The Controller of Budget released a consolidated report recently on the progress of county budget implementation. The report covers the period of 1st July 2016 to 30th March 2017 (3rd Quarter). The report shows the progress of budget implementation by the 47 county governments in the first 9 months of the financial year 2016/17.
Specifically, the report analyses the revenue and expenditure performance and compares it against the targets set in the FY 2016/17 county approved budgets. Before that, the office had released the report for the second quarter covering the period of 1st July to 30th December 2016.
The Office of the Controller of Budget prepares these reports pursuant to:
- 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.
Below is a summary from the report.
Total approved budgets and revenue allocation
The total approved budgets for the 47 county governments for the financial year 2016/17 amounted to KSh400.25 billion. This amount comprised of KSh234.73 billion (58.6%) in recurrent expenditure and KSh165.51 billion (41.4%) for development expenditure.
The consolidated total for development expenditure conforms to the Public Finance Management Act. Section 107(2) (b) of the PFM Act requires that at least 30% of budget allocation be set aside for development programs in the medium term.
Parliament allocated the county governments:
- KSh280.3 billion as the equitable share of revenue raised nationally; and
- KSh21.90 billion as total conditional grants from the National Government and Development Partners.
Additionally, the counties expected to raise KSh59.71 billion from local sources, and also utilize KSh38.55 billion cash balance from the financial year 2015/16.
Revenue due to the counties in the first nine months
The total revenue available to the counties during this period was KSh251.53 billion. The amount comprised of:
- KSh185.23 billion from the equitable share of revenue raised nationally, conditional grants to Level 5 Hospitals, and grants from DANIDA to support county health facilities;
- KSh24.71 billion from local sources,
- KSh2.59 billion for Free Maternal Healthcare;
- KSh450 million for User Fees Foregone, and
- KSh38.55 billion cash balance from FY 2015/16.
In the same period, the county governments raised an aggregate revenue of KSh24.71 billion from local sources. The amount was 41.4% of the annual local revenue target of KSh59.71 billion. This performance represents a decrease of 4.6% compared to KSh25.89 billion raised in the first 9 months of the financial year 2015/16.
The counties that collected the highest local revenue in absolute terms were as follows:
- Nairobi City at KSh8.72 billion;
- Mombasa at KSh1.94 billion; and
- Kiambu at KSh1.64 billion.
The counties that generated the lowest local revenue were as follows:
- Tana River at KSh22.25 million;
- Mandera at KSh44.55 million; and
- Lamu at KSh51.02 million.
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 County Operational Accounts.
The Controller of Budget authorised exchequer issues of KSh229.85 billion. This represents 57.43% of the total approved budget estimates for financial year 2016/17. The withdrawals comprised of KSh156.98 billion (68.3%) for recurrent activities and KSh72.87 billion (31.7%) for development projects
The Counties that received the highest amount of funds for operations were;
- Nairobi City at KSh10.89 billion;
- Turkana at KSh10.07 billion; and
- Kiambu at KSh7.75 billion.
Equally, those that received the lowest amount were;
- Lamu at KSh2.04 billion;
- Isiolo at KSh2.32 billion; and
- Tharaka Nithi at KSh2.57 billion.
The aggregate expenditure for the first nine months of the financial year 2016/17 was KSh207.82 billion. The amount comprised of:
- KSh145.07 billion for recurrent expenditure (61.8% of the annual recurrent budget); and
- KSh62.74 billion for development expenditure (37.9% of the annual development budget).
The expenditure of KSh207.82 billion was 51.9% of the annual County Governments budgets and an increase of 13.1% from KSh183.76 incurred in a similar period of financial year 2015/16.
Counties that recorded the highest aggregate budget absorption rates were:
- Isiolo at 68.4 per cent;
- Tana River at 65.8 per cent; and
- Bomet at 35.2 per cent.
Similarly, Kirinyaga, Kwale, and Lamu Counties recorded the lowest overall absorption rates at 42.1 per cent, 41.4 per cent, and 27.2 per cent respectively.
Counties with the highest absorption rate of development expenditure were:
- Tana River at 72.1 per cent;
- Bomet at 65.5 per cent; and
- Isiolo at and 61.2 per cent.
Lamu, Nairobi City and Taita Taveta counties recorded the least development expenditure at 8.3 per cent, 12.9 per cent and 19.8 per cent, respectively.
Absorption rate is calculated as a percentage of total expenditure to the approved budget.
Analysis of expenditure by economic classification shows that the counties spent:
- KSh91.39 billion (44 per cent) on personnel emoluments (salaries, etc.);
- KSh53.68 billion (25.8 per cent) on operations and maintenance; and
- KSh62.74 billion (30.2 per cent) on development activities.
A review of personnel emoluments as a percentage of total expenditure indicates that Nairobi City, Taita Taveta, and Tharaka Nithi recorded the highest percentage at 63.6 per cent, 61.2 per cent and 61.1 per cent respectively.
Challenges and recommendations
The Office of the Controller of Budget identified some challenges that faced budget implementation by the County Governments. These included;
- high expenditure on personnel emoluments which stood at 43.3 per cent of total expenditure for the reporting period,;
- delays in establishment and operationalization of County Budget and Economic Forums (CBEF) contrary to Section 137 of the PFM Act, 2012;
- Integrated Financial Management Information System (IFMIS) connectivity challenges;
- under-performance in local revenue collection, which was 41.4 per cent of the annual target; and,
- delays in the establishment of Internal Audit Committees.
The Office recommends that Counties should ensure the wage bill does not exceed 35% of their total revenue. This is in line with Regulation 25 (1) of the Public Finance Management (County Government) Regulations 2015.
Further, it advises the Counties to:
- establish the County Budget and Economic Forums;
- liaise with the National Treasury to address the IFMIS connectivity challenges; and
- operationalize the Internal Audit Committees.
For more on how the counties implemented their budgets during this period, download the County Budget Implementation Review Report 3rd Quarter 2016/17 (54 downloads) .