alexa War over county financing: Both sides seem to have missed the point - Daily Nation

War over county financing: Both sides seem to have missed the point

Tuesday August 16 2011



It has been described as the battle of the deputy prime ministers fighting over the control of implementing the devolution chapter of the new Constitution.

The supporting cast on Local Government minister Musalia Mudavadi’s side is a group mainly comprising of academics and lawyers, members of the task force devolution headed by Mr Mutakha Kangu.

On Finance minister Uhuru Kenyatta’s side are mainly economists and public finance specialists at the Treasury working with technical assistants procured with the support of multilateral lenders.

The crux of the dispute can be expressed best in the form of a question as follow: What is the appropriate public finance management architecture for Kenya under the new system of devolved government?

Put another way, who should manage and supervise the use of money under the devolved system?

Mr Kenyatta’s side has proposed a system where the Treasury and the Cabinet secretary in that docket will have the ultimate authority over public expenditure, its management and supervision.

But the Mudavadi side accuses Uhuru’s of seeking to usurp the powers of counties, and proposes a system where counties will supervise and manage their own revenues without reference to any central authority.

The sad thing is that the protagonists have decided to subject this critical issue to partisan bickering.

The correspondence exchanged is full of acrimony. If the brinkmanship is allowed to continue, it will distract attention from discussing the important things that must be done before we can achieve a workable county government system.

Having counties running their financial affairs without interference from the centre is a very popular thing. But if you don’t get the economics of public finance management right, the result will be chaos with major consequences.

The whole devolution thing could collapse if we don’t handle the public finance issue carefully.

What the Mudavadi side appears not to appreciate is that regardless of what the Constitution says about financial autonomy and independence of the counties, we will still need somebody at the centre to plan for the whole macro-economy.

Parliament, the Judiciary, and counties will have their own spending plans. But we will still need somebody to ensure that the budgets of these independent entities are consistent with our targets for growth, deficit, inflation, interest rates and national debt limits.

A decentralisation strategy that operates without fiscal discipline is a recipe for chaos. We will still need public expenditure system where someone at the centre has over-arching powers and mandate to ensure fiscal discipline by everyone who spends tax money.

Do we really want to create counties which will be perpetually knocking on the doors of the national government for more money?

Were it the case that the counties will have the powers to collect all taxes – income tax, VAT, customs duty – then perhaps the case for financial supervision by a central authority would have been stillborn.

But the truth is that the new Constitution is creating counties which will operate mainly with funds from the national government.

That is why we must have somebody at the centre to design uniform standards for budget formulation, reporting formats and budget classification.

Counties must comply with national procurement laws.

Someone at the centre with an eye on the overall public debt and a feel of the country’s mounting debt-servicing obligations will have to issue guidelines for borrowing by counties.

The counties will face major capacity shortfalls especially in areas such as budget monitoring, procurement, and internal auditing.

We may be forced to deploy existing Treasury staff to there to help build capacity in these critical areas.

From a public expenditure management stand-point, this devolution thing is going to be a risky experiment. We are yet to cost the capacity of each county to collect the assigned taxes.

We have assigned counties functions but are yet to work out precise statistics on what it will cost each to perform the functions. What if what we give the counties is not enough to fund the assigned responsibilities?

The new public finance management law will not work in a vacuum. The protagonists have completely missed the point.