An article in the Business Daily (June 2018) raised a question about the sustainability of county governments due to their “ballooning” wage bill.
The article entitled “It’s time to review devolution strengths and weaknesses” says the following:
“It’s worth pointing out that one of the most poignant discussions around the sustainability of county governments remains the ballooning wage bill. A recent report released by Controller of Budget Agnes Odhiambo revealed that the counties’ wage bill has shot up to over 70 per cent of total expenditure.”
“Emoluments to county workers have hit Sh66.4 billion from Sh61.8 billion last year. The wage bill remains one of the key elements affecting the sustainability of county governments.”
I have investigated the claim that the wage bill for the county governments has shot up to over 70 per cent of their expenditure and find it to be FALSE based on the facts presented below.
The report by the Controller of Budget (COB) mentioned in the article above is the half-year County Budget Implementation Review Report (CBIRR) for the financial year (FY) 2017/18. The report reviews how the 47 counties implemented their budgets between July and December 2017.
A financial year in Kenya runs from 1st July of the current year to 30th June of the coming year. A financial year is a period the (county) government uses for accounting and budgeting purposes, and for financial reporting. The financial year 2017/18 ended on 30th June 2018. We are now in the financial year 2018/19.
Total budget and expenditure
According to the COB report, in FY 2017/18, the combined County governments’ budgets approved by the County Assemblies amounted to KSh399.73 billion and comprised of KSh258.1 billion (64.4 per cent) allocated to recurrent expenditure and KSh142.39 billion (35.6 per cent) for development expenditure.
However, the total expenditure by County governments in the first half of the FY 2017/18 was KSh104.36 billion representing an absorption rate of 25.9 per cent of the total annual County Governments’ Budgets. This was a decrease from an absorption rate of 32.1 per cent in a similar period of FY 2016/17 where total expenditure was KSh128.36 billion.
The absorption rate is the amount of money the (county) government is able to spend within a certain period (quarter, half year, annually, etc.)
Recurrent expenditure in the same period was KSh93 billion, representing 36 per cent of the annual recurrent budget and a decline from 40.1 per cent reported in a similar period of FY 2016/17. The county wage bill is part of the recurrent expenditure and it reflects in form of personal emoluments (salaries, wages, allowances, etc.).
County expenditure on personal emoluments
Recurrent expenditure includes spending on personal emoluments, operation and maintenance, debt repayment and pending bills.
The half-year COB report for FY 2017/18 shows that the 47 county governments spent KSh66.48 billion on personnel emoluments. This is the same figure in the claim above in the Business Daily. The expenditure on personal emoluments in the first half of financial year 2016/17 (July-December 2017) was KSh61.86 billion, same as in the claim.
However, the KSh66.48 billion is not a figure for the whole financial year but rather for the half-year of FY 2017/18 (July-December 2017). The wage bill is 63.7 per cent of the total half-year expenditure of KSh104.36 billion. The KSh61.86 billion for 2016/17 represents 48.1 per cent of the expenditure of KSh128.63 billion during the same period.
Therefore, the total county expenditure on the wage bill for the half-year period has increased from 48.1 per cent in FY 2016/17 to 63.7 per cent in FY 2017/18. This is below the 70 per cent in the claim above.
The source of the claim seems to be from a section of the Controller of Budget half-year report that says the counties spent 71.9% of the total recurrent expenditure on staff salaries, but the author mistakes the recurrent budget to mean the whole county budget, the latter which includes both recurrent and development budget.
Comparing expenditure on personal emoluments
Even if we compare the annual county expenditure on wage bill to total annual expenditure, in FY 2016/17, the 47 counties spent KSh130.97 billion on personal emoluments which represent 41.1 per cent of the total expenditure for that year at KSh319.06 billion. I have not factored in the financial year 2017/18 because the annual CBIRR for the year is not yet out. The comparison of half-year and full year county expenditure on wage bill from FY 2013/14 to 2016/17 is shown in this table.
From the table, we can see that the wage bill is high in the middle of the year and then decreases at the end of this year (see columns F and G). The wage bill is always high in the middle of the year because of low development expenditure, which only picks up in the second half of the year.
Based on the data from the previous years, 2017/18 seems to have a significantly lower spending on development and, therefore, almost the whole expenditure was recurrent with wages forming the largest component, as shown in this table. If the development expenditure was higher, the proportion of the total wage bill as a percentage of the total budget would be lower.
From the table, we can see that a bigger proportion of the total expenditure is taken up by recurrent spending (see column J), which corresponds with low development spending (column N). Because a large proportion of recurrent expenditure is made up of wages (see columns P and Q), A higher proportion of the total budget that is recurrent translates to a higher proportion of the budget that is taken up by wages.
In conclusion, the high (and increasing) wage bill for the counties is indeed a cause for concern. In the 2016/17 annual county budget implementation review report, the Controller of budget identified high expenditure on personal emoluments as a challenge facing the counties, and which might affect their development expenditure.
Despite that, all the facts at our disposal show that, even though the county wage bill is increasing, the expenditure has not shot above 70 per cent of the total expenditure which makes the claim in the Business Daily to be false.
(Thanks to John Kinuthia @JKinuthia08 for the fact-checking support)