KENYA

Kenya is a unitary country. The governance structure of Kenya is defined in the Constitution which was promulgated in 2010. Sovereign power is delegated to the national executive and county governments’ executives, to the national parliament and the county governments’ legislative assemblies, and to the judiciary and independent tribunals. The constitution recognises the self-governing power of county governments based on the powers and functions assigned in Article 186. The national and county governments have powers to pass laws related to their powers and functions assigned by the constitution and within the provisions of Article 191 of the constitution.

The National executive comprises of the president, deputy president, the attorney general and between 14 to 22 cabinet secretaries (ministers) nominated by the president and approved by the national assembly. The president and deputy president are elected during general elections held every five years. The deputy president is the running mate for the president.

At the regional level, county governments’ executives have a similar structure, headed by a governor, deputy governor, and 10 county executive committee members (“county ministers”). The governor and deputy governor are elected during general elections held every five years. The county governments governance structure comprises two arms of government, the legislature and executive. The county assembly, which is the legislative arm, comprises members of the county assembly (elected and nominated as per the law) and the speaker of the assembly.

The subnational governance framework is governed by several laws, including the County Government Act of 2012, which provides for the powers, functions and responsibilities of county governments; the Intergovernmental Relations Act of 2012 which establishes a framework for consultation and cooperation between the national and county governments and mechanisms for the resolution of intergovernmental disputes; the Public Finance Management Act of 2012 which provides for the effective management of public finances by the national and county governments; and the Urban Areas and Cities Act of 2011, which provides for the classification, governance and management of urban areas and cities.

Cities and municipalities are not expressly established in the Constitution but are envisaged in Article 184, which requires national legislation to provide for the governance and management of urban areas and cities. Cities, municipalities and townships are established by their respective county governments following a criteria and procedure that is provided in the Urban Areas and Cities Act 2011. They are however, not a level of government but structures for further decentralisation. The boards of cities and municipalities are not elected but appointed by governors of the respective county governments. In the previous legal system, cities and municipalities were a level of government and had elected representatives.

The government embarked on the process of reviewing the County Government Act and the Intergovernmental Relations Act in 2017 to address the emerging challenges in the implementation of devolution. The draft bills containing the proposed amendments to the two pieces of legislation were submitted to parliament in 2021 for consideration. The COVID-19 pandemic caused a delay in the extensive public participation required by law. Parliament has still not approved the two proposed bills.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
4 cities 55 municipalities		47 county governments
Average municipal size: 911 373 inh.
59		47	106

OVERALL DESCRIPTION: There are two subnational levels in Kenya. These are the county level and the urban areas (cities and municipalities). The county level is a decentralised level with elected representation and is self-governing. The cities and municipalities are deconcentrated administrative structures.

REGIONAL LEVEL: There are 47 county governments established by the Constitution. There are two distinct types of counties. The first type is the typical county which has both rural and urban characteristics, and incorporates several former municipal, town and county council which previously had been established within the territory of the current county government (based on the repealed Local Government Act). The second type is the city county. There are two such counties: Nairobi City County and Mombasa County. These are counties which are urban in nature and occupy the territory previously occupied by the Nairobi City Council and Mombasa Municipal Council respectively. Counties are diverse in terms of climate, size, population and revenue potential.

The county governments are the regional level governments and are therefore the key players in the country’s decentralisation system. The general elections are held every five years. A governor can only be elected for a maximum of two terms. The last general elections were held in 2017 and the next are scheduled for August 2022. All county governments have similar functions as per the constitution.

At the regional/county level, the national government is represented by a county commissioner whose responsibility is to coordinate national government functions at the county level. The most important of these functions is internal security and education. The two regional entities cooperate at the county level through regular meetings.

MUNICIPAL LEVEL: The establishment, functions and operations of cities, municipalities and townships is guided by the Urban Areas and Cities Act of 2011. These structures are agents of the county governments and discharge delegated responsibilities. Their powers, revenue sources and functions are delegated to them by their respective county governments. The criteria for the establishment of a city, municipality and town are clearly indicated in Urban Areas and Cities Act of 2011. Currently there are four cities and 55 municipalities, which have formally been established. Three cities are already established in Law while the fourth city was established in 2022. The municipalities were established and their boards appointed between 2018 and 2020. However, the boards do not have complete independence to operate as envisaged in the law, since their respective county governments have not delegated the requisite powers and responsibilities, nor identified or ceded to them revenue sources. Cities and municipalities are governed by boards appointed by the governor and approved by the county assembly. They do not have elected representation. Below the municipal level is the township level. This level is managed directly by the governor’s office. Though the law provides for the establishment of townships, so far none has been formally established.

HORIZONTAL COOPERATION: Horizontal cooperation between county governments is undertaken through the Council of Governors which comprises of all 47 governors. The Council is a statutory organ established by the Intergovernmental Relations Act whose key function is to provide a forum for consultation amongst counties, sharing experiences, and dispute resolution between counties. The council has powers to establish other intergovernmental forums including inter-city and municipality forums, although this is not operational yet as of 2022. The national government uses the Council to seek support on implementation of national policies at county level.

A new structure for horizontal cooperation among counties was been created in 2021. The County Resource Development Bill of 2021 establishes regional economic blocs where counties have a shared geographical region and for the enhancement of trade and economic development. Member counties may undertake joint programmes and take advantage of economies of scale.

Horizontal cooperation for the legislative bodies is coordinated by the County Assemblies Forum (CAF). The primary mandate of CAF is to promote networking and synergy among the 47 county assemblies, coordinate intergovernmental relations and enhance good practice in legislative development. The Forum operates through various committees that deal with lobbying, advocacy and capacity building of its members. All members of county assembly are members of the forum. The forum is divided into clusters which represent the regions of the country. It has an executive committee, a general assembly and is supported by a secretariat.

The functions of county governments are set out in the Fourth Schedule of the Constitution. The schedule stipulates the exclusive and concurrent functions of both the national and county governments. Subnational functions are assigned by the Constitution to the county governments only. Municipalities and cities discharge delegated responsibilities from their respective county government. The national government is assigned the function of policy, standards and capacity building and technical assistance for all functions including those assigned to county governments. Based on their exclusive functions, county governments can enact county laws that provide legal framework to administer the functions. Either level of government has the option to transfer a function (in whole or part), to the other level, if it is deemed that the other level of government is in a better position to discharge that function. The transfer is however guided by provisions of law contained in the Intergovernmental Relations Act. The transfer is temporary and the responsibility of the function remains that of the level that was assigned the function by the Constitution. The transferring government must also transfer the requisite resources to fund the transferred function.

Each level of government may establish corporations or entities to undertake any of their exclusive functions. e.g., the national government has established the Kenya National Highways Authority to be responsible for construction and management of national highways. Some county governments have established revenue authorities to be responsible for collection of all county revenues. All counties have established water and sanitation companies to manage water and sanitation services. These companies are owned by the county governments but are managed based on the Companies Act.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	Coordination of the participation of communities and locations in governance at the local level; support to communities and locations to develop the administrative capacity for the effective exercise of the functions and powers and participation in governance at the local level.
2. Public order and safety	Firefighting services and disaster management (Shared)	Fire Fighting and Disaster Management (Shared)
3. Economic affairs / transports	Crop and animal husbandry; livestock sale yards; county abattoirs; plant and animal disease control; fisheriescounty roads; street lighting; traffic and parking; public road transport; ferries and harbours,markets; trade licences (excluding regulation of professions); fair trading practices; local tourism; cooperative societies;electricity and gas reticulation and energy regulation (Shared)	Traffic Control and ParkingPublic Transport Electricity and Gas ReticulationLocal Distributor Roads Management of Markets Marine Water front
4. Environment protection	Control of air pollution, noise pollution, other public nuisances,soil and water conservation; forestry;refuse removal, refuse dumps and solid waste disposal, sanitation services (Shared)	SanitationSolid waste management Air pollution
5. Housing and community amenities	County planning and development, statistics; land survey and mapping; boundaries and fencing; housing; outdoor advertising;storm water management systems in built-up areas; water services (Shared)	WaterStorm DrainagePlanning and Development Control
6. Health	County health facilities and pharmacies; ambulance services; promotion of primary health care; licensing and control of undertakings that sell food to the public; veterinary services (excluding regulation of the profession); cemeteries, funeral parlours and crematoria (Shared)	Cemeteries and Crematoria Ambulance Services Heath Facilities
7. Culture & Recreation	Betting, casinos and other forms of gambling; racing; liquor licensing; cinemas; video shows and hiring; libraries; museums; sports and cultural activities and facilities; county parks, beaches and recreation facilities (shared)	Libraries Sports and Cultural Activities StadiumRecreational Parks
8. Education	Pre-primary education; village polytechnics; homecraft centres	Pre-Primary Education
9. Social Welfare	Child Care Facilities	Child Care FacilitiesCommunity Centres

Scope of fiscal data: Counties

SNA 2008

Availability of fiscal data: Medium

Quality/reliability of fiscal data: Medium

GENERAL INTRODUCTION: The subnational government fiscal framework is guided by the following laws: Constitution of Kenya, the Public Finance Management Act, the Public Finance Management Regulations, Controller of Budget Act and the Public Audit Act. In 2019, the national policy to support enhancement of county governments’ own-source revenue was developed and is currently being implemented. The focus of the policy is to address underperformance of county governments’ own-source revenue (OSR), which is caused mainly by challenges in collection and administration of decentralised taxes, fees and charges. The intervention by the national government is part of its strategy to enhance county governments revenues and therefore support them in discharging their responsibilities. The other support has been the consistent annual increase in subsidies and grants transferred to county governments from the national government.

Subnational government expenditure by economic classification
2019/20	Dollars PPP / inhabitant	% GDP	% general government	% Subnational government
Total expenditure	172	3.8%	15.5%	100.0%
Inc. current expenditure	136	3.0%	15.5%	79.1%
Compensation of employees	71	1.6%	31.2%	41.4%
Intermediate consumption	37	0.8%	41.1%	21.3%
Social expenditure	1	0.0%	2.4%	0.6%
Subsidies and current transfers	21	0.5%	6.5%	12.5%
Financial charges	4	0.1%	2.0%	2.1%
Others	2	0.0%	-	1.2%
Incl. capital expenditure	36	0.8%	15.6%	20.9%
Capital transfers	-	-	-	-
Direct investment (or GFCF)	36	0.8%	80.3%	20.9%

EXPENDITURE: Since the establishment of county governments in 2013, their expenditures have increased by 83.6% from KES 224.2 billion (~USD 6 billion PPP) to KES 411.96 billion (~USD 9.4 billion PPP) in the 2019/20 financial year. The main driver for the increase are the transfers from national government that have increased by 68% from KES 193.4 billion (USD 5.1 billion PPP) to KES 324.9 billion (USD 7.4 billion PPP) in 2019/20.

There has been a huge increase in the number of staff in the counties, which more than doubled from 94 700 county public employees in 2013 to 204 600 in 2020. This reflects counties efforts to ensure they have adequate staff to deliver the expanded services. The increase in the number of staff has caused an increase in staff expenditure from 37.8% of subnational expenditure in 2016 to 41.4% in 2020. This increase has resulted in current expenditure rising from 67.9% of subnational expenditure in 2016 to 79.1% in 2020. The increase in current expenditure has reduced the amount available for capital expenditure which has reduced from 32.1% in 2016 to 20.9% in 2020.

During the entire process of the preparation of the budget and county plans, which identify key projects and programmes to be funded in the budget, county governments are required, by law, to ensure public participation.

DIRECT INVESTMENT: In FY 2019/20, direct investments were 20.9% of subnational expenditure. The major investments made by county governments are in buildings and structures, and plant and machinery. The investments focus on building institutional and administrative capacity of county governments, and providing the necessary facilities and equipment that facilitate delivery of services that have been devolved to county governments.

As a strategy to encourage private sector investment in public sector projects, the central government enacted the Public Private Partnership Act in 2021, which provides for the participation of the private sector in the financing, construction, development, operation or maintenance of infrastructure or development. County governments have however not started engaging private sector. In the design and development of investment plans and projects, county governments are required to comply with the Climate Change Act of 2016 and the National Climate Change Action Plan 2018-2022. Currently, there is little cooperation between counties when undertaking investments projects. However, the County Regional Economic Blocs Policy and the County Resource Development Law of 2021 now encourage county governments to cooperate and partner in investing in projects where they have common interests.

Subnational government expenditure by functional classification
2019/20	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	178	3.9%	-	100.0%
1. General public services	58	1.3%	49.4%	32.8%
2. Defence	-	-	-	-
3. Security and public order	-	-	-	-
4. Economic affairs/transports	35	0.8%	16.8%	19.6%
5. Environmental protection	5	0.1%	104.6%	2.8%
6. Housing and community amenities	17	0.4%	44.8%	9.4%
7. Health	45	1.0%	103.5%	25.6%
8. Recreation, culture and religion	3	0.1%	52.2%	1.8%
9. Education	13	0.3%	6.7%	7.5%
10. Social protection	1	0%	1.3%	0.5%

Most of the county government expenditure (45.1%) goes to the health and the roads and infrastructure (economic affairs) categories, which account for 25.6% and 19.6% the total expenditure respectively. Housing and education (early childhood and vocational training) spending follow, accounting together for 16.9% of county expenditure.

Health is a devolved function and county governments have consistently increased investment in the health sector. Currently, county governments spend more on the health sector than the central government. The share of expenditure on health to total county expenditure increased from 22.7% in 2018/19 to 25.6% in 2019/20 financial year. This has been driven by the demand for expansion of health care services and the upgrading of various health facilities and the purchases of goods and services to support the management of COVID-19. However, there has been no significant change in the allocation of expenditure across functions as a percentage of total expenditure on an annual basis.

Subnational government revenue by category
2019/20	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	156	3.4%	20.4%	100.0%
Tax revenue	1	0.0%	0.2%	0.7%
Grants and subsidies	141	3.1%	-	90.2%
Tariffs and fees	12	0.3%	-	7.8%
Income from assets	1	0.0%	-	0.6%
Other revenues	1	0.0%	-	0.7%

OVERALL DESCRIPTION: The sources of county governments revenue are provided in the Constitution and further elaborated in the Public Finance Management Act. The sources have remained the same since the establishment of county governments. The most important revenue category for county governments is, by far, grants (90.2%). The grants comprise the share of county governments from the revenue raised nationally and conditional and non-conditional grants from the national government and development partners. This category has been consistently rising every financial year. Other major sources of revenue are tariffs and fees and tax revenue, primarily property rates.

Own-source revenue constitute, as of 2022, only 10% of total revenue. There are significant reforms in subnational finance which are being implemented. These are based on the 2021 national policy to support enhancement of county governments’ own-source revenue. The measures consist in strengthening the legal framework for county revenue administration and enhancing efficiency in revenue collection. They include development of the National Rating Bill, the financing of urban areas and cities, the development of the county integrated revenue management system, the capacity building for human resources in revenue collection and management, and regulations to ensure county revenue measures do not have negative implications for national economic policies and economic activities, including mobility of goods, services, capital and labour.

TAX REVENUE: The Constitution assigns county governments only two taxes, i.e., the property tax and the entertainment tax. These taxes are exclusive to the county governments and are not shared with the national government. County governments cannot create other subnational taxes unless with authority of national parliament.

Property tax is the main own source revenue and is currently charged on unimproved site value (land value). A draft National Rating Bill has been developed in 2021 to replace the Rating and Valuation for Rating Acts that were enacted in the 1960s and which have hitherto been the legal framework for levying of property tax by subnational governments. There are significant disparities in revenue potential and revenue collection between counties. Counties with big cities have a higher potential and collect more own source revenues than other counties. Counties with a large urban population collect higher revenues than predominantly rural counties. Sparsely populated counties in the northern part of Kenya collect lower revenues compared to other densely populated counties.

GRANTS AND SUBSIDIES: County governments receive the following transfers; equitable share from revenues raised nationally (unearmarked); conditional grants (earmarked); road maintenance fuel levy (earmarked) and equalisation fund (earmarked).

The vertical distribution of revenues raised nationally between the national government and the county governments is deliberated and approved by the national assembly annually. This is implemented through the Annual Division of Revenue Act. Based on the approved share of county level in the Annual Division of Revenue Act, and the Senate then apportions individual counties their share based on an approved formular. The formula which is approved by the Senate is operational for five years, after which it should be reviewed. The formula uses the following criteria; health index (17%); agriculture index (10%); population (18%); equal shares, (20%); number of urban households (5%); proportion to land area (8%), rural access (8%) and poverty (14%).

The equalisation fund is established in the Constitution and its objective is to disburse earmarked grants (0.5% of total national revenues) for water, roads, health facilities and electricity to marginalised areas to the extent necessary to bring the quality of those services in those areas to the level generally enjoyed by the rest of the nation.

Conditional grants are allocated to county governments by the national government from its (national) share of equitable revenue share where the national government seeks support from the county governments to implement a national government sector policy. County governments also receive conditional grants from the development partners to implement specific projects. This is particularly in the health and agriculture sector.

OTHER REVENUE: County governments charge tariffs and fees for providing a wide range of services, including building plan approvals, planning fees, parking fees, market fees, conservancy fees, hire of halls and public facilities/amenities, house rents, health services, water services etc. County government have autonomy over the revenues raised from these sources. There has been very minimal increase in user fees and charges over the last five years. This may be attributed to the fact the county governments rely to a large extent on the transfers of equitable share of revenue from the national government and thus the reluctance to increase the local charges and fees.

The main areas of income from assets are housing rents and income from game reserves.

Subnational government fiscal rules and debt
2019/20	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt (consolidated?)	48	1.1%	2.0%	100.0%	-
Financial debt	-	-	-	-	-
Currency and deposits	-	-	-	-	-
Bonds / debt securities	-	-	-	-	-
Loans	-	-	-	-	-
Insurance pensions	-	-	-	-	-
Other accounts payable	-	-	-	-	-

FISCAL RULES: The key law regarding fiscal responsibilities of county governments is the Public Finance Management Act of 2012 and the Public Finance Management (County Government) Regulations of 2015. The law prescribes the following principles: (a) the county government’s recurrent expenditure shall not exceed the county government’s total revenue; (b) over the medium term, a minimum of 30% of the county government’s budget shall be allocated to the development expenditure; (c) the county government’s expenditure on wages and benefits for its public officers shall not exceed a percentage of the county government’s total revenue as prescribed by the county executive member for finance (the minister for finance at the county level) in regulations and approved by the county assembly; (d) over the medium term, the government’s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure; (e) the county debt shall be maintained at a sustainable level as approved by county assembly; (f) the fiscal risks shall be managed prudently; and (g) a reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future.

The Senate determines the county government ceilings for recurrent expenditure that are published in the annual County Allocation of Revenue Act. County governments have autonomy in expenditure decisions within the stipulations of law. They are required to prepare annual budgets which contain their expenditure priorities. Preparation of budgets is guided by fiscal responsibility principles provided in the Public Finance Management Act.

DEBT: County governments are allowed to borrow but with stringent conditions. The law requires a county government to borrow only if the national government guarantees the loan and with the approval of the respective county assembly. Other conditions require that loans are strictly used to finance capital projects; that the county government is capable of repaying the loan and interest or other amount payable in respect of it; that the loan complies with the fiscal responsibility principles and financial objectives of the county government and that the loan is within the debt management strategy of the county government over the medium term.

So far, no county government has borrowed. In 2020, the Commission for Revenue Allocation introduced credit rating for county governments. 11 counties voluntarily submitted to the evaluation process. One of the county governments (County Government of Laikipia) is preparing to issues a bond of KES 1.1 billion (~USD 25 million PPP) after receiving a positive rating. The bond will be sold in the capital market after the county government receives all the necessary government and parliamentary approvals. The proceeds are earmarked for infrastructure projects, mainly roads construction.

TERRITORIAL MANAGEMENT OF THE CRISIS: A National Emergency Response Committee on Coronavirus was established in February 2020 by the president. The Committee comprises representations from the national and county governments. Its mandate is to upscale and coordinate Kenya’s preparedness and national response to the coronavirus. The committee has effectively managed the response to coronavirus by cooperating with the national and county governments who have a shared responsibility on health.

In May 2020, the Council of Governors (COG) established the cross-sector COVID -19 secretariat to coordinate county governments response and recovery strategy. Arising from the strategy, the following health measures were implemented: improved hospital bed capacity, enhanced oxygen capacity, enhance testing and increased vaccination.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: County governments developed County COVID-19 Social Economic Recovery and Re-engineering strategies to mitigate the socio-economic implications of the pandemic. Some of the measures implemented are: waiver on tax penalties, waiver on interest on property tax, waiver on market fees and waiver on trade licence fees.

The national government approved the use of over KES 40 billion (~USD 916 million PPP) to cushion needy households from economic shocks following reduced activity in the wake of the pandemic. The national government also implemented various tax reduction measures to cushion the population. These were reduction of personal income tax top rate (PAYE) from 30% to 25%; a full tax relief for persons earning up to KES 24 000 (~USD 550 PPP) per month; a reduction of the resident corporate income tax rate from 30% to 25%; a reduction of the turnover tax rate for SMEs from 3% to 1%; and a reduction of the VAT rate from 16% to 14%. Further, the national government implemented measures to support the business community in accessing loans in order to stimulate economic activity and job creation.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: County own-source revenue have been negatively impacted by COVID-19 as revealed by the decrease in annual revenues. Their own-source revenue decreased by 14.6% from KES 40.30 billion (USD 960 million PPP) in 2018/19 to KES 34.44 billion (USD 789 million PPP) in 2020/21. There has been little change in subnational expenditure largely due to the fact that the bulk of their budget is financed by transfers from national government, which have normally continued to be made by the government over the period. County governments have been largely cushioned from effects of the economic downturn occasioned by COVID-19, due to the continuation of usual transfers from the national government.

ECONOMIC AND SOCIAL STIMULUS PLANS: A 2020-2022 Post COVID-19 Economic Recovery Strategy was formulated in November 2020 by the national treasury and State department for planning. Emergency measures aimed at strengthening health care systems and enhancing budgetary resources for police and security related services to enforce COVID-19 containment rules and regulations. In addition, the Economic Recovery Strategy places priority on several key areas including: facilitating the private sector to enhance its role in the recovery and growth of the economy; facilitating the recovery and growth of key economic such as tourism, and MSMEs, manufacturing and transport; investment in ICT and digital infrastructure to support the delivery of public services and facilitate e-commerce; increasing the resilience of the economy to global supply chain shocks; strengthening the national capacity for disaster preparedness; strengthening governance and economic management; expediting implementation of policy, legal and institutional reforms and strengthening monitoring and evaluation systems to ensure its effective implementation.