CASH CRUNCH

Tough balancing act as counties face cash crunch

Counties mull abandoning projects

In Summary

• Nearly all the 47 counties are currently facing serious cash flow challenges.

• The problem will be compounded by the proposed massive Sh9 billion cut of the base allocation of the county governments’ equitable share.

Former Council of Governors chairman Josphat Nanok (centre) and other governors in Delta House, Nairobi, in December last year
DEVOLUTION: Former Council of Governors chairman Josphat Nanok (centre) and other governors in Delta House, Nairobi, in December last year
Image: EZEKIEL AMINGÁ

Counties are mulling abandoning key development projects and other crucial programmes owing to the tough financial conditions that are expected to worsen going into the next financial year.

Treasury has announced a Sh9 billion cut on county allocations, dealing a blow to the devolved units, some of which are yet to roll out any meaningful development projects.

Council of Governors chairman Wycliffe Oparanya told the Star that counties could be compelled to run ‘recurrent expenditure only budget’ and drop development programmes, if the biting cash crunch persists.

 

Apart from the looming budgetary cuts, counties are also grappling with local revenue shortfalls, which is believed to be fuelled by corruption

“The fact of the matter is that programmes and projects in the counties will be affected if the resources will go down,” Oparanya said.

"First, there are essential services that must be given priority like health. Salaries must also be paid. So if you pay salaries and you cannot fire, then we will definitely have counties running recurrent expenditure without substantial amount to run the development aspect of the budget."

Nearly all the 47 counties are currently facing serious cash flow challenges because of the dwindling internal revenues, delays in the release of funds from the National Treasury, corruption and other wastages.



And now, the problem will be compounded by the proposed massive Sh9 billion cut of the base allocation of the county governments’ equitable share in the 2019-20 financial year.

According to the Division of Revenue Bill 2019, which is currently before the Senate, the base allocation will be reduced to Sh304 billion from Sh314 billion should both Houses of Parliament approve the proposed law.

The National Treasury cites revenue shortfalls for the huge cut.

 
 

The reduction will see come counties such as Mombasa suffer up to a Sh1 billion reduction in allocation, a situation that will likely grind services to a halt, especially in counties that entirely rely on the Exchequer.

The counties will, however, have some reprieve in a Sh5.76 billion added to the allocation as adjustments based on the fiscal framework, as well as Sh5.76 billion Equalization Fund.

Other counties could be hit further, if Parliament adopts the new Revenue Allocation Formula proposed by the CRA.

“The new formula will slash Sh1.2 billion from our current allocation, meaning many programmes will suffer. What we are currently getting is not even enough. We want counties allocated Sh45 per cent of the revenue,” Mombasa Governor HassanJoho was quoted in December last year.

The formula, which is sector-specific, has already been opposed by governors, especially those from Northeastern and other marginalised areas whose counties will get a reduced allocation.

Institute of Economic Affairs  CEO Kwame Owino says the counties must go back to the drawing board. "They must revise their budgets and remove unnecessary expenditures".

“Really, I don’t know the options that governors have to deal with the situation because there are some counties that do not entirely rely on the National government for funds. But the first and the obvious thing for them is to revise their budgets downwards to fit into the available resources,” he says.

He opines that there is a need for the county bosses to devise innovative ways to manoeuvre the prevailing tough financial conditions.

Makueni speaker Douglas Mbili faulted the National Treasury and the Commission on Revenue Allocation for ‘sacrificing’ the counties.

He argues that despite the revenue shortfalls, the devolved units should be given priority in terms of allocation of funds because their functions are key in driving the country’s economy.

“Counties are the drivers of the economy because they harbour agriculture and other devolved functions that are key for the economy. In the national government, other than security, others are revenue consumers and should be dropped or their allocations reduced,” he said.

He says CRA has failed in its mandate to inspire the counties to identify revenue sources to meet their potential.



Mbili says, instead, the commission has created unnecessary competition by rewarding counties that meet their annual revenue targets.

“Most counties have been set lower revenue targets so as to achieve them and get rewarded. Surely, you cannot set an exam for yourself and market it and reward yourself,” he added.

Controller of Budget Agnes Odhiambo and Auditor General Edward Ouko have often reprimanded the counties over weaknesses in revenue collection.

Odhiambo, in her Half Year Report for Financial Year 2018-19, notes that low revenue collections in counties are hurting services and projects.

The report notes say besides the low collection, the devolved units are already reeling from frequent delays of disbursement of funds by the National Treasury and mismanagement of resources by county staff.

The counties collected only Sh15.37 billion (30.1 per cent) against an annual target of Sh51 billion between July and December 2018.

Nairobi, with all the properties and having automated collections five years ago, had only collected Sh3.8 billion (25.3 per cent) of the annual target. It was followed by Narok and Nakuru counties, which collected Sh1.84 billion and Sh1.55 billion respectively.

“The under-performance of own-source revenue collection implies that some planned activities may not be implemented in the financial year as budgets will not be fully financed,” Odhiambo said.

Ouko has also, in his numerous reports, faulted the counties for not only failing to meet revenue targets but also spending the same at source leading to huge losses.

The counties have either failed to account for revenue collected or received from the National Treasury or employing automated revenue collection systems that don’t work.