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4.6 Postdevolution asset and liability management remains incomplete
BOX 4.6
At the start of devolution, counties immediately took possession of assets, thereby enabling uninterrupted provision of basic services from day one of the transition to a devolved system. However, the transition of county assets and liabilities remains incomplete, as follows:
• Some assets are still left unattended, inherited financial assets are devaluing, and inherited liabilities are escalating, especially for Nairobi City
County. • County governments have not developed asset and liability frameworks, systems, policies, strategies, work plans, and procedures. • There is incomplete verification, inventory, and registry of strategic assets, and no valuation of main fixed assets (including land, building, and networks) despite the requirements by law and regulations. • Overall, there is inadequate financing capacity or allocation for development and maintenance of assets.
This situation is slowly changing. The National Treasury has established a National Assets and Liabilities Management (NALM) department, which is responsible for leading the strategic thinking and direction of managing assets and liabilities. The department has drafted an asset and liability management (ALM) policy and guidelines to support county governments. The NALM department is working in collaboration with the Intergovernmental Relations Technical Committee (IGRTC) to provide guidance to county governments on managing their assets.
Whereas the Transition Authority’s model of asset transfer did not succeed, in 2017 the asset transfer by power of law (Legal Notice No. 858 and 2701) took place. Through technical assistance (TA) supported under the Kenya Accountable Devolution Program (KADP), the NALM department and counties are receiving support to develop asset and liability frameworks, systems, policies, strategies, work plans, and procedures. The KADP also provided TA to the IGRTC, leading to the preparation of the legal notice that directed the immediate transfer of assets owned by the defunct local authorities. In addition, County Asset and Liability Committees (CALCs) were established to assist in documenting county assets, a process that had proved cumbersome during the TA. The CALCs did decent but incomplete work.
Much more remains to be done. At the national level, the NALM department will require empowerment to start managing public assets as a regulator, guide, and as last-resort custodian of all public assets. In addition, it is important that the NALM policy, guidelines, and templates are approved and implemented. The NALM department will have to work closely with the IGRTC and other stakeholders to guide and capacitate counties on ALM systems and procedures. And the National Treasury will have to develop and implement a national program for the workout of inherited financial assets and liabilities and how these will be managed and settled.
Source: Kopanyi and Muwonge 2020.
Although counties are executing their budgets, the quality of spending is still an issue. Apart from the first year of devolution, average county budget execution has been fairly stable at about 80 percent. As discussed further below, however, execution of the capital budget has been much lower (at about 65 percent) than recurrent budget execution (of about 90 percent). Figure 4.13 shows budget execution rates across salary, operation, and development expenditure.
A key concern before devolution was that counties in marginalized areas might not have the absorptive capacity to spend the additional funds allocated to them through the equitable share formula. However, these fears have not been borne out, and counties with larger development budgets (per capita and as a
