Counties to receive Sh409b from Treasury next year

County governments are scheduled to reap big in the next financial year after the national government agreed to disburse Sh409.9 billion to the devolved units.

The amount of money was announced by the Intergovernmental Budget and Economic Council (IBEC), which brings together representatives of the Council of Governors (CoG), National Treasury, Controller of Budget and the Commission for Revenue Allocation (CRA).

This is the first-time counties have been allocated more than Sh400 billion since the devolved units came into existence in 2013.

In a meeting held yesterday, IBEC, chaired by Deputy President William Ruto, resolved to give the counties an additional Sh53.5 billion during the 2021/2022 financial year in line with an earlier promise by President Uhuru Kenyatta to raise the allocation to counties.

Beginning next financial year, which commences in June, the counties will receive Sh370 billion in equitable share, Sh7.53 billion conditional allocations from the share of National Government revenue and Sh32.34 in conditional allocations from proceeds of loans and grants by development partners.

This is a big leap from an allocation of Sh316 billion in the current financial year, which the governors have been complaining of being too little.

And for the first time since the introduction of county governments, the council agreed on a borrowing framework for the counties for the current financial year allowing the devolved units to borrow a maximum of Sh60 billion collectively.

Essentially, each county would present its work proposal to the National Treasury for consideration to qualify for the loan.

“This is the best bargain that governors have ever received from the national government. It is a good deal,” said Laikipia Governor Nderitu Muriithi, who is also the chair of the Finance, Planning and Economic Affairs Committee of the Council of Governors.

“The increase in resources will facilitate post-Covid-19 economic recovery at the counties as well as ensure sustained service delivery,” Ruto said.

Ruto said the proposed figure was arrived at by adjusting the counties’ 2020/21 financial year allocation of Sh316.5 billion by Sh36.1 billion and converting four existing conditional grants to county governments into unconditional grants.

The grants are: Sh4.32 billion allocation for Level 5 hospitals, Sh0.9 billion compensation for user fees forgone, Sh2 billion allocation for rehabilitation of youth polytechnics and Sh9.8 billion road maintenance levy fund.

Anticipated improved revenue

The growth, he said, will be derived from anticipated improvement in revenues raised nationally in the 2021/2022 fiscal period when the effects of Covid-19 are expected to ease.

Commenting on the allocation, Muriithi lauded the move saying the team averted the perennial conflicts that surround the adoption of the revenue sharing formula.

“There will be no fight this time round. The National Treasury, the Council of Governors (CoG) and CRA had one position.

This is the first time the money is going beyond the Sh400 billion threshold,” he said.

“It is a very good step forward. We’ve had a very cordial discussion and arrived at these outcomes,” he added.

In January, CRA endorsed President Uhuru Kenyatta’s pledge to allocate the county governments an additional Sh53.5 billion in the 2021/2022 financial year, to hit Sh370 billion up from Sh316.5 billion allocated this financial year.

On Tuesday, however, senators said they feared the government would renege on its earlier promise to increase the allocation and called on the Treasury to prioritize the allocation to counties.

Churchill Ogutu, the head of research at Genghis Capital, says increasing the allocation to Sh370 million from Sh316.5 billion could prove a challenge considering that the Treasury expects to collect only Sh1.7 trillion in ordinary revenue in the coming financial year.

He said non-critical recurrent expenditure could be hurt in case of a revenue shortfall since the allocation to counties cannot be revised downwards.

Shortfall

“In case of a revenue shortfall, it will not impact the Sh370 billion. This remains intact,” Ogutu said.

The IBEC meeting was attended by Treasury CS  Ukur Yatani, Commission for Revenue Allocation Chairperson Jane Kiringai, Controller of Budget Margaret Nyakang’o, Governors, Permanent Secretaries and County Executive Committee Members.

During yesterday’s meeting, the issue of pending bills owed by county governments to suppliers also came up with Ruto calling on the Treasury, the Office of the Auditor General and the Counties to work together to establish a committee charged with the bills.

He said the new mechanism would offer an accurate picture of what devolved units owe their suppliers, most of whom are small businesses, paving way for the timely settlement of the obligations.

Treasury Cabinet Secretary Ukur Yatani, admitted that the pending bills issue was a challenge both at the counties and national level.

“A permanent solution to this problem will lead to resources trickling down to small businesses hence stimulating economic growth,” he said.

Last September, the President, in the company of ODM leader Raila Odinga, promised the senators to give the counties additional Sh53.5 billion in the 2021-22 financial year.

The pledge – to increase baseline from Sh316.5 billion to Sh370 billion – unlocked the protracted standoff over the third basis for sharing revenue among the 47 devolved units.

On September 17, 2020, The Senate endorsed the President’s pledge, in a vote that saw senators who have been on warring camps close ranks after three months that were characterised by 10 adjournments, aborted Kamukunjis, arrests, intimidation, bribery claims and blackmail.