The Cabinet has approved the Public Finance Management (Amendment) Bill, 2025, a landmark reform that seeks to expedite disbursement of funds to county governments, eliminate recurrent delays in conditional allocations, and enhance the efficiency of devolved service delivery.
The Bill proposes to split the County Governments Additional Allocations Bill — which governs the transfer of conditional grants and development partner funds — into two separate laws. The move is expected to address long-standing bottlenecks that have slowed implementation of county projects across Kenya.
Fixing a Structural Bottleneck in Devolution Financing
Under the current framework, counties receive additional allocations through a single, consolidated County Governments Additional Allocations Act. However, in recent years, delays in passing this legislation have held up billions in disbursements, disrupting health, agriculture, infrastructure, and social programs funded through both domestic and donor-supported sources.
The Cabinet noted that the consolidation of allocations under one Bill has led to legislative backlogs, particularly where funding from development partners required separate agreements and timelines.
To resolve this, the amendment proposes a two-track legislative approach:
- One Bill for allocations financed from the National Government’s share of revenue.
- Another Bill for allocations financed through loans and grants from development partners.
This separation is designed to streamline parliamentary approval, improve fiscal predictability, and ensure that counties access funds on time, in line with their annual budgets.
Enhancing Fiscal Efficiency and Accountability
According to the Cabinet brief, the reform will “enhance efficiency in public finance management, improve service delivery, and strengthen devolution.”
The Bill also aligns with the Public Finance Management Act (PFMA) and the Constitution of Kenya, 2010, which emphasizes equitable resource sharing between the national and county governments.
In practical terms, the new system will enable:
- Faster release of conditional grants, especially in health, agriculture, and infrastructure.
- Simplified tracking of donor funds, reducing duplication and compliance delays.
- Improved absorption rates for county budgets and development projects.
- Clearer audit trails, enhancing transparency and accountability.
Fiscal policy experts have long argued that cash flow uncertainty from the National Treasury has hindered counties’ ability to plan and execute projects effectively.
“This reform is both technical and strategic,” said Prof. Emily Mugo, a public finance analyst at Strathmore University. “By decoupling donor-funded allocations from domestic ones, Parliament can process each on its own timeline — removing unnecessary delays that hurt frontline services.”
Support for the Bottom-Up Economic Transformation Agenda
The new legislation is also positioned as a critical enabler of the Bottom-Up Economic Transformation Agenda (BETA), the government’s flagship framework for inclusive growth through devolved economic empowerment.
With counties serving as the main vehicles for agricultural value chain development, health service delivery, and local infrastructure expansion, timely funding is essential to the success of BETA.
The Cabinet emphasized that predictable financing will allow counties to:
- Plan local budgets more effectively, reducing pending bills.
- Accelerate development projects, particularly in rural and peri-urban areas.
- Attract additional investment, leveraging predictable cash flows.
- Support small businesses and cooperatives through more consistent county programs.
“Devolution is the heartbeat of the Bottom-Up agenda,” said Treasury Cabinet Secretary Njuguna Ndung’u in a post-Cabinet statement. “This reform ensures that counties are not waiting months for funding approvals — they can deliver services and development as planned.”
Context: Years of Delayed Allocations
The move comes after years of tension between the Council of Governors (CoG) and the National Treasury over delayed disbursements, which in some fiscal years exceeded KSh 30 billion in pending conditional allocations.
Projects in health, including the Managed Equipment Services (MES) program, and donor-funded initiatives like World Bank’s Kenya Devolution Support Programme (KDSP) and Agriculture Sector Development Support Programme (ASDSP) have at times stalled due to delayed enabling legislation.
Under the proposed dual-Bill structure, donor funds will be processed as standalone instruments, allowing timely integration of new financing agreements without holding back other county allocations.
Reinforcing Accountability and Oversight
The amendment will also strengthen the role of Parliamentary committees and county assemblies in budget oversight by providing clearer timelines and funding categories.
Each Bill will include explicit reporting requirements, mandating the National Treasury to publish disbursement schedules and performance updates to both Houses of Parliament and the CoG.
This structure is expected to make it easier for the Office of the Auditor-General and the Controller of Budget to track utilization, detect bottlenecks, and promote compliance with fiscal discipline standards.
BusinessRadar Insight
The proposed Public Finance Management (Amendment) Bill, 2025 represents one of the most practical fiscal governance reforms since the rollout of devolution in 2013.
By separating domestic and donor-funded allocations, the government aims to modernize Kenya’s intergovernmental financing system, ensuring smoother cash flow, improved planning, and better outcomes in key service sectors.
If successfully implemented, this reform could unlock faster development cycles, reduce political friction over delayed transfers, and rebuild public confidence in the effectiveness of devolution — a central pillar of Kenya’s governance and economic architecture.
