Devolution, County Finance and Intergovernmental Transfers

Devolution, County Finance and Intergovernmental Transfers

Syllabus tag: KASNEB CPA | Advanced Level | CA35S2 Advanced Public Financial Management

1. Kenya's devolution architecture

The Constitution of Kenya 2010 created a two-tier system of government: the national government and 47 county governments. Devolution transferred specific functions to counties, including: primary and secondary healthcare; pre-primary education; agriculture; county roads; water and sanitation; trade and enterprise development; and cultural activities. Each county has an elected County Governor (executive) and County Assembly (legislature).

2. The equitable share

The equitable share is each county's constitutionally guaranteed allocation of national revenue (Article 202). Key features:

• Minimum of 15% of most recently audited national revenue — this is a constitutional floor, not a ceiling
• The Commission on Revenue Allocation (CRA) determines and recommends the sharing formula
• Formula factors: population (weightage ~45%), basic equal share (~25%), poverty index (~18%), land area and fiscal effort (~12%)
• Senate must approve the Division of Revenue Bill (splitting between national and counties) and the County Allocation of Revenue Bill (splitting among counties)

3. Conditional grants

Beyond the equitable share, counties receive conditional grants from the national government for: healthcare (Level 5 hospitals facility improvement fund), roads, early childhood development, and donor-funded programmes (e.g. World Bank, UNICEF). Conditional grants must be used only for the specified purpose; unspent balances or misapplied funds are recovered.

4. Own-source revenue

Counties collect own-source revenue from: property rates (county councils' most significant own revenue), business permits and licences, market stalls and entrance fees, parking fees, entertainment taxes, and service charges.

Own-source revenue is chronically underperformed — most counties collect less than 10% of their total revenue from own sources, over-relying on the equitable share. The CoB regularly flags this as a risk to fiscal sustainability.

5. Intergovernmental fiscal relations

Intergovernmental Budget and Economic Council (IBEC): chaired by the Deputy President; the principal forum for consultation on budget, economic, and financial matters between national and county levels.

County Budget and Economic Forum (CBEF): each county must establish a CBEF to bring together county government, civil society, and the private sector to discuss budget priorities and performance.

National and County Government Coordinating Summit: highest intergovernmental coordination body, chaired by the President with Governors.

6. Financial challenges in counties

Pending bills (unpaid supplier invoices accumulating at year-end); late release of equitable share by National Treasury causing cash flow problems; wage bill consuming 50–70% of budgets in some counties; poor financial management capacity; inadequate ICT infrastructure for IFMIS implementation; political interference in budget execution.