The National Treasury has chopped allocation to the Equalisation Fund for a second time this financial year, pushing the arrears on the account past the Sh50 billion mark and dealing a blow to communities in marginalised areas of the country.
The Equalisation Fund is a creation of Article 204(7) of the Constitution to help uplift regions of the country that have previously been secluded from the national cake. The Constitution demands that 0.5 percent of the national government's annual revenue be specifically allocated to marginalised areas.
The fund is meant to provide basic services, including water, roads, health facilities and electricity to marginalised areas.
A mini-budget review released by the Treasury for the financial year ending next week, shows that allocation to the fund has been slashed 59.7 percent to Sh2.5 billion, down from Sh6.2 billion.
This is the second time during this financial year that the fund is being slashed, having been initially allocated Sh8 billion before it was reviewed to Sh6.2 billion.
A parliamentary committee had last week disclosed that the arrears to the Equalisation Fund stood at Sh46.5 billion as of June 2024, against a cumulative entitlement of Sh59.96 billion since the fund’s inception through the constitution in 2010.
“This means that only Sh13.4 billion, equivalent to 22.4 percent of the entitled amount, has been disbursed to the fund,” reads part of the Equalisation Fund Appropriation Bill of 2025 tabled in parliament by the Budgets and Appropriations Committee.
“This shortfall in funding not only undermines the fund’s credibility but also poses a serious threat to the achievement of its core mandate,” noted the committee.
The committee proposed carrying over Sh6.2 billion to the next financial year, unaware that the amount had been slashed further in the mini-budget tabled also last week.
“The Equalisation Fund Appropriation Bill, 2025 allocates a total of Sh16.8 billion to 1,424 marginalised areas for the 2025/2026 financial year. This total comprises Sh6.2 billion carried forward from 2024/2025 allocation, and Sh10.6 billion allocated for 2025/2026,” reads part of the report tabled by the Budget and Appropriations committee.
The fund is targeted at supporting the 1,424 sub-locations identified by the Commission of Revenue Allocation. The sub-locations are spread across 34 counties but 60 percent of them are in eight counties including Turkana, Pokot, Narok, Mandera, Wajir, Samburu, Garissa, and Baringo.
Low absorption of the affirmative fund has been attributed to the lack of a clear legal framework following the lack of consensus on the Equalisation Fund Appropriation Act of 2023. This resulted in Sh10.3 allocated in the year 2022/2023 being slashed to zero while only Sh1 billion was disbursed to the fund in the financial year that ended June 2024.
“Since the mediation process on the corresponding Appropriation Bill failed, the legal framework to authorise spending of the allocation was not enacted. Consequently, the status and intended use of the Sh1 billion already disbursed remain uncertain,” said the parliamentary committee.
If passed by parliament, the bill, tabled by the committee stipulates that the affirmative funds be transferred to a special account opened by each beneficiary county at the Central Bank of Kenya (CBK). The committee argues this arrangement ensures the funds are used exclusively for their intended purpose unlike when they are deposited into the County Revenue Fund.
Governors of the select counties will require authorisation from the Controller of Budget to withdraw the funds from CBK. Administration expenses of the fund are capped at 3 percent of its allocation ensuring the cash it used for the identified reasons.
