On February 27, Kenya’s Commission on Revenue Allocation released a new report. (This report is available on CRA’s new website, which is a vast improvement over the old site. Kudos to the Commission for this.)
What is this report about? The CRA is mandated by the Constitution to help Kenyans figure out how to use something called the Equalisation Fund.
This Fund comprises ½ of 1 per cent of annual national revenues and is different from the so-called equitable share that counties will receive.
That money is sometimes referred to as “the 15 per cent,” because the Constitution says that counties as a whole must receive at least 15 per cent of national revenues.
As it happens, everyone agrees that 15 per cent is too little for counties to run, so the “15 per cent” is going to be more like 20-35 per cent, depending on decisions ultimately taken by the next parliament.
On top of this, the Constitution provides for an Equalisation Fund to “provide basic services, including water, roads, health facilities and electricity to marginalised areas… to bring the quality of those services in those areas to the level generally enjoyed by the rest of the nation.” This Fund is to continue for only 20 years.
This Equalisation Fund is small, time-bound and targeted, but there are still many questions around how it will be used. The Constitution gives CRA a role in answering these questions.
The Constitution leaves open whether the money in this Fund should be spent directly by national government, or given as a conditional grant to counties to manage. This is the most obvious area where CRA might be expected to offer an opinion. In leaving these options open, the drafters of the Constitution permitted considerable innovation.
For example, the national government could spend the money directly on upgrading of infrastructure in marginalised areas.
But it could also use the money in any number of other ways proposed by analysts: As matching funds to stimulate further investment by donors (this is, after all, a small fund), or as a grant to counties that want to work together to improve regional access to roads or water (regional, cross-county cooperation on shared resources is a gap in the new dispensation), or as a challenge fund to encourage innovative public-private proposals for infrastructure.
The money could also be used for all basic services, or it could be targeted to a single service, like water, where impact might be more visible. Or it could be used only for water in the first year, and only for roads in the second, and only for electricity thereafter.
In light of the dizzying array of possibilities, what does the CRA report recommend? First, the CRA did something that surprised me: They developed a complex set of criteria for determining what constitutes a marginalised area.
One could as well assume that the definition of marginalisation is actually given by the nature of the Fund: Marginalised areas are those in which access to the basic services enumerated in the Constitution is below the national average.
This is a much simpler approach and one that lends itself to the establishment of a clear baseline. The Commission does not adequately explain why they chose a more complex approach.
The Commission’s efforts to think more broadly about marginalisation are laudable, because it is CRA’s job to inform debate about what is fair when it comes to sharing resources.
However, this wider debate should inform the distribution of all resources, not just the Equalisation Fund. It is therefore a debate that should have predated the setting of the CRA formula for the equitable share. After all, the equitable share also deals with inequality. That is why poverty is a key component of the formula.
The CRA recommends that the Fund be given to counties as a conditional grant, but does not explain why or what conditions will apply. Some justification for this choice is needed.
And the CRA also recommends that marginalised areas be defined as counties (14 of the 47 qualify), even though the report acknowledges that there are marginalised areas within non-marginalised counties. No satisfactory justification for this decision is provided in the report, even though it has the effect of treating people without water in Kajiado as less worthy than those in Garissa.
The Commission also missed a chance to think harder about how money can or cannot solve the marginalisation problem. Counties that have weak institutions and use existing resources poorly may not be able to use additional revenues to reduce marginalisation.
This is one argument against giving the money as a conditional grant to counties. Yet the CRA report does not consider such possibilities.
In launching the report, the Commission suggested that it was a draft and that comments were welcome. The debate has begun. Others should now join.
Dr Jason Lakin is a programme officer and research fellow at the International Budget Partnership. [email protected]