Public Finance Under the New Constitution

 

 

 

 

 

 

Prudence. Equity. Accountability

 

Contents

Introduction


Structure

 

 

Kenya's New Constitution provides for a total of 47 political and administrative Counties (listed in the First Schedule of the Constitution of Kenya 2010), under a limited devolved system of government. Consequently, the structure of Public Finance in Kenya has been remodeled to conform to this new concept of devolution.

Going forward, all public revenue will be kept in one of several Constitutional Funds: Revenue raised by or allocated to a County will be kept in County Funds, while that raised by the National government will be kept in various National Funds. 

Allocation

The New Constitution provides that each year, a minimum amount of all the revenue raised nationally shall be disbursed to the Counties. The formula used in the disbursement has two components. The first component measuring at least 15% of national revenue, will be shared out to all the 47 Counties, and factors the size, population, area, poverty levels etc., of a County.

The second component measuring a fixed 0.5% of national revenue, will be shared between those Counties considered to have sizeable areas within them that are classified as marginalised.

Basically, the first component provides for equitable sharing of revenue (fiscal devolution), while the second introduces an equalization component to revenue share (an affirmative action).

Administration

County Funds will be administered by County governments. National Funds will be shared and managed by different State Organs including the National Executive, the Judiciary, the Registrar of Political Parties, Treasury, etc.

Every Public Fund will be subject to the oversight of an elected body, the authority of the Controller of Budget and the scrutiny of the Auditor-General.

The Governor of a County is the only elected official under the CoK2010 who will directly be involved in the day-to-day administration of a Public Fund.

 

 

Introduction

 

As has been noted in the table above, the Constitution of Kenya 2010 provides for a total of 47 political and administrative Counties (listed in the First Schedule of the New Constitution), under a limited devolved system of government. Kenya's devolution is therefore inter alia, designed to restore the people's authority over Public Finances. Indeed, devolution is one of the many changes contained in the New Constitution's underlying theme of retaking the instruments of power from a central authority to regional governments and representatives.  The need to correct past executive excesses and abuses was a major influence on this theme in which the idea of fiscal decentralization has taken a prominent status.

While devolution introduces new layers of government and associated costs, it is the hope of everyone that with time, the hoped-for improvements in the democratic and governance frameworks as promised by the New Constitution would more than compensate for the additional costs and actually deliver cost savings. Secondly, each level of government has been sufficiently empowered by the constitution and the law to apply maximum leverage on innovative home-grown models to raising internal revenues. And thirdly, a truly empowered National Assembly and a new Senate working together with powerful constitutional Commissions and Independent Offices have been mandated to protect the people's sovereignty and control over Public Finance as well as to conduct regular audit of those finances.

It is not hard to see that previous 'devolution funds' such as the Constituency Development Fund CDF, the Economic Stimulus Program ESP, the Health Sector Services Fund HSSF, the Local Authorities Transfer Fund LATF, etc., have no place in the new constitutional dispensation of devolved governments. County governments are therefore a timely idea with respect to devolved funds in that, "These governments stand to reconfigure development through not merely a transfer of resources, but also a transfer of responsibility for a county's development" (Nyamori, R 2013)

Most of these funds were generally weak in administrative structures, planning, accountability and audit. In particular, the CDF and the ESP, were hijacked by the elite and shared out using weak policy frameworks of political expediency rather than equitable fiscal decentralisation desired by the people of Kenya. For example, CDF's very formula, which relied largely on a weakly-computed poverty index function, failed to address more important considerations that devolution ought to consider like size, population, equity and marginalisation of people, etc.

Furthermore, the area member of parliament or MP, was the implementer-in-chief of the Fund, a function, clearly not intended for law makers; meaning huge challenges of transparency and accountability dogged the Fund every year.  Indeed, the yearly audit reports of the CDF made (and continue to make) for very sad and depressing reading.

Equally, the ESP also failed to 'treat unequals equally': "For example, in the 2010/11 Budget, funds for the Economic Stimulus Programme (ESP) were shared equally among the constituencies, irrespective of variations in population and poverty levels, which would be open to questions under the principle of equity. Money for employment of teachers was similarly allocated equally to each constituency. In both cases, no attempt appears to have been made to assess the actual needs on the ground, for example, the number of schools per constituency. In the case of teachers, some constituencies have fewer than ten secondary schools in total while others have more than 50" (Kirira, N 2011). 

For reasons quite at odds, in my view, with the new constitutional dispensation, the (Jubilee) Government that was formed after the first General Elections of 2013 under the New Constitution, maintained a spirited campaign against the abolition of these funds with the well-sounding promise to revamp their reach, function, and administration. In fact, it established yet another 'national' fund in September 2013 under the Ministry of Devolution and Planning known as the Uwezo Fund, and arguing that the fund goes beyond merely lending money to its target groups, it emphasised that it (the Fund) offers entrepreneurship training, business skills, business incubation, industrial promotion, and catalyses innovation amongst its borrowers.

These funds have not, however, lacked public support especially given that the Jubilee Government promised that 30% of government tenders must be given to women, youth and persons living with disability -  the target group of Uwezo. Similar funds as the Uwezo include the Youth Enterprise Development Fund YEDF - described as a revolving fund, and the Women Enterprise Fund, WEF.

 

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