Expectation versus Reality defines tug of war pitting Counties and Treasury

The Council of Governors (COG) on Tuesday rejected the revised allocation of revenue to the devolved units by the National Treasury which now stands contrary to the estimates set by the Commission on Revenue Allocation (CRA), rekindling the seemingly never ending battles on the division of revenue.

While the CRA, which defines the criteria for allocation of revenue between the national government and counties, recommended a Ksh.335.67 billion allocation to counties, the Treasury settled for a lesser Ksh.310 billion share to keep up the historical trend.

Parliament, which sits in the middle of the ensuing battle, has meanwhile tended to abide by the recommendations of the National Treasury on allocations to the devolved units signaling a lesser than expected allotment to the devolved units.

According to John Mutua, an economist at the Institute of Economic Affairs (IEA) think-tank, the Treasury seemingly has the realest model of revenue share and the CRA criteria maybe out of touch with the realities on the ground.

“What should form the basis of the amount to be shared should be evidenced-based or scientific, put simply. Given that Treasury has a model to it, this gives it some sought of power or backing in terms of its persuasion to the National Assembly on the quantum of revenue than should be shared between the two levels,” he said.

The realities described by Mr. Mutua range from the cost of debt servicing as Kenya’s public debt stock rises and allocations to items of national interests which tend to vary as described in the division of revenue.

With fiscal consolidation fully in swing, the division of revenue to both levels of government is to be made up of the difference to the sum total of expected deductions.

Further to the deductions, revenue mobilization including counties’ own sourcing remains depressed offering a plausible explanation to the shortfall in incremental raises to the dispensation.

According to Genghis Capital Head of Research Churchill Ogutu, the shortcomings in domestic revenue mobilization has upset any hopes to increased allocations to units even as both the counties and Kenya Revenue Authority (KRA) fast track reforms to bridge the gap to the greater funds crusade.

Counties did, for instance, register a nil improvement in the revenue targets across the 2017/18 fiscal year collecting a mere Ksh.32.5 billion against a Ksh.49.2 billion.

Mr. Ogutu expects the tug of war between the COG and Treasury to persist into the new financial year setting the stage for a further delay to the reimbursement of funds to the devolved units in the initial months of the 2019/2020 fiscal year.

“We are looking at a situation that has been there before whereby the first 3 months of the year failed to score a single reimbursement of funds to counties as the COG and Treasury continue the squabble on the criteria and size of allocation,” said Mr. Ogutu.

While the final decision on allocation has always been arbitrated by the Intergovernmental Budget and Economic Council (IBEC), both Ogutu and Mutua agree on the need for the unification of the individual criteria through amendments to the respective pieces of legislation to put to bed the tug of war.

The county equitable share is estimated to grow steadily over the medium term to Ksh. 326.3 billion in the year 2021/22 from the current Ksh.304.9 billion cognizant of ongoing fiscal consolidation efforts by the State and the drive for robust local-revenue mobilization mechanisms to plug the need for exorbitant lending as described in the Medium Term III blueprint.