Treasury freezes addional funding to counties as revenue shortfalls bite

The National Treasury is set to retain funding to counties from the national government’s equitable share at Ksh.316.5 billion for the 2020/21 financial year as growth in revenue collection flattens.

As such, the Planning Ministry has revised its allocation to counties downwards from the originally proposed Ksh.317.8 billion.

According to the National Treasury, the national government has had to bear the load of revenue shortfalls with counties missing the pinch of the lower than expected collections.

“The national government has borne all revenue shortfalls through spending cuts. To balance the budget, this has been achieved by downsizing spending by Ministerial Departments and Agencies (MDA’s),” noted the National Treasury in the 2020 Budget Policy Statement published Friday.

Data from the National Treasury shows the allocation to counties increased by eight per cent in the 2017/2018 fiscal year in spite of revenues missing the mark by growing by four per cent against targets of 13 per cent representing a shortfall of Ksh.19.5 billion.

National government net issues were meanwhile down seven per cent to represent the sacrifice on spending against revenue shortfalls.

Last year, revenue shortfalls resulted in a Ksh.161 billion gap in net issues to the national government with allocations to development expenditures witnessing the sharpest decline.

The National Treasury warns additional allocations to counties will only result in cuts to development spending by the national government.

Even so, neither of the levels of government will be the recipient of potential growth in revenues with the National Treasury seeking to channel the extra funds into the honouring of debt obligations.

“The National Treasury proposes that additional revenues be directed towards Consolidated Fund Services (CFS), specifically debt repayment, pension gratuities and some salaries for constitutional offices and independent commissions,” added the National Treasury.

From the potential growth in revenue collections, Ksh.57.2 billion is expected to go towards debt repayments while a further Ksh.19.7 billion will be channelled to pension payments.

The National Treasury is backing counties improved own source revenues (OSR) to provide for alternative funding revenues to cater for the units’ service delivery efforts.

Counties OSRs’ have been on a steady growth curve rising to Ksh.40.3 billion in the 2018/19 financial year to represent a 74.8 percent performance against targets of Ksh.53.9 billion.

Already, 12 county governments have hit the own source collections ceilings including Bungoma, Elgeyo Marakwet, Isiolo, Kiambu, Kirinyaga, Kwale, Laikipia, Lamu, Nakuru, Narok, Taita Taveta and Tana River.

Counties are expected to receive a gross share of Ksh.370 billion to include Ksh.6.2 billion in allocations to leasing medical equipment, Ksh.900 million in compensation for user fees forgone, Ksh.4.3 billion in level five hospital upgrade funds and Ksh.300 million in supplementary for the construction of county headquarters.

An additional Ksh.2 billion will be channelled towards the rehabilitation of village polytechnics, Ksh.9.4 billion will be issued as part of the 15 per cent share of fuel levy collections by the national government while allocations from loans and grants are expected to total Ksh.30.2 billion for the period.

Meanwhile, government revenues are projected to remain flat over the medium term at an average of 18 per cent of GDP.

The lesser allocations to counties may trigger a renewed battle for funding by counties with the Commission on Revenue Allocation (CRA) having proposed a share of Ksh.321.7 billion to the units in December.


National Treasury Counties Commission on Revenue Allocation (CRA)

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