counties in Kenya, FY2017/18

In the first six years of devolution, the resource allocation formula used to horizontally distribute equitable shares among the 47 counties was based on a rather generic index of expenditure needs. As a result, any link between the resource allocations to counties and the underlying county functions (for which counties are receiving national resources) was lost. The third formula has attempted to cure this.

The lack of timeliness in the release of funds is also causing budget execution challenges at the county level, which impedes their ability to deliver basic public services. An additional area of concern is that in some sectors, such as agriculture and water, there is limited use of conditional grants, and yet these are sectors where the national government has retained the most resources.

The inadequacy of county spending for service delivery is a concern in highly populous counties and counties that inherited greater staff, which are generally expected to do more with less. More-populous counties spend considerably less per capita across all sectors than less-populous counties, which tend to be more rural and less advantaged (figure 4.6). While it is important to enable previously neglected areas of the country, it is also important that the intergovernmental fiscal framework ensure the adequacy of resources for service delivery for all counties.

Conditional grants In contrast to the allocation of equitable shares—which relies on a single horizontal allocation formula—each conditional grant scheme has its own vertical and horizontal allocation mechanism, typically tied to the grant’s specific institutional or service-delivery objective. Some grants have been targeted to address specific financing gaps. For example, in FY2018/19, the Kenya Urban Support Program (KUSP) provided a major inflow of funding for urban infrastructure and services, reflecting a devolved sector that hitherto had been largely ignored since the commencement of county governments in 2013.

Other grants have targeted direct financing of service delivery in health, including allocations to Level 5 hospitals where there are spillover effects to

FIGURE 4.6

Per capita sector expenditure in the least and most populous counties in Kenya, FY2017/18

Public administration

Water

Education

Health

Agriculture

0 1,000 2,000 3,000 4,000 5,000

Spending per capita (K Sh) 10 most populous counties 10 least populous counties

Source: Office of the Controller of Budget, annual county governments budget implementation review report, FY2017/18.