Internal Determinants in County Government Fiscal Sustainability in Kenya: the Case of Narok and Nairobi City Counties (2013-2016)

Abstract

This study was concerned with internal determinants in county government fiscal sustainability in Kenya between 2013 and 2016. The first three fiscal years since the inception of devolved governance in March 2013 witnessed county governments struggle to meet their financial obligation and this catapulted them from one crisis to another leading to calls for more resources while at the same time calls for prudent fiscal management. The study’s objectives included investigating the influence of county fiscal strategy on fiscal sustainability, determining the effect of nonadherence to fiscal responsibility laws on county fiscal sustainability, and ascertaining the influence of revenue capacity on county fiscal sustainability in Kenya. The study found that majority of respondents concur that Nairobi City and Narok county governments face challenges including weak fiscal strategies, revenue inadequacy, inherent narrow revenue bases, unpredictable revenue allocation, lack of diversification of its revenue sources, and inflation of its recurrent expenditures all affecting their fiscal strategy. Secondly, the two county governments neither do not observe tax and expenditure limits from the Controller of Budget, do not adhere to balanced budget rules/requirement, lack fiscal discipline incentives in their revenue allocation, and a proper debt management plans. Lastly, the two county governments utilize antiquated local revenue collection measures, face higher vertical revenue gaps, do not promote accountability and transparency in fiscal management, and thus haplessly weak in revenue capacity. A few respondents believed the nascent devolved units require time to strengthen their fiscal capacities/strategies and compliance as all devolved functions were transferred to them with a bang by the Transition Authority. Based on the findings, the study recommends that fiscal strategies be entrenched in all departments and with all the stakeholders. There is need for county government to totally adhere to fiscal responsibility laws as dictated by PFM Act 2012 and finally, Finally, county governments are urged to enhance revenue capacity by enhancing revenue collection measures, prudently managing intergovernmental transfers in service provision, embrace transparency and accountability, embracing IT in tax collection, properly prioritize spending needs, and enhance fiscal wealth to help cover government fiscal imbalances, and supplement the lowly performing local own source revenues.