Counties' reliance on Treasury reaches record high
Lamu Governor Fahim Twaha (standing) during a governors’ induction conference at Diani Reef Beach Hotel in Kwale County last December. FILE PHOTO | KEVIN ODIT | NMG
Devolved units have continued to fall behind their revenue collection targets forcing the Exchequer to dig deeper to keep crucial services running
In the 2016/17 financial year, equitable revenue transfers by the national government amounted to 86 per cent of county revenues, having risen from 81 per cent he previous fiscal year.
The low OSR reported by counties has, however, raised suspicion due to a mismatch in expenditure by the devolved units.
Counties' dependence on transfers from the Exchequer climbed to a record high in the 2016/17 financial year, new data by the National Treasury show, signalling flaws in collection and management of their own source revenue (OSR).
This comes as the share of actual OSR collections dropped to nine per cent in the period -- the lowest ever since the inception of the devolved units five years ago.
“The underperformance could be attributed to administrative inefficiencies as well as gaps in policy and legislation in respect of County OSR,” the National Treasury notes in its Budget Policy statement for 2018.
In the 2013/14 fiscal year receipts from OSR stood at about 12 per cent of total revenues before climbing to 16 per cent in 2014/15, Treasury data showed.
In the 2015/16 financial year the OSR receipts were recorded at a lower 15 per cent.
The dip in OSR collection over the years has meant that Exchequer releases and conditional grants to county governments have been on an upward trend from 2013/14 to 2016/17 to cover for the shortfall.
“Since the financial year 2013/14, county governments have missed their OSR targets. In general, the increasing variance between projected and actual OSR collection, highlights the difficulty counties 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 National Treasury.
In the 2016/17 financial year, equitable revenue transfers by the national government amounted to 86 per cent of county revenues, having risen from 81 per cent he previous fiscal year.
In 2013/14 the equitable revenue transfers were recorded at 86 per cent before falling to 83 per cent in 2014/2015.
Conditional grants also rose to five per cent in the 2016/17 fiscal year up from four per cent the previous year.
In 2013/14 conditional grants stood at three per cent of total revenue before falling to two per cent the following year.
56.4pc of target
The 2016/17 Budget Implementation Review Report by the Controller of Budget Office (COB) shows that the 47 county governments collected Sh32.52 billion in aggregate revenue, or 56.4 per cent of their allocated target of Sh57.66 billion.
This was 7.1 per cent less than what was raised in the 2015/16 financial year, when Sh35.02 billion was collected, or about 69.3 per cent of the annual revenue target.
Marsabit and Turkana were the only counties that met and exceeded their revenue collection target by 7.3 per cent and 3.5 per cent respectively.
Among the worst performing counties in revenue collection include Mandera, which only met 22 per cent of the projected amount, Wajir 33 per cent, and Kisii 37.4 per cent.
Nairobi, whose target was the highest of Sh19.57 billion, managed to collect 55.9 per cent of the amount.
Fiscal constraints
In the 2016/17 fiscal year approved budgets for county governments amounted to Sh399.2 billion, reflecting an increase of 8.7 per cent from 2015/16.
This comprised Sh240.9 billion (or 60.3 per cent) recurrent budget and Sh158.4 billion (or 39.7 per cent) development budget.
The budget was to be financed by Sh280.3 billion from equitable share of revenue, Sh21.9 billion conditional allocations, Sh57.7 billion OSR and Sh37.2 billion cash balance brought forward from the 2015/16 financial year.
The total revenue available to county governments in the review period amounted to Sh369.45 billion, being inclusive of Sh280.3 billion as equitable share of national revenue.
Funding gaps occasioned by unrealised revenue projections are the major source of fiscal constraints faced by counties while implementing their annual budgets. To address this challenge, the National Treasury is exploring legal options to capping counties’ OSR revenue growth estimates, based on their historical performance.
'Realistic targets'
“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.
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.
