How equalization fund works for counties

To guide the management and implementation of the fund, the regulation establishes three levels of committees.

Article 204 of the Constitution of Kenya establishes the Equalization Fund primarily to provide basic services including water, roads, health facilities and electricity to the marginalized areas to bring the services from the marginalized places to a better quality comparable to the developed regions and areas.

The fund is domiciled in the National Treasury and is headed by the Fund Administrator who is also the CEO of the fund.

The constitution further allocates 0.5% of recently audited and approved accounts of revenue. For the 2023/24 financial year, the allocation stood at Ksh.8.368 billion, being a percentage of FY 2019/20, the latest audited and approved revenue accounts which stood at Ksh.1.673,715 million.

To operationalize the fund, the PFM (Equalization Fund Administration) Regulations, 2021 was enacted that further provides that the fund shall be utilized indirectly as a conditional grant to the marginalized areas.

The Commission on Revenue Allocation is mandated by Article 216 (4) of the constitution to determine, publish and regularly review a policy which sets out a criterion for identifying the marginalized areas.

To this mandate, the commission developed the First Policy in 2013 and subsequently approved by the National Assembly in December 2014. The 3-year policy developed by the commission, and which was to lapse in 2016/17 FY, identified 14 marginalized counties.

Within this First Policy, the counties were used as the unit of focus, and the fund was administered by the Equalization Fund Advisory Board established by Gazette Notice 1711/2015.

The board directed the funds allocated be disbursed to the line ministries against the will of the commission which preferred direct disbursement to the counties. Am amount Ksh.12.4 billion was then disbursed to roads, education, water, health and electricity line ministries between the FY 2014/15, 2015/16 and 2016/17.

The Commission has already developed the Second Policy and the necessary approvals done. The second policy unlike the first policy, focused the identification of marginalization to smallest areas identified as sub-locations.

The commission invoked the principle of equity enshrined by law to identify areas with extreme and persistent marginalization that led to poverty and degraded living standards. The marginalized areas were developed by identifying three parameters; education, water and sanitation to develop a deprivation index.  The index was further subjected to the 7,131 sub-locations in the country and settled for 1,424 sub-locations being identified as marginalized.

This is bottom 20% of the listing and represented 5 million bottom Kenyans. The sub-locations identified represented 34 counties, where some areas although within prosperous counties were actually marginalized.

The Second policy further identified Elmoro, Makonde, Watta and Dorobo-Saleiti as marginalized minority communities that also needed attention.

Two primary factors were identified as having contributed to the marginalization of the areas as;

•            Colonial policies and practices

•            Inadequate post-colonial correction redistribution policy

To guide the management and implementation of the fund, the regulation establishes three levels of committees.

First, the County Technical Committee, second the sub-county Technical Committee, and lastly the Project Identification and Implementation Committee. The committees which are multi-sectoral are mandated with the identification, oversight, implementation and monitoring of the projects.

Unlike earlier, the disbursement of Ksh.8.3 billion will be done directly to the respective counties in their Central Bank Accounts, and funds transferred to specific project accounts where the implementation is expected to take place.

An internal communication has been released by the National Treasury to the respective 34 counties without the Special Purpose Account (Equalization Fund), to open accounts with CBK for disbursement of the funds.

The marginalized communities and areas, though limited with information, are expected to have taken part in the identification of the projects to be implemented, the cost and funds allocated to them and thorough discussion of the impact expected after the implementation of the projects.  

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Murungi Ndai

Mr. Ndai is an experienced public sector economist, experienced in sub-nationals having greatly influenced development of policies relating to revenue mobilization by Counties Governments. He collaborates with the private sector, governments and NGOs to address critical topics, including county growth strategies, borrowing and leasing by counties, MSME support and public finance management.
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