Kenya: County Revenue Allocation 2025/26 Set at Sh415 Billion

• Kenyan counties are allocated Sh415 billion as an equitable share of national revenue for 2025/26, as stipulated by the Division of Revenue Act, 2025.
• The total approved county budgets for 2025/26, including own-source revenue and conditional grants, amount to Sh603.72 billion, according to the Controller of Budget Kenya.
• Of the total budget, 64% is allocated for recurrent expenditure and 36% for development, with the development allocation exceeding the statutory minimum.
• The equitable share is distributed among counties using a formula that prioritizes population (42%), followed by an equal share (22%), poverty (14%), income distance (13%), and geographical size (9%).
• Recurrent spending, largely driven by personnel costs, is crucial for delivering essential services like healthcare and infrastructure maintenance, posing a balance challenge with development goals.

The core challenge lies in ensuring that the balance between personnel costs, operational expenses, and development initiatives is optimized to genuinely improve public services and infrastructure across all counties.

Kenya's 47 counties are set to receive substantial financial allocations from the national government for the 2025/26 financial year, supplemented by their own locally generated revenue. These funds are critical for delivering essential services such as healthcare, road maintenance, water provision, and agricultural support, which fall under county mandates as per the Constitution. The foundational transfer from nationally raised revenue, known as the equitable share, amounts to Sh415 billion for this period, a figure formally established within the enacted Division of Revenue Act, 2025.

However, this Sh415 billion represents only a portion of the total financial resources available to county governments. The comprehensive county budgets for 2025/26 also incorporate additional conditional allocations from both the national government and various development partners, alongside funds counties anticipate raising through their own-source revenue (OSR). Furthermore, unspent funds carried forward from the previous financial year contribute to the overall financial pool.

According to the Controller of Budget Kenya's first-quarter review, the combined approved budgets for all counties reached Sh603.72 billion. This substantial sum is earmarked for two primary categories of expenditure: Sh217.80 billion, or 36 percent, is allocated for development initiatives, while the larger portion, Sh385.92 billion, representing 64 percent, is designated for recurrent expenditure. The financing for this total budget is projected to come from the Sh415 billion equitable share, Sh93.89 billion from own-source revenue, Sh68.21 billion from additional conditional allocations, and Sh26.62 billion from unspent funds carried over.

The Sh415 billion equitable share of revenue raised nationally is not distributed uniformly among Kenya's 47 counties. Instead, its allocation is governed by a detailed formula, specifically the fourth revenue-sharing basis, which covers the period from 2025/26 to 2029/30. This formula assigns varying weights to several key factors to ensure a balanced and fair distribution.

The largest weighting, 42 percent, is given to population, reflecting the direct correlation between the number of residents and the demand for county-provided services. An equal-share component accounts for 22 percent, guaranteeing that every county receives a baseline allocation to cover fundamental administrative functions, irrespective of its population size. Poverty levels influence 14 percent of the allocation, while income distance contributes 13 percent, aiming to address economic disparities.

Finally, geographical size accounts for 9 percent of the allocation. This factor acknowledges that expansive counties, such as Turkana or Marsabit, face higher operational costs in reaching residents spread across vast distances compared to more densely populated urban areas. The formula thus strives to achieve a comprehensive balance among population needs, basic administrative requirements, socio-economic indicators, and geographical considerations, moving beyond a simple population-based distribution.

A critical aspect of Kenya public finance management at the county level is the distinction between recurrent and development expenditure. For the 2025/26 financial year, county government budgeting Kenya collectively allocated 64 percent of their Sh603.72 billion approved budgets to recurrent spending and 36 percent to development. This 36 percent allocation for development expenditure is noteworthy as it surpasses the statutory minimum requirement of 30 percent.

Recurrent expenditure covers the day-to-day operational costs of government, including salaries, allowances, utilities, supplies, and routine maintenance. Development expenditure, conversely, is directed towards financing projects intended to create new infrastructure or improve existing assets, such as roads, hospitals, and water systems. While development spending is crucial for long-term growth, the substantial recurrent budget, particularly personnel costs, is indispensable for immediate service delivery.

The recurrent budget funds the essential human resources that deliver public services, including doctors, nurses, clinical officers, and laboratory staff in hospitals, as well as agricultural extension officers and engineers for public works. The core challenge lies in ensuring that the balance between personnel costs, operational expenses, and development initiatives is optimized to genuinely improve public services and infrastructure across all counties.

Lawyers advising clients on public procurement, project financing, or compliance with public finance regulations at the county level should understand the detailed allocation formulas and expenditure breakdowns (recurrent vs. development) to assess financial viability, payment risks, and regulatory adherence. Compliance officers must monitor county budget implementation against the Division of Revenue Act and Controller of Budgets' guidelines to ensure proper fund utilization and mitigate financial mismanagement risks.

Source: Reporting based on recent financial analysis.