Nairobi Misses Out on Sh5.7bn Windfall as Manual Payroll Comes Back to Haunt County
Nairobi County has missed out on a share of Sh5.7 billion in World Bank-backed development funding after failing to meet key governance and public finance reform targets under the Kenya Strengthening Devolution Programme II (KSDP II).
Fresh details from the State Department for Devolution reveal that Kenya’s capital failed to qualify for the second phase of the programme after shortcomings were identified in payroll management, pending bills, human resource reforms and revenue collection.
KSDP II is a four-year Sh25.9 billion ($200 million) programme jointly supported by the World Bank and the national government to strengthen devolution by rewarding counties that improve governance, accountability and financial management.
Follow Kenya Frontline X account for more updates
County governments were assessed against a range of reform indicators before the latest allocation was approved. Areas examined included financial reporting, procurement compliance, planning and evaluation, human resource management, pending bills and efforts to increase locally generated revenue.
Pressure has continued to mount on counties to modernise their systems as development partners increasingly tie funding to measurable reforms rather than population size or financial need.
“Unlike the Equitable Share Funding, KSDP II grants are strictly tied to performance. To qualify for grants, counties underwent assessments on specific reform targets. These included reduction in pending bills, cleaning the County Human Resource records to achieve consistency, transforming how counties manage staff performance and increasing Own Source Revenue,” a document prepared by the Office of the Principal Secretary, State Department for Devolution states.
Manual payroll and pending bills raise fresh concerns
Worth Sh25.9 billion, the KSDP II programme seeks to improve how counties finance, coordinate, manage and account for public resources. Reforms targeted under the initiative include improving the quality of financial statements, strengthening budgeting processes, ensuring procurement compliance, enhancing audits and increasing public participation in county decision-making.
Every county received the first phase of funding earlier in the 2025/26 financial year after demonstrating the existence of basic governance structures. Equal allocations were made during that stage to help counties build institutional capacity before the tougher performance assessment.
Subsequent funding, however, depended on results. Counties had to demonstrate that reforms had been implemented successfully before qualifying for larger development grants.
“Counties accessed smaller Level I capacity building grants by demonstrating the establishment of basic governance frameworks. Under this grant, all 47 counties received Sh1.67 billion, with each receiving Sh32.5 million. To unlock much larger Level II development grants, however, counties had to prove actual results by achieving reform targets”, the document from the State Department for Devolution states.
Nairobi failed to satisfy several of those requirements, effectively locking itself out of the latest round of financing despite being home to the country’s largest urban population and one of the biggest county budgets.
One of the biggest concerns highlighted during the assessment was the county’s continued reliance on manual payroll processing. Oversight agencies have repeatedly warned that manual payroll systems weaken accountability by making it easier for irregular payments and payroll inconsistencies to occur.
Findings by the Office of the Controller of Budget show that although most salary payments had been migrated to the Human Resource Information System, part of the payroll continued to be processed manually.
“Analysis shows that Personnel Emoluments totalling Sh13.9 billion were processed through the Human Resource Information System while Sh312 million was processed through manual payrolls. The justification given for the continued use of manual payrolls was that the affected staff are casuals and are engaged on a short-term basis,” the Office of the Controller of Budget stated in its county expenditure report for the nine months ended March 2026.
Concerns extended beyond payroll management. County officials were also faulted over failure to honour commitments made to clear pending bills during the financial year, another major indicator used to measure fiscal discipline.
Reports from the Controller of Budget indicate that the county executive and county assembly both failed to implement payment plans submitted earlier in the year, leaving billions of shillings in unpaid obligations.
“The County Executive Committee submitted a generalised universal payment plan, and the County Assembly submitted a detailed trade payables payment plan, committing to pay Sh8.8 billion and Sh650.6 million, respectively, in 2025/26. The County Executive and County Assembly did not adhere to their payment plan. The County Executive cleared only Sh4.9 billion while the County Assembly did not clear anything,” the Office of the Controller of Budget states.
Delayed payments have continued to affect suppliers doing business with county governments, leaving many contractors struggling with cash flow while slowing implementation of public projects.
Top-performing counties reap millions in new grants
Revenue mobilisation also emerged as another weak area during Nairobi’s assessment. Records from the Nairobi County Assembly show that the county targeted Sh19.9 billion in Own Source Revenue during the 2025 financial period but managed to collect only about Sh13.7 billion.
Strong own-source revenue collection is regarded as a key measure of county performance because it demonstrates the ability of devolved governments to finance services independently while reducing dependence on transfers from the National Treasury.
Latest allocations under KSDP II reflected both reform performance and the Commission on Revenue Allocation’s Fourth Basis County Sharing Formula, replacing the equal distribution applied during the first phase.
Counties that successfully implemented governance reforms unlocked significantly larger grants to finance development projects aimed at improving services for residents.
World Bank data shows Kitui, Kwale and Migori emerged as the biggest beneficiaries after each received Sh184.8 million under the latest disbursement. Combined, the three counties accounted for 13.3 per cent of the total Sh5.7 billion released through the programme.
Kajiado, Kakamega and Uasin Gishu received the smallest allocations at Sh55.3 million each, while the average allocation among qualifying counties stood at Sh123.9 million.
Performance-based financing is increasingly becoming the preferred model for development partners supporting devolution. Rather than distributing funds equally, programmes such as KSDP II reward counties that demonstrate prudent financial management, transparent governance and measurable institutional reforms.
Nairobi’s exclusion is therefore likely to increase pressure on Governor Johnson Sakaja’s administration to accelerate reforms before future assessments. Strengthening payroll management, clearing pending bills, improving financial reporting and boosting own-source revenue are expected to feature prominently if the county hopes to qualify for subsequent grants.
Residents also stand to benefit if those reforms are implemented successfully. Better financial management often translates into improved service delivery, faster completion of development projects, stronger accountability and increased public confidence in county institutions.
Growing competition for performance-based funding means counties can no longer rely solely on their size or economic importance when seeking development support. Evidence of sound governance has become the deciding factor.
Nairobi’s failure to secure a share of the latest Sh5.7 billion allocation serves as a clear reminder that reforms now carry a direct financial reward. Until weaknesses identified by oversight agencies are addressed, the capital risks losing out on future development opportunities while better-performing counties continue to attract additional funding.
