Entities over-rely on the Treasury and grants from donors with some raising as low as Sh3.95m in revenues a year.
Financial audits over the years have confirmed a struggle by counties to keep key functions running amid revenue shortfalls and skewed expenditure allocation.
The low own source revenues reported by counties has, however, raised suspicion due to a mismatch in expenditure by the devolved units.
Budget planning and implementation remains a key weak point for counties, five years since the devolved units were established.
Financial audits over the years have confirmed a struggle by counties to keep key functions running amid revenue shortfalls and skewed expenditure allocation.
The Office of the Controller of Budget (OCOB) in its latest report for the first quarter of 2017/18 urges counties to revamp their budget implementation strategies to realise growth.
“The office identified the following challenges that continued to hamper effective budget implementation; high expenditure on personnel emoluments, under-performance of local revenue collection, IFMIS connectivity challenge and frequent downtime, low expenditure on the development budget, and failure to budget for all revenue sources as contained in the County Allocation of Revenue Act (CARA), 2017,” the OCOB said in its assessment of the period ended December 2017.
The aggregate budget estimates for county governments for year 2017/18 amounts to Sh374.68 billion and comprises of Sh239.9 billion (64 per cent) for recurrent expenditure and Sh134.78 billion (36 per cent) for development activities.
To finance the 2017/18 budget, county governments expect to receive Sh302 billion as equitable share of revenue raised nationally, Sh23.27 billion as total conditional grants from the national government, Sh16.41 billion in grants from development partners, and generate Sh55.92 billion from local sources, and Sh25.17 billion cash balance from financial year 2016/17.
During the first quarter of 2017/18, the counties accessed Sh37.82 billion from county revenue funds (CRF) which was 68.26 per cent of the funds available to counties in the reporting period of Sh55.36 billion.
Local revenue collection amounted to Sh4.82 billion, which was 8.6 per cent of the annual target of Sh55.92 billion.
The counties that recorded the highest amount of local revenue collection were Nairobi City at Sh1.49 billion, followed by Narok and Mombasa at Sh692.38 million and Sh307.91 million respectively.
Lowest amount
The counties that generated the lowest amount were Tharaka Nithi, Lamu and Tana River at Sh6.14 million, Sh5.45 million and Sh3.95 million respectively. “Analysis of local revenue as a proportion of the annual revenue target indicates that Samburu, Baringo and Isiolo counties recorded the highest proportion at 21.7 per cent, 20.5 per cent and 18.3 per cent respectively,” the OCOB said.
The report indicates that total expenditure by counties in the first quarter of 2017/18 was Sh35.43 billion, representing an absorption rate of 9.5 per cent of total annual budgets. This was a decrease from an absorption rate of 14.5 per cent attained in a similar period in 2016/17 where total expenditure was Sh56.55 billion.
“On aggregate, counties incurred Sh34.27 billion on recurrent expenditure translating to 14.3 per cent of the approved recurrent budget of Sh239.9 billion.
On the other hand, development expenditure amounted to Sh1.15 billion which translated to 0.9 per cent of the approved development budget of Sh134.78 billion,” the OCOB said.
The Treasury said funding gaps, occasioned by unrealised revenue projections, are the major source of fiscal constraints in counties while implementing their annual budgets.
To address this challenge, the Treasury mulls legal options to capping counties’ Own Source Revenue (OSR) growth estimates, based on their historical performance.
“The objective is to ensure that revenue estimates that exceed what is deemed realistic will need more stringent justification so as to minimise the risk of budget deficits that has been experienced over the last four years,” said the Treasury in its latest Budget Policy Statement (BPS).
Since the financial year 2013/14, county governments have increasingly missed their OSR targets — highlighting the difficulty they continue to face in preparing realistic revenue forecasts.
“Funding gaps occasioned by unrealised revenue projections are the major source of fiscal constraints faced by counties while implementing their annual budgets,” said the Treasury.
The low OSR reported by counties has, however, raised suspicion due to a mismatch in expenditure by the devolved units.
“In the 2015/16 financial year, county governments’ aggregate expenditure exceeded exchequer releases.
“This is an indication that some devolved units spent their OSR at source or had other non-disclosed sources of revenue,” said the Treasury.
The law stipulates that the total revenue collected by all counties be distributed equitably in accordance with a resolution approved by Parliament.
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