County cash crisis looms in January on legal impasse
Cabinet Secretary for The National Treasury and Economic Planning John Mbadi before the Senate Finance and Budget Committee at the County Hall Nairobi on September 16, 2024.
What you need to know:
- The National Treasury has so far used a backstop to fund the devolved units where counties.
- The stop-gap measure is set to avert the current cash crises the counties are experiencing.
Counties risk running into a funding crisis in the new year if Parliament fails to agree on a new funding framework for the devolved units by the end of December.
The National Treasury has so far used a backstop to fund the devolved units where counties have qualified for at least 50 per cent of the approved allocation in the immediately preceding financial year (2023-24).
Treasury Cabinet Secretary John Mbadi says the Exchequer will have completed making the transfer of the 50 per cent backstop threshold, or Sh192.5 billion, by December.
This will leave behind a funding gap of at least Sh187.5 billion, with the devolved units entitled to at least Sh380 billion in equitable share transfers from the national government as of June 2025.
This implies the government will have no scope to make additional transfers to counties without the passage of the Division of Revenue (Amendment) Bill, 2024, and the County Allocations Bill, 2024.
“We still have about Sh60 billion to transfer this month and next month to make it about Sh190 billion, which is the farthest we can go until the bills are passed,” said Mr Mbadi.
The Treasury has so far transferred Sh127.1 billion to counties after seeking legal advice from the Attorney General on transfers outside the Division of Revenue and County Allocations Bill, covering transfers to the devolved units for the 2024-25 financial year.
The Exchequer has additionally transferred Sh30.8 billion, representing arrears for the 2023-24 financial year.
“The moment we got the legal opinion in September, we started releasing the money to counties immediately. What we did was to give full monthly allocations without pro-rating the disbursements in half,” he added.
The Treasury sought legal advice from the Attorney General on measures to facilitate county governments in case a delay in the approval of the Division of Revenue Bill and the County Allocation of Revenue Bill is not enacted by June 30.
The Attorney General advised the Treasury to allocate county governments up to 50 per cent of the approved allocation in the immediately preceding financial year as the Bills await enactment.
The stop-gap measure is set to avert the current cash crises the counties are experiencing.
The Treasury explored making amendments to anchor the Attorney General’s guidance but concluded that there was no need for legislative changes.
The Exchequer was forced into resubmitting the division of revenue and county allocations bill in Parliament following the withdrawal of the Finance Bill, 2024, which opened a new revenue hole requiring a trim to projected transfers to counties.
