Treasury Cabinet Secretary John Mbadi has called for a rethink of the Equalisation Fund formula, saying the decision to increase its beneficiaries from 14 to 34 counties has weakened efforts to address areas that have suffered historical marginalisation.
Mbadi told the National Assembly that the fund should be directed to counties with a clear history of being left behind in access to basic services, while other disadvantaged areas should be supported through the ordinary resources allocated under devolution.
He said the expansion from the original 14 counties had diluted the available resources and moved the fund away from the reason it was created.
"I am very conversant with the reasons as to why we went the route of creating a specific fund targeting areas that have historically been marginalised. In my view, it was a mistake to increase the number of counties from 14 to 34. We must reconsider the second policy. I hope those who are involved in decision-making for the Third Policy are listening to this debate," Mbadi said.
The Treasury chief said the issue should be addressed as the government works on the Third Marginalisation Policy, which will guide how beneficiaries of the fund are identified.
"It is missing the original intention of the Equalisation Fund," he said.
Mbadi pointed to differences between counties, saying Homa Bay, where he comes from, could not be placed in the same category of marginalisation as Mandera, Wajir, Isiolo and Marsabit.
He said the fund should therefore remain concentrated on regions where historical marginalisation is widely recognised.
"But for equalisation, let us confine it to the historically marginalised counties like Samburu, Baringo, Turkana, Mandera, Wajir, Isiolo, Marsabit and Garissa. Nobody can deny that those regions have historically been marginalised," he said.
Mbadi proposed that county governments should use funds received through devolution to address areas within their jurisdictions that remain behind in development, rather than widening the scope of the Equalisation Fund.
The fund is provided for under Article 204(1) of the 2010 Constitution. Its purpose is to improve access to basic services in marginalised areas and bring them closer to the level available in other parts of the country.
Each financial year, the fund is supposed to receive 0.5 per cent of the most recently audited national government revenue approved by Parliament.
The programme was first implemented in 2015, after a three-year delay, and has a 20-year sunset clause.
However, only Sh22.42 billion has been disbursed so far against cumulative constitutional entitlements of Sh90.34 billion.
The First Marginalisation Policy identified 14 counties and proposed 360 projects at a cost of Sh11.8 billion.
Of the amount, Sh10.98 billion was transferred to the 14 counties, leaving Sh824.54 million outstanding.
Funding for the programme has also been provided through subsequent Appropriations Acts. The 2018 Act allocated Sh12.4 billion, while Sh10 billion was allocated in 2023 and Sh16.8 billion in 2026.
"The Equalisation Fund Appropriations Act, 2026 was, however, enacted towards the close of financial year 2025/26 and assented to by the President on May 29, 2026 and falls for implementation in the financial year 2026/27," Mbadi said in the draft 2026 Budget Review Outlook Paper:
Mbadi said Sh10.98 billion of the Sh22.42 billion received had been disbursed to ministries, departments and agencies under the First Marginalisation Policy.
The amount represented an absorption rate of about 93 per cent of the 2018 allocation.
Another Sh6.92 billion was transferred to county governments benefiting under the Second Marginalisation Policy.
The Commission on Revenue Allocation initially identified 14 counties as the least developed and eligible for support.
It later changed the allocation formula, resulting in the number of beneficiary counties rising to 34. The revised approach also identified specific sub-locations and wards considered to be marginalised.
The management and use of the fund has faced questions in Parliament, particularly over the pace at which money is being released and projects implemented.
Last month, MPs raised concerns about delays in disbursement and the implementation of projects intended to improve basic services.
Tiaty MP William Kamket and Samburu West MP Naisula Lesuuda demanded accountability over projects that had already received financing.
Mbadi attributed much of the slow absorption of the money to county governments, saying some had delayed submitting project proposals and requisitions needed for funds to be processed.
Lesuuda had separately sought a county-by-county breakdown showing Equalisation Fund arrears and disbursements as the country entered the 2026/27 financial year.
She also wanted clarification on whether the fund had achieved the constitutional objective for which it was established and why its coverage had expanded from 14 to 34 counties.
Meanwhile, the National Assembly's Finance and National Planning Committee has backed the Equalisation Fund Bill, 2023, which seeks to extend the programme for another 10 years.
The Bill, which originated in the Senate, proposes suspending the application of Article 204(7) of the Constitution to allow the fund to continue operating beyond its current period.
The Controller of Budget, Commission on Revenue Allocation, Council of Governors, Law Society of Kenya and Equalisation Fund Board have supported the Bill.
The legislation, however, is yet to be passed by the National Assembly.