CASH ABSORPTION

Counties should focus on hitting high budget performance rate

There is an urgent need to audit the structures and processes pertaining to the utilisation of these funds

In Summary

• Very few counties are utilising their development budget beyond the 80 per cent mark, raising serious concerns on how serious they are in terms of policy formulation in their annual Development Plan.

• The blatant misallocation of county funds and the delays in procurement on budget absorption by county governments is indeed the elephant in the house.

The National Treasury building
The National Treasury building
Image: FILE

 

With the debate on county revenue sharing formula raging, its curious that  no one is talking about how effectively  the development budget has been utilised.

The missing voice in the debate is the absorption rate, which basically refers to the share of the actual expenditure out of the budgeted expenditure (the target).

The share is a vital tool in determining the efficiency and general performance of the counties as regards utilisation of the intended funds. For obvious reasons, a higher absorption rate is preferred since it means that counties are close to their target. It is ironical that since advent of devolution, reports from the Controller of Budget still indicate there is still a low absorption rate of development funds in the counties. This means a lot of funds end being returned back to  the Treasury.

Very few counties are utilising their development budget beyond the 80 per cent mark, raising serious concerns on how serious they are in terms of policy formulation in their annual Development Plan.

The blatant misallocation of county funds and the delays in procurement on budget absorption by county governments is indeed the elephant in the house. This is where we have to channel our energies. We need to remind ourselves that before the advent of devolution, the national government hardly allocated over Sh200 billion to the functions that were devolved.

For instance, in the last pre-devolution financial year of 2012-13, the government allocated Sh171 billion to the devolved services. Counties are now receiving in excess of Sh300 billion as equitable share, yet, seven years down the line, we are still complaining of the same problems in access to health, poor roads, dwindling fortunes in agriculture and inadequate water supply.

Counties have expressed a lot of inadequacies and incapability to hit high performance levels in the absorption rate and this has been brought about by a number of issues. Nairobi, for instance, registered its highest absorption rate of 78 per cent in the 2018/-19 despite being the county that receives the biggest chunk.

Incidentally, this is the same average performance rate for all counties. It is disappointing that the absorption rate of the local and foreign funds borrowed from bilateral and multilateral lenders such as the World Bank stands at an averages of 30 per cent a year. Most counties have struggled to complete World Bank-sponsored projects, with some stretching to as far as 2013.

There is an urgent need to audit the structures and processes pertaining to the utilisation of these funds as the country cannot achieve the Vision 2030 goals with such a low absorption of development funds. Some of the credibility measures for high performance rate include the formal revisions or supplementary budgets within the year. A credible budget should not require too many changes, or even a single change of substantial magnitude. It is worth noting that the Kenya’s public finance law sets a ceiling on the size of the budget that can be changed through supplementary budgets.

A county cannot change more than 10 per cent of its total approved budget within the year. Across the four years, approved budget allocations do change substantially within the year. The Controller of Budget has also previously revealed that most counties change their approved budget  in excess of the 10 per cent limit. For example, in 2014-15, 16 counties made changes to their approved allocations that were above 10 percent. That dropped to seven counties in 2015/16 but rose to nine and 12 counties in 2016-17 and 2017-18 respectively.

This could be an indication of the challenges in planning and budgeting. We should also be more realistic with the revenue projections being set by the counties because this will eventually have a bigger say on the absorption rate.

We are aware that in the Kenyan perspective, ambitious local revenue projections are used to exaggerate the development budget, and when changes are made during implementation to make budgets more realistic, cuts are concentrated on the development side of the budget. This should stop.

Faith Lukosi is a lawyer and  the Nairobi Youth senator under the Youth Senate of Kenya