The annual budget implementation review report for the counties is out. The Controller of Budget released the report late, which is not in line with the budget process in Kenya. The deadline to produce the report was July 30, 2017.
The report covers the financial year (FY) 2016/17 (July 2016 to June 2017). It shows the progress of budget implementation by the 47 county governments in the financial year (FY) 2016/17.
The annual report looks at the county revenue and expenditure performance. It then compares it against the annual targets for revenue and expenditure the counties set in their approved budgets for the FY 2016/17.
The basis of the expenditure analysis is the actual expenses that County Treasuries report in line with Section 166 and 168 of the Public Finance Management (PFM) Act, 2012. The county governments usually break down their expenditure into recurrent and development expenditure.
The Office of the Controller of Budget prepares these quarterly as per:
- Article 228 (6) of the Constitution of Kenya, 2010; and
- Section 9 of the Controller of Budget Act, 2016.
Both laws require the Controller of Budget to submit to each House of Parliament a report on the implementation of the budgets of the National and County Governments every four months.
For the national government, see How the National Government Spent Your Money in the FY 2016/17.
Below is the summary of the county revenue and expenditure from the 2016/17 annual report.
Approved budgets and revenue allocation in FY 2016/17
The consolidated approved budgets for the 47 county governments in FY 2016/17 were KSh399.24 billion. The budgets comprised of KSh240.89 billion (60.3 per cent) for recurrent expenditure and KSh158.36 billion (39.7 per cent) for development expenditure.
To finance their budgets, Parliament allocated county governments KSh280.3 billion as the equitable shareable of revenue raised nationally. It also allocated them KSh21.9 billion as total conditional grants from the National Government and Development Partners.
Additionally, county governments expected to raise local revenue amounting to KSh57.66 billion from local sources. They also intended to spend KSh37.19 billion projected cash balance brought forward from FY 2015/16.
Actual revenue available for the county governments in FY 2016/17
The total revenue available to the county governments in the FY 2016/17 was KSh369.45 billion. The amount comprised of:
- KSh280.3 billion as equitable share of revenue raised nationally,
- KSh4.0 billion grant to Level 5 Hospitals,
- KSh408 million grant from DANIDA,
- KSh4.12 billion for Free Maternal Healthcare,
- KSh900 million for User Fees Foregone,
- KSh4.31 billion from the Road Maintenance Fuel Levy Fund,
- KSh556 million grant from the World Bank,
- KSh.200 million as special purpose grant to support emergency medical services in Lamu and Tana River Counties,
- KSh4.84 billion as allowances for County Medical Personnel,
- KSh107 million as Coffee Cess,
- KSh37.19 billion cash balance from FY 2015/16, and
- KSh32.52 billion from local revenue sources.
In FY 2016/17, the county governments raised aggregate local revenue amounting to KSh32.52 billion from local sources. The amount was 56.4 per cent of the annual local revenue target of KSh57.66 billion. This performance represented a decline of 7.1 per cent from KSh35.02 billion generated in FY 2015/16.
Further analysis of local revenue collection as a proportion of annual targets provides interesting results. Marsabit and Turkana Counties surpassed their targets at 107.3 per cent and 103.5 per cent respectively. Kisii at 37.5 per cent, Wajir at 33 per cent, Garissa at 23.4 per cent, and Mandera at 21 per cent, recorded the lowest performance.
Exchequer issues in FY 2016/17
Exchequer issues refer to the funds that the Controller of Budget authorizes the counties to withdraw from the County Revenue Fund (Article 207 of the Constitution) to the various County Operational Accounts.
The Controller of Budget (COB) authorised exchequer issues of KSh328.24 billion. The withdrawals comprised of KSh219.95 billion (67 per cent) for recurrent expenditure and KSh108.3 billion (33 per cent) for development activities.
Counties that had the highest amount of funds released for operations were Nairobi City at KSh15.54 billion, Turkana at KSh12.8 billion, and Kiambu at KSh11.35 billion. Those that received the lowest amounts were Tharaka Nithi at KSh3.56 billion, Isiolo at KSh5.1 billion and Lamu at KSh2.95 billion.
Consolidated expenditure for the FY 2016/17
The total expenditure in the FY 2016/2017 by the 47 county governments was KSh319.06 billion. It comprised of:
- KSh215.71 billion for recurrent expenditure (89.6 per cent of the annual recurrent budget), and
- KSh103.34 billion for development expenditure (65.3 per cent of the annual development budget).
The total expenditure was 79.9 per cent of the total annual County Government budgets (KSh399.24 billion).
Absorption rate is the percentage of total expenditure to the Approved Budget.
Counties that recorded the highest overall budget absorption rates were Wajir at 95 per cent, Garissa at 94.1 per cent and Isiolo at 92.5 per cent. Conversely, Nakuru, Tharaka Nithi, and Lamu Counties recorded the lowest overall absorption rates at 70.7 per cent, 70 per cent, and 62.1 per cent respectively.
Machakos, Wajir, Bomet, and Isiolo reported the highest absorption rates of development expenditure at 99.1 per cent, 90.1 per cent, 89.3 per cent, and 88.6 per cent respectively. Counties with the lowest rates were Lamu, Nakuru, Nairobi City, and Taita Taveta at 38.3 per cent, 35.1 per cent, 33.4 per cent, and 28.6 per cent, respectively.
Expenditure by economic classification
Analysis of expenditure by economic classification shows that the 47 county governments spent:
- KSh130.97 billion (41.1 per cent) of total expenditure on personnel emoluments (salaries, allowances, etc.),
- KSh84.74 billion (26.6 per cent) on operations and maintenance (goods and services, etc.), and
- KSh103.34 billion (32.4 per cent) on capital spending (development activities).
Total expenditure against exchequer issues
Let us compare the total expenditure as a percentage of the funds the Controller of Budget authorized for withdrawal. It indicates that Nairobi City, Kilifi, Mombasa, Wajir, and Nandi exceeded the amount authorized for withdrawal.
The Controller of Budget attributes this to spending of local revenue at source (spending without depositing the money first to the County Revenue Fund). This is contrary to Section 109 of the Public Finance Management (PFM) Act, 2012.
Expenditure on personal emoluments against total expenditure
A review of personnel emoluments as a percentage of total expenditure indicates that Tharaka Nithi, Taita Taveta, and Nairobi City recorded the highest percentage at 60.1 per cent, 58.9 per cent and 54 per cent respectively.
Key challenges the Controller of Budget identified in FY 2016/17
The key challenges the Office of the Controller of Budget (OCOB) identified as hindering effective budget execution by county governments include:
- high expenditure on personnel emoluments,
- under-performance in local revenue collection,
- failure by the National Treasury to disburse the equitable share of revenue in line with the County Allocation of Revenue Act (CARA) 2016 Disbursement Schedule.
- high levels of pending bills, which stood at KSh5.84 billion as at end of the financial year,
- Integrated Financial Management Information System (IFMIS) connectivity challenges which caused delays in processing of financial transactions, and
- late submission of financial reports by County Treasuries contrary to Section 166 and 168 of the PFM Act, 2012. This affected OCOB’s timely preparation of budget implementation review reports and oversight on budget implementation.
Recommendations by the Controller of Budget
The Office recommends that the County Public Service Boards (CPSB) should ensure the wage bill does not exceed 35 per cent of their total revenue. This is in line with Regulation 25(1) (a) of the Public Finance Management (County Governments) Regulations 2015.
County Treasuries should also develop and implement strategies to mobilize local revenue collection.
The National Treasury should comply with the CARA, 2016 Disbursement Schedule in the disbursement of the equitable share of revenue raised nationally.
Further, County Governments should ensure effective management of pending bills by aligning procurement plans to cash flow plans.
The IFMIS Directorate should address IFMIS connectivity challenges experienced by most counties in FY 2016/17.
Finally, County Treasuries should comply with Section 166 and 168 of the PFM Act, 2012 on submission of financial returns. This will facilitate timely preparation of budget implementation review reports by the Controller of Budget.
For more on how the county governments spent their budgets in FY 2016/17, get your copy of The Annual County Governments Budget Implementation Report FY 2016/17 (45 downloads)