effects from one basis to another were fixed by a scientifically generated deviation parameter,” the PBO says.
