Counties Face Financial Crisis as Treasury Decries Revenue Shortfall

The National Treasury admitted that it is experiencing a financial crisis even as the budget year is drawing to a close, so the cash crisis in the devolved divisions of the government will continue to exist.

Chris Kiptoo, the Principal Secretary of the Treasury, testified before the Senate Public Investments Committee and said that the exchequer’s delayed payment was due to a decline in income collection.

According to Kiptoo, the National Government is also experiencing financial difficulties as a result of an Sh67 billion income collection shortfall as of Wednesday.

“The position is that there is a delay in exchequer releases because of the revenue performance of our target of about Sh67 billion as of yesterday. We are not sitting pretty, we are working round the clock and we see a possibility that comes April and May we will be in a better position,” he said.

In accordance with the breakdown provided by the Treasury Principal Secretary, the county’s equitable share for January, February, and March is $92.5 billion, and the county is requesting Sh204 billion, which the government presently owes state agencies.

The National Treasury has so far distributed to the devolved units the December equitable share.

Recurrent expenses totaling Sh96.5 billion, Development Funds totaling Sh55 billion, and Pensions totaling Sh53 billion are all still owed to the Ministries, Departments, and Agencies (MDASs).

“We don’t delay deliberately; it’s just that the cash position cannot allow us to settle quickly. We will have an informal forum with governors and senators to see how to improve on all these,” Kiptoo stated.

Fernandes Barasa (Kakamega), the Chairman of the Council of Governors Finance Committee, questioned the delays despite the exchequer’s insisting that the government has been experiencing an income shortfall.

“When will the government address the issue of the pending payments because we can’t resolve the issues facing counties in terms of stalled projects if we haven’t sorted out the pending payment? Our issue is not with the conditional grant but the equitable share,” Barasa stated.

As the funds disbursed have been used for recurrent expenses, Kisii Governor Simba Arati, a member of the Council of Governors Finance Committee, lamented that the delays in disbursement have caused the stalling of important development initiatives within the counties.

“We have received for December and we have to pay salaries first. I have never paid for any work done, any money I am getting I have to pay salaries. The big problem is in Treasury as long as they delay funds, there will be no development,” said Arati.

The timely distribution of the equitable share to the devolved entities is mandated by Article 219 of the Constitution and Section 17(6) of the Public Finance Management Act, 2012.

The government has prioritized offsetting the current debt due to various domestic and foreign institutions, according to the Treasury Principal Secretary.

He dispelled the Council of Governors’ worries that the exchequer had put the needs of the National Government ahead of those of the counties in terms of funding.

“They are things which come first as we must first pay our debts and we don’t want to hear that Kenya failed to pay its debt. In the month of March, we did over Sh150 billion in paying debt and it’s the biggest component of our revenue,” said Kiptoo.

However, Senators have given the National Treasury until April 15 to release the funds for January, claiming that the delays in funds disbursement have crippled important county activities and adamantly stating that the uncertainty in payments will not be tolerated.

“It’s not fair that the senate passes a disbursement schedule after consultation and the schedule is disregarded. You have asked for time and we will give you until April 15 to have January dues paid,” Vihiga Senator Goefrey Osotsi said.

The National Treasury mentioned that they have only released Sh88 billion out of the estimated Sh200 billion each fiscal year to finance development initiatives because of financial constraints.

“From July to now ministries have not received a development budget, so it’s not like the government has favored ministries against the counties. That’s not the position,” the Treasury PS said.

Even though he was evasive about when counties would receive their allocation, which has been three months overdue, he was confident that the country’s financial inflow would be better in the coming months.

“This is a month we expect to get more revenue and when we get revenue, I assure you we will pay on time. If our situation improves we want to have a situation that if it delays it only for one month,” Kiptoo said.

The National Treasury noted that because of the country’s financial condition, mechanisms have been put in place to improve tax compliance and raise more money from donors to remedy the situation.

The government anticipates receiving donations through World Bank operations for development policy and an IMF initiative with the resilience sustainability facility.

“If we can have  greater conservation around expanding the cake rather than sharing the cake. When we share the cake and its small then it’s a problem but if we have conversation about expanding our economy, I don’t think we will have a problem at all paying,”said Kiptoo.

As a result of delays in the distribution of the equitable share to County governments for the fiscal year 2022–2023, operations have been hampered in many counties.