Counties face biting cash crunch as coffers run dry

Wednesday, July 8th, 2020 00:00 |
Cash. Photo/PD/Courtesy

Counties must prepare to dig deeper into their pockets to turn around economies on the back of Covid-19 pandemic even as the economy re-opens.

With the government placed between a rock and a hard place the devolved units which depends on sources from the national government will be hard pressed to meet obligations.

The latest Controller of Budget report says there was already a dip in own- sourced revenue in the first nine months of the financial year 2019/20, meaning that they might not be able to raise much going forward.

“County governments generated Sh28.04 billion from their own source revenue, a slight decrease from the Sh28.92 billion collected in the previous financial year,” said controller of budget Margaret Nyakang’o.

Earnings dip

Trade was most affected in counties during the curfew introduced in March, adversely affecting Nairobi and Mombasa counties the most, indicating a significant dip in earnings from these two top counties that generate the most in-terms of own revenue.

The Controller of Budget says during the period in review, Nairobi County was expected to generate Sh17.05 billion from own source revenue, and among others raise Sh749.02 million as total conditional grants and receive Sh15.92 billion as equitable revenue share.

The County also budgeted to receive Sh266.65 million as Appropriations in Aid.

“Mombasa County expects to receive Sh7.06 billion as equitable share of revenue raised nationally, Sh2.61 billion as total conditional grants, and generate Sh5 billion from own sources of revenue,” says Nyakang’o in the report.

A senior Economics lecturer at the University of Nairobi, Samuel Nyandemo warns it will be difficult to surpass what they raised going by the dismal economic performance.

“Because of the impact of Covid-19, the tax bases at both levels of government have melted.

Counties must of necessity revise their budgets and suffocate non-critical sectors while focusing on critical ones like the health sector,” Nyandemo told the Business Hub. 

He said the counties must cut down on non-vital expenditure like workshops, seminars and “unnecessary benchmarking trips. 

Tax base

Apart from leading counties which have a huge tax base, the rest are limited to depending on small scale businessmen who trade in merchandise, land-rates, the construction sector as well as market for animals to collect taxes.

 Pan-African credit rating agency Agusto & Co. Limited warns counties might have to look elsewhere for their development funds in the 2020/21 financial year.

“The outbreak of the C-19 pandemic has upended Kenya’s outlook for 2020 with its attendant a decline in the national government’s receipts from agricultural exports, foreign remittances and tourist activities owing to the plight of the virus,” the agency said in a report.

Ikechukwu Iheagwam, Country Manager, Agusto & Company Limited, said Kenya government has to contend with worsening debt service to revenue and budget deficit to GDP ratios.

He believes that if counties are allowed to look for options elsewhere, that would ease the pressure which is now created due to Covide-19 pandemic.

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