A meeting between Cabinet Secretary for National Treasury and Planning John Mbadi and county governors ended without an agreement on the revenue-sharing formula for the 2024/25 financial year.
The Council of Governors (COG) rejected the National Treasury’s proposed allocation of Ksh380 billion, insisting on the previously agreed amount of Ksh400 billion. They argued that any cuts to this funding would negatively impact county services, particularly the implementation of the new health system.
In response, CS Mbadi announced that the issue would be referred to a mediation committee that includes key government agencies to resolve the impasse, which threatens to disrupt services in counties already experiencing delays in fund disbursement.
Mbadi explained that the national government can only allocate Ksh380 billion to counties, citing reduced revenue projections following the withdrawal of the 2024 Finance Bill. This withdrawal, he stated, led to a loss of Ksh344 billion in anticipated revenue, reducing the total projected collections from Ksh2.913 trillion to Ksh2.6 trillion for the current financial year.
From the revised Ksh2.6 trillion revenue, Mbadi noted that Ksh1.1 trillion is allocated for loan repayments, Ksh1.2 trillion for the Consolidated Fund, and over Ksh900 billion for the national government’s wage bill. This leaves only Ksh500 billion for other expenditures, including funding for counties, which necessitates the current allocation projections.
“Given the current fiscal constraints, the National Treasury can only offer Ksh385 billion to counties,” Mbadi said. “However, the governors remain firm on their demand for Ksh400 billion, which was initially agreed upon, and I believe we will resolve this impasse soon,” he added.
To address disbursement delays, the CS stated that the Treasury has already released Ksh31.8 billion for July, with plans to release additional funds this month for August.
Mbadi also committed to resuming timely disbursements by December 2024, a step aimed at preventing counties from resorting to costly borrowing from local commercial institutions to maintain operations.
While speaking at the COG Health Committee meeting in Naivasha, Mbadi outlined several tax measures proposed by the Treasury to Parliament to generate additional revenue and address the current fiscal deficits. He highlighted that the rental income tax sector, which currently contributes Ksh17 billion to the government, has the potential to raise over Ksh100 billion annually.
The Treasury is also targeting personal income tax, expecting an increase of Sh500 million. Additionally, there are plans to reduce Value Added Tax (VAT) from 16% to 14% to stimulate consumer spending.
Mbadi emphasized the necessity of reforming the Kenya Revenue Authority (KRA) by adopting new technologies to eliminate revenue leakages and committing to promote prudent resource use across all levels of government.
This, he stated, will enable the government to allocate more resources to enhance the implementation of the new health system, which has suffered from inadequate funding. He noted that the government was correct to initiate its rollout.
The Cabinet Secretary also projected a reduction in the fiscal deficit, forecasting it to decrease from 5.6% of GDP last year to 4.4% this year, with a further reduction to 4% next year.
However, the Council of Governors expressed concerns about the impact of the reduced allocations. Ahmed Abdullahi, Vice Chair of the Council of Governors (COG), warned that cuts of Sh20 billion would significantly hinder service delivery in counties, particularly in healthcare.
Baringo Governor Benjamin Cheboi echoed these concerns, stating that counties have already incorporated the Sh400 billion allocations into their budgets.
“Adjusting to the Sh20 billion cuts will force counties to make tough decisions, including potential layoffs,” he said.
A mediation committee is expected to convene in the coming days to seek a resolution to the funding impasse.
According to the Ministry of Health, the government’s funding for the Public Health Care fund is set at Sh35 billion annually, but only Sh4.1 billion is currently available, leaving a deficit of Sh30.9 billion.
Additionally, the Emergency and Chronic Care Fund is optimized for Sh3.8 billion annually, but only Sh2 billion has been allocated in the current financial year.
