Controlling the cost of fiscal devolution presents a tough challenge for the incoming coalition government as it gets down to work, a top economist has said.
Kenya has ushered in the first devolved government under a new constitution after holding a peaceful election. The Jubilee coalition's Uhuru Kenyatta was declared winner by the Independent Electoral and Boundaries Commission on Saturday.
The new constitution establishes a devolved governance system which not only balloons the public wage bill through new structure and positions created, but also places a premium on fiscal devolution.
"A peaceful vote is great news. (The) challenge now is nation building, continued strengthening of institutions, (and the) cost of fiscal devolution," Razia Khan, the head of research for Africa at Standard & Chartered Bank, told the Star.
The governance apparatus are more costly, she said, which may pose a challenge with regard to raising additional revenues and preparedness.
"With Kenya's above-average tax effort, I'm not sure how much room (there is) for further revenue mobilization," she said.
The Kenya Revenue Authority faces an uphill task of raising more than Sh1 trillion to fund recurrent public expenditure and has hinted at reintroducing tax categories like Capital Gains Tax to widen the revenue base.
New positions in government such as governor, senator and woman representative to the national assembly have been established - all adding to the burden of fiscal devolution.
The Salaries and Remuneration Commission has already moved to review downward and cap existing and new state officers' salaries and perks in an attempt to put a leash on a run-away public wage spend.
Such efforts, added to KRA's aggressiveness, are expected to help claw back or generate additional revenue for devolution purposes.
"From a fiscal perspective, both the effort by the SRC to reduce the pay of officials, as well as any potential increase in revenue - that does not result in a large burden on the economy - such as the reintroduction of Capital Gains Tax would be a positive," said Khan.
"Nonetheless, I believe the bigger picture - one of substantially more devolution, more government, and therefore a higher spending requirement for recurrent expenditure - still poses some risk," she said.
In the near term, she said, it is much more likely that growth-enhancing development spending will be squeezed in order to make way for recurrent spending and the higher cost of running the devolved government.
"There is also the question of how difficult it is to control expenditure in more devolved forms of government - as much as they bring about benefits and are more democratic than having power concentrated at the centre. The Nigerian experience has highlighted this," she said.
"So, despite the encouraging efforts towards rationalising expenditure and raising tax revenue, I think broader concerns would remain in place," said Khan.
The constitution sets a minimum allocation of 15 per cent of the national budget to the 47 counties.