Gathungu faults Treasury over undisbursed Sh45bn Equalisation Fund

The audit report shows that of the about Sh60 billion accrued over 13 years, only Sh13.4 billion — accounting for about 22 per cent — has reached its intended beneficiaries, leaving critical development projects in 14 marginalised counties in limbo.

An analysis by the Auditor General puts the National Treasury on the spot for consistently failing to meet its mandatory obligations in respect of the fund year after year.

Gathungu’s findings detail how successive administrations have flouted Article 204(1) of the Constitution, which mandates that 0.5 per cent of national revenue be allocated to the fund.

The money is to be allocated annually to uplift regions like Mandera, Turkana and Wajir through the provision of water, roads, healthcare and electricity.

The other beneficiary counties are Garrisa, Isiolo, Kilifi, Kwale, Lamu, Marsabit, Narok, Samburu, Taita Taveta, Tana River and West Pokot.

Gathungu’s audit indicates a pattern where approved allocations consistently failed to materialise.

In 2012-13, only Sh529 million of the Sh2.6 billion entitlement was released, while the 2020-21 financial year saw just a fraction of the Sh6.7 billion allocation reach counties.

“The National Treasury is in clear breach of constitutional provisions,” Gathungu states in the report seen by the Star.

“The accumulated shortfall of Sh46.5 billion represents a catastrophic failure in implementing a fund designed to address historical marginalisation.”

The audit further exposes that even the meagre Sh13.4 billion transferred to the Fund account wasn’t fully utilised, with Sh2.3 billion lying idle in government coffers as of June 2024.

This trend of systemic underfunding continued unabated through subsequent years.

The 2014-15 financial year saw the entitlement grow to Sh3.8 billion as national revenues increased, yet only Sh776 million was disbursed.

The same amount was paid for the fiscal years running to June 30, 2020. In the subsequent year, the amount counties were entitled to went up to Sh6.8 billion.

Even then, Treasury showed no commitment to clearing the backlog despite improved national revenue collection and disbursed only Sh1.4 billion.

Gathungu is concerned that despite the growth in revenue, marginalised counties have continued to receive only a fraction of what was constitutionally mandated.

Even in the most recent completed financial year of 2023-24, which had a record Sh8.3 billion entitlement, the Treasury maintained its pattern of under-disbursement, leaving billions unremitted to the Fund.

The findings have sparked outrage among governors from beneficiary counties, who accuse Treasury of perpetuating underdevelopment through financial strangulation.

Governors now say they don’t want the arrears provided in the Division of Revenue Acts of the respective years.

“Providing for the arrears in a different year’s Division of Revenue Act amounts to double allocation and by extension, reduces the shareable revenue,” Kakamega Governor Ferdinand Barasa said. He chairs the Finance Committee of the Council of Governors.

“The Equalisation Fund arrears should only feature in the subsequent appropriation bills,” he said.

The governor argued that since the amounts add up to Sh60 billion, providing the arrears in the Division of Revenue Bill limits the scope and payment plan of the arrears.

“They (arrears) should ideally be provided for through an Equalisation Fund Appropriations Act,” Barasa said.

“The council proposes that the arrears be separated and protected from revisions through the National Governments Appropriation Acts.”

Marsabit Governor Mohamud Ali slammed what he called “economic sabotage against marginalised communities”.

“How do we explain to mothers delivering in bush clinics or children walking 10km to school that the money for hospitals and roads was available but withheld?” he asked.

For the county chiefs, Article 204 creates a mandatory obligation, not discretionary spending.

“Every shilling withheld represents a constitutional violation that could form grounds for litigation,” the Council of Governors said.

The Equalisation Fund, which has a constitutional lifespan ending in 2031-32, risks expiring before fulfilling its mandate. 

INSTANT ANALYSIS

With the fund’s 20-year lifespan set to expire in 2032, Gathungu’s report warns that the country risks failing to achieve the constitutional vision of equitable development.