Governors push for law change to fast-track release of Sh75.7 billion grants

Governors are pushing for amendments to the financial law to eliminate "bureaucratic bottlenecks" delaying the release of billions of shillings in conditional grants to counties.

Through the Council of Governors, the county chiefs want Parliament to repeal Sections 191A to 191E of the Public Finance Management (PFM) Act, 2012.

They argued that the provisions have created unnecessary hurdles in the disbursement of funds meant for devolved units.

The governors say the proposed changes will allow counties to access conditional allocations immediately after enactment of the County Government Additional Allocation Bill, 2026.

The move, they said, would unlock about Sh75.7 billion earmarked for county projects and programmes in the 2026/27 financial year.

The funds are separate from the counties’ equitable share of national revenue and consist of conditional grants and loans from the national government and development partners.

Under the current law, introduced through the 2022 amendments to the PFM Act, the National Treasury and county governments are required to sign Intergovernmental Agreements before conditional grants can be transferred to counties.

The agreements must also receive approval from the Controller of Budget.

However, governors argue that the requirement has delayed implementation of projects and disrupted county budgeting processes.

Presenting a memorandum before the Senate Finance and Budget Committee, CoG Finance Committee chairman Fernandes Barasa said the agreements are signed after Parliament has already approved the allocations through the annual County Government Additional Allocations Appropriations Act.

Barasa argued that the requirement is not aligned with the national budget cycle and slows down the release of funds.

“The Council of Governors requests a permanent resolution of the recurring matter by introducing consequential amendments to the PFM Act to repeal Sections 191A to E to enable counties access to conditional allocations as soon as the Bill is enacted,” Barasa said.

According to the governors, counties already sign Intergovernmental Participation Agreements with ministries, departments and agencies under Article 189 of the Constitution for implementation of conditional grants, making the additional agreements with the Treasury repetitive and unnecessary.

“The requirement for the Intergovernmental Agreements for transfer of conditional allocations signed with the National Treasury under Section 191A (1) of the PFM Act duplicates efforts,” the memorandum states.

The County Governments Additional Allocations Bill, 2026, seeks to allocate Sh75.7 billion in conditional grants and loans to counties for projects in sectors such as health, housing, infrastructure, climate action and urban development.

Part of the allocation includes Sh523 million for the completion of county headquarters in Isiolo, Lamu, Nyandarua, Tana River and Tharaka Nithi.

The allocations also cover funding for Community Health Promoters (CHPs), County Aggregation and Industrial Parks (CAIPs), and support for County Rural and Urban Affordable Housing Committees through 0.5 per cent of the Housing Levy Fund.

Counties are further set to benefit from allocations meant to transition Universal Health Coverage (UHC) workers from contractual employment to permanent and pensionable terms.

A significant portion of the funds will come from development partners and international lenders.

Among the allocations is funding from the French Development Agency (AfD) for the Kenya Informal Settlement Improvement Project Phase II and financing from the International Development Association (IDA) for the Building Resilient and Responsive Health Systems programme.

Counties are also expected to receive Sh21 billion from German Financial Cooperation (KfW) for the Financing Locally-Led Climate Action Programme (FLLOCA) and County Climate Resilience Investment Grants.

Another Sh6 billion from the World Bank’s IDA facility will support climate action initiatives under the County Climate Resilience Investment Grant programme.

The allocation formula for climate-related funding will be based on rural population, rural land size and multidimensional poverty levels, which the government says are indicators of climate vulnerability.

Further allocations include Sh16.7 billion under the Kenya Urban Support Programme (KUSP) for urban development grants and Sh21.7 billion for the Kenya Devolution Support Programme II, with each county eligible for a flat allocation of Sh37.5 million subject to performance targets.

National Treasury Cabinet Secretary John Mbadi has already committed to releasing Sh449 million allocated in the current financial year for the construction of the five-county headquarters, with the remaining Sh523 million set aside in the 2026-27 financial year.

INSTANT ANALYSIS

Governors are pushing for the repeal of Sections 191A-191E of the Public Finance Management Act, arguing that mandatory intergovernmental agreements delay the release of Sh75.7 billion in conditional grants and loans to counties. The funds target health, housing, climate action and infrastructure projects. The standoff highlights growing tension between the National Treasury and devolved units over financial control. If Parliament amends the law, counties could access funds faster, improving project implementation and budget absorption rates.