Nairobi County has been locked out of the latest round of disbursements of World Bank-funded Sh5.7 billion conditional grants to all the devolved units, after it fell short of meeting reform targets tied to the financing.
Documents from the State Department of Devolution, seen by the Business Daily, revealed that the Nairobi County administration failed to meet a series of reform targets on settling pending bills, improving Own-Source Revenue (OSR) collection, and auditing its payroll system.
The Sh5.7 billion in grant disbursements to counties fall under the Second Kenya Devolution Support Programme (KSDP II) – a performance-based reform initiative implemented by the Government of Kenya with support from the World Bank to strengthen county governance and service delivery.
The four-year Sh25.9 billion ($200 million) programme aims to improve how counties finance, manage, coordinate, and account for their resources. It targets improvement in areas such as quality of financial statements and financial reporting; compliance with budgeting formats; adherence to procurement procedures; planning, monitoring and evaluation; and county audits and public participation.
“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.
Earlier in the financial year, all counties, including Nairobi, had received phase one of disbursement under the KSDP II programme, with the subsequent disbursement being tied to performance.
Unlike the first leg of disbursement in 2025/26 where each county was allocated an equal amount, the second leg was based on each county’s success in meeting reform measures alongside the Commission on Revenue Allocation’s Fourth Basis County Sharing Formula.
“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.
The State Department for Devolution revealed that Nairobi County was locked out of the Sh5.7 billion World Bank financing because of the continued use of manual payroll systems. The Controller of Budget, Ms Margaret Nyakang’o, has previously flagged Nairobi County for using manual payroll systems.
“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.
Dr Nyakang’o’s office has also flagged Nairobi County for failure to adhere to its plan for payment of trade receivables for the nine months ended March 2026.
“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.
Records from the Nairobi County Assembly show that Nairobi City County set an OSR target of Sh19.9 billion for the 2025 financial period, but only collected approximately Sh13.7 billion.
The World Bank data shows that the biggest recipients in the Sh5.7 billion KSDP II disbursement are Kitui, Kwale and Migori counties, which received Sh184.8 million each, accounting for 13.3 percent of the total disbursement. Kajiado, Kakamega and Uasin Gishu received the least allocation at Sh55.3 million each. The average allocation per county stands at Sh123.9 million.
