County governments are owed Sh143 billion in uncollected revenue, exposing deep structural weaknesses in local revenue mobilisation even as devolved units struggle to fund services and development projects.
A new report by Controller of Budget Margaret Nyakang’o shows the arrears had accumulated by December 31, 2025, with Sh101.54 billion from own-source revenue and the rest tied to debts from the Social Health Insurance Fund (SHA), the defunct National Health Insurance Fund (NHIF), and other liabilities.
The findings point to a widening fiscal strain across counties, where weak revenue collection, delayed national disbursements, and rising recurrent expenditure are converging to undermine service delivery and long-term financial sustainability.
Much of the unpaid revenue stems from land rates, house rents and other levies, some dating back five to 10 years, with audit records showing limited enforcement or follow-up by county administrations.
The scale of the arrears is significant. Analysts say the Sh143 billion could finance transformative infrastructure, including hospitals, roads and water systems. Governance expert David Ngugi estimates the funds could build and equip several Level 4 and 5 hospitals, finance dozens of water projects and support construction and rehabilitation of over 5,000 kilometres of roads.
Yet despite this potential, counties have made minimal progress in recovery. The report shows many devolved units have failed to establish robust debt collection frameworks, instead increasingly relying on national government transfers—often delayed—to sustain operations.
In some cases, political decisions have compounded the problem. Several counties have issued revenue waivers—particularly on land rates and rent arrears—often in the run-up to the 2027 General Election, effectively locking out billions in potential income and weakening fiscal discipline.
An aerial shot of Nairobi Skyline, taken on August 17, 2024. WILFRED NYANGARESI|NATION
Nairobi accounts for the largest share, with arrears of Sh65.39 billion—about 45 per cent of the total. This includes Sh55.4 billion in land rates, Sh288.3 million in house rent and market stall fees, and Sh368 million from outdoor advertising. Kenya Power alone owes the county Sh5.6 billion in wayleave fees.
The capital’s revenue challenge is further complicated by inefficiencies in asset management, including county houses occupied by tenants who have never paid rent, pointing to weak enforcement and gaps in revenue tracking systems.
Mombasa follows with Sh14.51 billion in arrears, largely from plot rates and health insurance debts, highlighting similar structural weaknesses in coastal counties where land-based revenue remains under-collected.
Nakuru is owed Sh13.84 billion—more than four times its annual own-source revenue—raising concerns over sustainability. The county generated just Sh3.65 billion in 2024/2025, against a wage bill of about Sh7 billion, underscoring the mismatch between revenue and expenditure.
Last year, Nakuru issued a Sh693 million rent waiver targeting long-term defaulters in county housing estates, further limiting revenue growth. However, the county has since signalled a shift, outlining plans to deploy legal frameworks such as the Housing Estates Tenancy and Management Bill, the Revenue Administration Act and the Rating Act to recover arrears.
Aerial view of a section of Nakuru City.
Photo credit: Bonface Mwangi | Nation Media Group
Additional measures include demand notices, establishment of a Debt Collection Unit and collaboration with national agencies to recover debts from entities such as Kenya Railways, Kenya Wildlife Service and the Pyrethrum Processing Company of Kenya.
The county is also owed Sh443.99 million by SHA and Sh479.52 million by NHIF, further constraining its ability to fund development projects in Nakuru City, which gained city status in December 2021 but remains financially dependent on national transfers and development partners.
Elsewhere, Kwale reported Sh1.08 billion in arrears but had not initiated clear recovery measures, while Kiambu is owed Sh5.61 billion—mostly from land rates and health-related debts. Narok has Sh641 million in outstanding revenue, largely from park fees and arrears linked to SHA and NHIF.
Other counties with significant arrears include Kakamega (Sh2.83 billion), Kisumu (Sh2.32 billion), Kitui (Sh1.76 billion), Kisii (Sh1.57 billion), Busia (Sh1.47 billion), Kajiado (Sh1.43 billion) and Kilifi (Sh1.34 billion), among others, reflecting a widespread challenge across both urban and rural counties.
In contrast, a few counties reported relatively low arrears. Homa Bay recorded Sh23.27 million and has issued demand letters to defaulters, while Murang’a reported Sh40 million.
Machakos posted Sh84.58 million, with NHIF accounting for the bulk of the debt—suggesting that stricter enforcement and tracking mechanisms can yield results.
The report shows arrears increased in most counties as of December 2025, with many pledging stricter enforcement measures in the 2026/2027 financial year. These include legal action against defaulters, engagement of private debt collectors and denial of business permits to non-compliant entities.
The findings come against a broader backdrop of weak revenue performance across counties. Although devolved units have the capacity to raise at least Sh260 billion annually, according to the Commission on Revenue Allocation, actual collections remain far below potential.
In the 2024/2025 financial year, counties raised Sh67.3 billion against a target of Sh87.67 billion, up from Sh41.4 billion the previous year but still insufficient to meet growing expenditure demands.
More than three-quarters of counties continue to miss their own-source revenue targets more than a decade after devolution, raising questions about the effectiveness of existing revenue systems and the political will to enforce compliance.
Ms Nyakang’o recommends strengthening enforcement mechanisms, adopting automated revenue management systems and addressing institutional weaknesses—particularly in high-potential counties such as Nairobi and Nakuru.
She also urges closer collaboration with agencies like SHA to recover outstanding debts and restore fiscal stability.
