Mbadi: Why counties experienced delay in disbursement of funds

National Treasury and Economic Planning Cabinet Secretary John Mbadi has attributed legal and administrative challenges as the main reasons why counties experienced delays in the disbursement of funds at the start of the current financial year.

Speaking before senators on Wednesday, Mbadi reassured them that despite the setbacks, his office is committed to making regular and timely transfers to counties moving forward.

He acknowledged that the transfers should ideally be done by the fifth of every month but explained that various issues had caused delays.

"The problems we encountered at the beginning of this year were not primarily due to cash flow challenges. Actually, keeping county transfers pending doesn't benefit the Treasury, as we just end up with huge bills to settle all at once," Mbadi explained.

One of the main challenges, according to the Treasury boss, was a legal debate about whether funds could be disbursed without passing the County Allocation of Revenue Act (CARA) for the FY 2024-2025.

He noted that there were two conflicting views on this issue.

One view held that the disbursement could not be done until the Division of Revenue Act (DORA) and CARA were passed, while another argued that counties could receive up to 50 per cent of their previous year's allocation.

CS Mbadi stated that he aligned with the latter view, supported by regulations that allow for the transfer of up to 50 per cent of the previous year's allocation, amounting to Sh380.5 billion.

To ensure the treasury was on the right legal footing, his office sought guidance from the Attorney General, who agreed with this interpretation.

As a result, the CS reported that in July, the treasury cleared the pending disbursements from the FY 2023-2024, paying Sh30.8 billion.

Mbadi also revealed that last week, the counties were paid Sh31.8 billion for the July allocation.

However, he admitted that the Treasury was yet to disburse the funds for August and September but assured the senators that efforts were being made to catch up on the payments.

"We aim to make at least one more payment for the current month. My goal is to ensure we catch up before the end of the year so that we don't owe the counties any outstanding amounts," Mbadi pledged.

In addition, the CS urged the senators, who are responsible for overseeing county operations, to put pressure on the counties to resolve their issues with the Controller of Budget.

Mbadi revealed that as of October 2, 2024, Sh42.3 billion remains unabsorbed in the County Revenue Fund (CRF) account due to some counties not accessing the available funds.

"The money is there in the CRF account, but it hasn't been absorbed. We need to ensure smooth absorption because idle balances do not benefit the economy. Once the money is transferred, it should be utilized for salaries, recurrent expenses, and development projects," Mbadi stated.

He also pointed out that while the national government's development budget continues to shrink, counties still hold a large portion of development funds, making it crucial that these funds are used promptly for economic growth.