Kenya Economic Report 2016 on Fiscal Decentralization in Support of Devolution

Abstract

The Kenya Economic Report 2016 is the eighth in a series of annual reports on the Kenyan economy prepared by the Kenya Institute for Public Policy Research and Analysis (KIPPA). The report reviews Kenya’s recent economic performance and provides an outlook for the medium term. The focus of this report is ‘Fiscal Decentralization in Support of Devolution’. This is highly relevant and timely within the context of our current development challenges and potential opportunities and gains associated with devolution. Kenya’s devolution is among the most rapid and ambitious devolution processes, whose implementation started with the 2013 general elections. Over the last three years, various achievements have been made in terms of establishing the necessary legal, regulatory and administrative units to support devolution. The relevant functions have also been devolved and resource allocation to County governments exceed the constitutional minimum of 15 percent. Overall, county resource allocation as a percentage of total revenue increased from 19.94 per cent in 2013/14 to 24.18 per cent in 2014/15. County expenditure as a percentage of Gross Domestic Product (GDP) and total government outlays are estimated at 5.6 per cent and 18.9 per cent, respectively. The county governments are raising own resources to supplement the vertical allocation from the national government. Overall, this is estimated at about 11 per cent of total county revenue. However, there are inter-county variations, with most counties are over-relying on the equitable share transfers. Based on the 2014/15 fiscal data, only about 70 per cent of the counties raised locally less than ten (10) per cent of their total revenue...