The Controller of Budget released a consolidated report recently on the progress of county budget implementation. The report covers the period of July to December 2016.
However, the Office of the Controller of Budget (OCOB) should have made the report public by 31st January 2017. This shows that the OCOB did not respect the budget timelines set by law. The 2016/17 financial year ends in 30th June 2017.
The report shows the progress of budget implementation by the 47 county governments in the first half of the financial year 2016/17. Specifically, the report analyzes the revenue and expenditure performance and compares it against the targets set in the FY 2016/17 county approved budgets.
Consolidated recurrent and development budget
The consolidated budget estimates for all the 47 county governments in the financial year 2016/17 were KSh396.89 billion. The estimates comprised of KSh230.90 billion (58.2%) for recurrent expenditure and KSh165.99 billion (41.8%) 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.
Equitable share and local revenue
From the report, to finance the FY 2016/17 Budgets, the County Governments expect to:
- receive KSh280.63 billion from the National Government as equitable share of revenue;
- receive conditional allocation of KSh19.28 billion from the national government’s equitable share;
- secure KSh2.94 billion as additional conditional allocation from loans and grants
from development partners;
- generate KSh59.34 billion from local revenue sources; and
- utilize the funds carried forward from FY 2015/16 of KSh37.12 billion. The county government did not spend these funds in the previous financial year.
The equitable share is the revenue raised nationally that parliament shares equitably between the national and the county governments (Article 202 of the Constitution). The conditional allocations are additional sources of funds for the counties from the national government’s share of revenue from the equitable share.
During the first half of financial year (FY) 2016/17, KSh167.37 billion was available to the County Governments. This amount consisted of:
- KSh116.25 billion in equitable share of revenue, grant for Level 5 Hospitals, and grant from DANIDA;
- KSh13.4 billion as revenue raised from local revenue sources; and
- KSh37.12 billion as cash balance brought forward from FY 2015/16.
The local revenue of KSh13.4 billion generated between July-December 2016 accounted for 22.6% of the annual local revenue target of KSh59.34 billion. However, this is a decrease from KSh13.92 billion collected in a similar period of FY 2015/16.
Actual withdrawals and expenditure
During the reporting period, the Controller of Budget authorized withdrawal of KSh146.79 billion from the County Revenue Funds (CRF, in article 207 of the Constitution). This represents 37.03% of the total county governments Budget Estimates for FY 2016/17. This amount comprised of KSh102.31 billion (69.6%) for recurrent and KSh44.48 billion (30.4%) for development activities.
The actual expenditure by the 47 county governments was KSh128.36 billion. This was
87.4% of the total funds released for operations. This expenditure comprised of KSh92.64 billion for recurrent activities (72.2%) and KSh35.73 billion (27.8%) for development activities.
The overall county governments’ expenditure represents an absorption rate of 32.13% of the aggregate annual County governments’ budget estimates.
Recurrent expenditure represented 40.1% of the annual recurrent budget estimates. This is a decrease from 40.4% recorded in a similar period of FY 2015/16. The development expenditure had an absorption rate of 21.5%. This is an increase from 9.8 per cent recorded in a similar period of FY 2015/16 when development expenditure was KSh29.58 billion.
Challenges and recommendations
The Office of the Controller of Budget observed that most counties made progress in addressing some of the challenges raised in previous reports. These challenges include:
- capacity building of technical staff;
- adoption of the Integrated Financial Management Information System (IFMIS); and
- compliance with budgetary timelines.
Yet, the Office identified some existing challenges that continue to hinder effective budget execution. These challenges require attention and they include:
- late submission of county financial reports and reports on established County Funds to OCOB;
- IFMIS and E-procurement connectivity challenges;
- underperformance in local revenue collection;
- low expenditure on development projects; and
- high expenditure on personnel emoluments.
To address these challenges, the Office of the Controller of Budget recommends that:
- County Treasuries and administrators of established County Funds (like Ward Development Fund) should submit expenditure reports in a timely manner; and
- they should also liaise with the IFMIS Directorate for support in application of IFMIS and the E-procurement module.
- Counties should develop and implement strategies to enhance local revenue collection; and
- establish optimal staffing levels to ensure a sustainable wage bill.
Counties that generated the highest and lowest revenue
In the reporting period of July-December 2016, some counties raised the highest revenues compared to others. The comparisons below are in respect to the targets set by the counties in their individual budgets rather than the consolidated local revenue for all the 47 county governments.
Counties that generated the highest local revenue in absolute terms were:
- Nairobi City at KSh4.21 billion (21.5% of annual target);
- Narok at KSh1.21 billion (33.5% of annual target)
- Kiambu at KSh874.64 million (23.2 per cent of annual target)
- Mombasa at KSh847.65 million (15.3% of annual target); and
- Nakuru at KSh532.4 million (20.5% annual target).
The counties that collected the lowest local revenue were:
- Tana River at KSh13.30 million (22.2% of target);
- Lamu at KSh18.30 million (18.3% of target);
- Mandera at KSh29.18 million (11% of target);
- Wajir at KSh38.76 million (16.8% of target); and
- Vihiga at KSh39.51 million (18% of target.
Counties with the highest and lowest absorption rates
The budget absorption rates are the amount of money that the counties managed to spend within the period under review in relation to their approved budgets.
Counties that recorded the highest aggregate absorption rates were:
- Murang’a at 42.4 per cent of their budget;
- Kericho at 42.2 per cent; and
- Machakos at 40.9 per cent.
The counties with the lowest budget absorption rates were:
- Uasin Gishu at 22.5 per cent of their budget;
- Lamu at 24.0 per cent; and
- Kwale at 24.6 per cent.
The OCOB’s Analysis of the development expenditure as a proportion of the development budget estimates indicates that:
- Kericho, Murang’a, and Bomet Counties had the highest absorption rates at 40.2 per cent, 37.2 per cent, and 35.9 per cent respectively.
- Nyeri, Nyandarua, and Nairobi City Counties had the lowest absorption rates of their
development budget estimates at 0.04 per cent, 2.9 per cent, and 6.9 per cent respectively.
It is important to note that though Nairobi City County reported expenditure on development projects, it did not request funds to undertake any development activities in the period under review (July-December 2016).
To know more about how your county implemented its budget in the period from July-December 2016, get your copy of The County Budget Implementation Review Report - Half Year FY 2016/17 (87 downloads)