Effect of Budgetary Compliance on Performance of County Governments in Kenya

Abstract

The efficient performance of county governments is crucial for national development, particularly in decentralized governance structures like Kenya. With resources being allocated to various counties, it becomes imperative to understand how financial behaviors, such as budgetary compliance, influence their performance. The primary objective of the study was to establish the effect of budgetary compliance on the performance of the 47 county governments in Kenya. Performance was measured using the gross county product, while budgetary compliance was assessed by comparing actual to budgeted expenditures. Control variables included revenue transfer from the national government and recurrent spending as a proportion of total expenditure. This study was anchored on agency theory and supported by resource dependency theory and institutional theory. Utilizing a dataset spanning five years (2018-2022), secondary data was collated from official sources such as the office of the Auditor General, the office of the Controller of the Budget, the Kenya National Bureau of Statistics (KNBS), and reports from the Annual Government Budget Implementation Review Reports (AGBIRR). Descriptive statistics, correlation, and regression analysis were employed to analyze the data. According to the regression results, budgetary compliance showed a positive effect on performance, with a coefficient of 0.158 (p=0.007). Revenue transfer had a more substantial effect, with a coefficient of 0.435 (p=0.000), suggesting that financial support from the national government significantly boosts county performance. Recurrent spending, on the other hand, had a coefficient of 0.046 (p=0.438), indicating its relatively minimal direct effect on performance. The study concludes that budgetary discipline and adherence to financial plans is of utmost importance in achieving better outcomes at the county level. Revenue transfers from the national government also emerge as a pivotal factor in determining county performance, emphasizing the importance of consistent and sufficient financial support. Policymakers are urged to enhance mechanisms ensuring budgetary compliance at the county level. Regular capacity-building sessions for county officials can ensure better understanding and implementation of financial discipline. Optimizing revenue transfer processes, including timely and equitable disbursements, is vital for sustained county development. Further research could benefit from incorporating primary data collection methods. In-depth interviews with county officials, surveys among residents, and focus group discussions could provide richer, more nuanced insights into the factors influencing county performance