County governments could unlock approximately Ksh181 billion in savings without increasing taxes by improving how they manage public funds, a new World Bank report has revealed.
The money, equivalent to 1.04 per cent of Kenya’s Gross Domestic Product (GDP), could be freed up if devolved units improved their spending efficiency in health, education and public administration to match the performance of the best-performing counties.
In its November 2026 Kenya Economic Update, the World Bank identified significant gaps in how counties use available resources, warning that inefficiencies are undermining service delivery and limiting money available for development projects.
“County-level spending efficiency analysis suggests that counties could generate significant fiscal space,” the report states.
The report identifies health as the area where counties could make the biggest gains by improving the efficiency of their expenditure.
It further estimates that counties could unlock additional savings equivalent to 0.4 per cent of GDP by bringing their wage bills within the statutory ceiling of 35 per cent of revenue.
The potential savings come at a time when counties are facing growing pressure to finance essential services, including primary healthcare, early childhood education, agriculture, water and local infrastructure.
According to the World Bank, county revenues declined from 4 per cent of GDP in the 2013/14 financial year to 3.1 per cent in 2024/25, despite an increase in the actual amounts collected.
The decline reflects slower growth in national government transfers and locally generated revenue compared with the wider economy.
Counties remain heavily dependent on the national government, with transfers accounting for between 88 and 90 per cent of their total revenue. Their own-source collections contribute only 10 to 12 per cent.
The report also estimates that counties collect just 20 to 23 per cent of their potential own-source revenue, leaving significant room to improve local revenue mobilisation.
However, the World Bank argues that increasing collections alone will not address the financial pressures facing devolved governments.
It points to high wage bills as a major drain on resources that could otherwise support development projects and frontline services. “High-wage bills crowd out development spending and frontline services,” the report states.
Other challenges identified include weak payroll and procurement controls, fragmented cash management systems, pending bills and broader governance weaknesses that undermine the effectiveness of public spending.
The report also draws a link between corruption and poor expenditure performance, noting that counties with higher reported bribery tend to record lower levels of spending efficiency.
To address the problem, the World Bank recommends stronger public financial management, tighter expenditure controls and improved procurement and accountability systems.
It also calls for better revenue administration, greater reliance on property taxation and more predictable transfers from the national government to improve county planning and service delivery.
The potential savings from spending reforms and wage bill adjustments would exceed the estimated county own-source revenue gap of 1.33 per cent of GDP, according to the report.
The findings come amid continued public resistance to additional taxation following the withdrawal of the Finance Bill 2024. The World Bank argues that improving the use of existing resources could therefore offer counties another way to create fiscal space without relying entirely on higher taxes or increased national government transfers.
The Ksh181 billion, however, is an estimate of potential savings based on the performance of more efficient counties. It is not money already recovered or funds currently available in county accounts.
