Kenya’s devolution framework has significantly expanded access to fiscal resources and decision-making at the local level. County governments now receive substantial allocations, with the equitable share rising to Sh420 billion in FY 2026/27, representing 21.9 percent of sharable revenue, well above the constitutional minimum of 15 percent according to the Budget Policy Statement 2026.
While this reflects sustained national commitment to devolution, outcomes have lagged behind expectations. The challenge is no longer a lack of policy frameworks-it is the persistent failure to enforce them.
Over recent budget cycles, successive policy statements have outlined a consistent reform agenda: strengthening own-source revenue (OSR), controlling wage bills, resolving pending bills, and improving public financial management systems.
These reforms are technically sound and widely accepted. However, their repeated inclusion in the 2025 and 2026 Budget Policy Statements without meaningful progress underscores a deeper structural issue.
Reform failure in Kenya’s devolution is not a design problem-it is an enforcement problem. Evidence from 2025 clearly illustrates this gap. Counties achieved only 76.8 percent of their OSR targets, indicating weak revenue mobilisation capacity despite ongoing reform efforts.
Also, county wage bills averaged 41.4 percent of revenue, significantly exceeding the legal ceiling of 35 percent. This persistent breach of fiscal rules has crowded out development spending, limiting investments in critical infrastructure such as health facilities, roads, and water systems.
The Office of the Controller of Budget’s half-year report indicates that, as of December 31, 2025, counties had accumulated about Sh163 billion in unpaid obligations. These arrears have had significant economic consequences: contractors remain unpaid, small and medium enterprises face liquidity constraints, and investor confidence in county projects has eroded.
Despite multiple policy commitments to settle these bills, enforcement mechanisms remain weak, and new arrears continue to accumulate. This persistent failure underscores broader challenges in enforcing fiscal discipline.
These unfavorable outcomes persist because the current intergovernmental fiscal framework relies on guidelines rather than binding incentives. Counties get transfers based on formula allocations, not performance.
Whether a county complies with fiscal rules, improves revenue collection, or manages expenditure efficiently has little bearing on its funding. Conversely, non-compliance carries minimal consequences. This lack of accountability creates a system where fiscal indiscipline is effectively tolerated.
The mismatch between funding and outcomes is therefore structural. Counties continue to receive increasing allocations, total transfers rising to approximately Sh495.7 billion in FY 2026/27, yet service delivery remains uneven and development outcomes limited. This demonstrates a critical point: increased resources, without enforcement, do not translate into improved performance.
Breaking this cycle requires a decisive shift from policy design to enforcement-driven reform.
First, compliance with fiscal rules must be made binding. A portion of county transfers should be linked to adherence to key indicators, such as maintaining the wage bill within the 35 percent threshold and implementing credible pending bill clearance plans. Without financial consequences, rules will continue to be ignored.
Second, performance-based financing must be introduced. Allocating even 10-15 percent of county resources based on measurable outcomes, such as OSR improvement, development spending ratios, and service delivery performance, would realign incentives and reward good governance.
Third, core financial controls, including payroll systems and procurement platforms, should be fully standardized and enforced to reduce leakages and improve accountability.
Finally, structural expenditure challenges must be addressed directly. Without decisive action to contain the wage bill, counties will remain locked in a cycle where recurrent expenditure dominates, and development spending is perpetually constrained.
In conclusion, Kenya’s devolution reforms have reached a turning point. The country has demonstrated strong capacity for policy formulation, and the reform agenda is well known. However, as the data shows, implementation remains weak.
Until the government moves beyond policy repetition and introduces credible enforcement mechanisms backed by incentives and consequences, devolution reforms will continue to fall short, not because they are poorly designed, but because they are not enforced with the rigor required.