Fiscal decentralisation playing catch-up in devolution

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BY MWENDE MWENDWA

Kenya’s political scene in the 1990’s and first decade of the 2000’s was a time of agitation for change in all spheres of government operations, specifically the need for good governance and equal distribution of power. Of equal importance was the equalization of income distribution and the legitimization of economic, political and social rights for all citizens. All of this was achieved and made a reality through the Constitution of Kenya, which was promulgated in August 2010, legally mandating the government to facilitate a basic standard of living for all citizens in Kenya.

The most anticipated change expected from the Constitution was the onset of devolution. Kenya’s Constitution now authorized the creation of 47 county governments, which are autonomous from but financially dependent on the national government and still part of the unitary state.

This was in line with the history of the struggle for change, which was primarily for political change and really embodied the definition of devolution, which is the transfer of power from national government towards sub-national governments.

Therefore, the Constitution was clear in defining and streamlining the geo-political changes required for the successful transfer of power from national to county level governments, including the creation of the latter, which replaced former provincial and district units. Despite the Constitution dedicating an entire chapter to the workings of public finance, the fact that this had been included as an afterthought to the main issue of devolution is starting to become apparent.

Fiscal decentralization in its truest form occurs when the transfer of power and responsibilities from national to sub-national government is undertaken as a means to support the attainment of economic efficiency, equality and macroeconomic stability.

In the Kenyan case, the nuances of public financial management were created and conceptualized to support and validate the devolution processes that are already underway. This can be seen clearly by the fact that establishment of the political and geographical structures mandated for devolution have been undertaken while the budgetary, revenue division and resource allocation parameters continue to be a source of conflict at this late stage in the budget cycle.

The Public Finance Management Act 2012 was enacted to further support Chapter 12 of the Constitution by detailing the processes, mandates and expectations of both the National Treasury and County Treasuries to support the parallel planning, budgeting, accounting, auditing and fiscal responsibility procedures.

On paper the legislation has been well thought out and all encompassing albeit binding to the extent it does not allow for the ‘home grown’ solutions that county governments probably thought they would have the power to experiment with in the spirit of devolution.

Currently the conflicting interests, mandates, understanding and demands between national and county governments over resource allocation and equitable sharing of revenue are apparent. Keeping in mind that successful fiscal decentralization is founded on the attainment of economic efficiency and macroeconomic stability, it is clear that the present motivation behind the pull for a greater share of resources by individual county governments is primarily to maintain basic operations and tackle pressing county specific issues.

It is important that both the national and county governments realise that the unmanaged expectations and continued proliferation of individualistic agenda’s in resource allocation will eventually threaten the very functional efficiency and macroeconomic stability the Constitution sought to institute. The motivations and arguments for revenue sharing and resource allocation cannot be politically founded as this will result in proliferation of poor budgetary procedures that have been a source of inefficiency in previous governments.

Without the plans and budgets outlined in the PFM Act 2012, and most importantly the functional assessment of each county’s capacity to deliver services in order to facilitate a smooth transition, economic inefficiency will prevail and hinder successful decentralization. The Transition to Devolved Government Act 2012 recommended a phased transfer of functions from the national to county governments after an assessment of the capacity of the county to ensure success. Unfortunately, this came at the tail end of the preparatory stages of the establishment of county governments as opposed to the beginning of the implementation of the constitution.

As such the county governments are in place and due to the political view of resource allocation at the county level, recommending phased functional transfer in light of capacity building, which constitutionally is supposed to be provided by the national government, may result in more trouble than its worth. What may be advantageous to all the players involved is a discussion forum between the National Treasury and county leadership to establish a clear understanding of the importance of operating within boundaries that maintain order, respect functional systems and aim to protect macroeconomic stability.

Political motivations need to be managed and the economic growth and stability of the country placed at the forefront of resource allocation and revenue sharing debates. This will ensure sufficient growth for the economy as a whole and as such, guarantee revenue generation that the National Treasury urgently needs for functional county governments.

(Mwende Mwendwa is a Policy Analyst in KIPPRA’s Macroeconomics Division. Views expressed here do not necessarily represent the position of KIPPRA)

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