[Insight]
Rewriting the Rules Both Governments Run On
[Insight]
Rewriting the Rules Both Governments Run On
Opening Perspective
The National Treasury has released a draft Public Finance Management (Amendment) Bill 2026, together with draft national government regulations and draft county government regulations. That combination is worth noting. The Act sets the architecture, and the regulations determine what it means in practice for an accounting officer approving a payment or a county executive preparing a budget. Releasing all three together means the whole framework, principle and procedure, is open at once.
The PFM Act, 2012 is the statute through which Kenya’s constitutional public finance principles became operational rules, and it governs both levels of government. Amending it is consequential in a way that ordinary legislation is not, because every planning cycle, procurement, payment and audit in the country runs on it. The question worth asking of any such revision is whether it addresses the gap between the rules as written and the rules as followed, because that gap, rather than any deficiency in the statute, is where Kenyan public financial management has consistently underperformed.
What Sits Around This Revision
The draft arrives inside an unusually active reform period, and the amendments cannot be read in isolation from it.
The Treasury Single Account extended to counties from 1 July 2026, consolidating cash at the Central Bank after a rollout across national government that reduced Central Bank overdraft costs by 61 percent. The County Allocation of Revenue Act 2026 released KES 428 billion to counties, the largest equitable share yet. The Conflict of Interest Act has moved public sector integrity from disclosure to a declaration regime with institutional reporting obligations. And the World Bank’s USD 750 million development policy operation supports a reform package covering public financial management, anti-corruption and social protection, which means this framework is being revised while a financier watches implementation with disbursement decisions attached.
So the amendment is not a standalone technical exercise. It is the statutory layer of a reform programme already running through cash management, integrity, and devolved finance simultaneously.
Kenya's public financial management problem has rarely been an absence of rules. It has been rules observed unevenly, enforced selectively, and reported on after the fact. Amendment is worth doing. It is not the same as compliance.
ACAL Advisory Team
Public Sector Advisory
Key Insights
1. Regulations matter more than the Act, and get a fraction of the attention
Primary legislation sets principles. Regulations set thresholds, timelines, formats and approval routes, which is what actually changes behaviour in a finance office. Releasing national and county regulations alongside the Bill is the right approach, and it also means the consequential detail is in the documents least likely to be read closely during consultation. Institutions that engage only with the Bill will find themselves complying with regulations they never reviewed.
2. Separate county regulations acknowledge that devolved finance is genuinely different
Counties raise own-source revenue, run their own payrolls, and operate under assemblies rather than Parliament. Applying national procedures unmodified has produced friction since 2013. Drafting a distinct county instrument is an improvement, provided it reflects county operating reality rather than restating national rules with the nouns changed.
3. Compliance capability, not rule design, is the recurring failure point
Kenya’s PFM rules have long been stronger than its PFM outcomes. Budgets pass late, commitments exceed cash, pending bills accumulate, and audit findings repeat. Those are capability and enforcement failures. An amendment that tightens requirements without addressing whether institutions can meet them raises the rate of non-compliance rather than the standard of practice.
4. Pending bills are the test any credible revision must pass
The single most damaging pattern in Kenyan public finance is commitment made without cash to settle it, producing arrears that crowd out future budgets and damage suppliers. The provisions worth scrutinising in this draft are those governing commitment control: whether a commitment can be made without confirmed funding, what happens when it is, and who bears personal consequence. Everything else is secondary to that.
5. The framework must now accommodate consolidated cash management
The Treasury Single Account changes where cash sits and how payment is executed at both levels of government. The regulations need to reflect that operating reality, particularly around exchequer release timing, commitment against available cash, and the treatment of own-source revenue at county level. Where statute and cash architecture diverge, accounting officers face contradictory obligations.
6. Reform sequencing is itself a risk
Counties are absorbing a record allocation, a new cash regime, an integrity declaration system and a proposed PFM revision in a single financial year, with finance teams that are thin in many counties. Each reform is individually justified. The aggregate demand on institutional bandwidth is substantial, and support sequencing deserves as much design attention as the reforms themselves.
What This Means
For the National Treasury. The consultation window is the opportunity to test whether the proposed rules are operable in the institutions expected to follow them. Regulations drafted for well-resourced national agencies frequently fail in county departments with three finance staff.
For county treasuries and executives. The draft county regulations will determine day-to-day practice for years. Engaging substantively now is considerably cheaper than managing non-compliance findings later, and counties collectively have the operational evidence that would make the instrument better.
For accounting officers. Personal liability provisions in PFM legislation are enforceable. Any changes to commitment control, approval thresholds, or reporting obligations change individual exposure and warrant direct attention rather than delegation.
For oversight institutions and assemblies. Revised reporting requirements shape what oversight is possible. Provisions determining the content, frequency and timeliness of financial reporting are where oversight capability is expanded or quietly narrowed.
For development partners. The PFM framework underpins every financing instrument routed through government systems. Participating in consultation is a more efficient use of influence than negotiating project-specific workarounds afterwards.
The Implications for ACAL’s Clients
Public financial management capability is central to ACAL’s practice. The firm served as Independent Verification Agency for the Annual Capacity and Performance Assessment across all 47 counties under a World Bank-financed devolution programme, assessing compliance with minimum conditions and performance standards covering planning, budgeting, procurement, reporting and audit. It has delivered successive annual performance assessments of 45 counties and 79 municipalities, and implementation completion reporting for World Bank-financed national programmes built to financier evidentiary standards.
That record is a direct evidence base for this consultation: it documents, across every county, which PFM requirements are consistently met, which are consistently missed, and why.
For national institutions, the relevant support is regulatory impact assessment and implementation readiness review. For counties, compliance gap assessment against the draft instruments and consultation submission support. For oversight bodies, reporting framework review. For partners, independent assessment of implementation feasibility.
Closing Perspective
Revising the framework that governs how every public shilling in Kenya is planned, spent and accounted for is significant work, and doing it with national and county regulations drafted alongside the Bill is the right way to do it. The test is whether the revision narrows the distance between the rules and the practice. Kenya’s public financial management problem has rarely been an absence of rules. It has been rules observed unevenly, enforced selectively, and reported on after the fact. Amendment is worth doing. It is not the same as compliance, and the institutions with the clearest view of that difference are the ones the consultation should be hearing from.
Strategic Insights That Drive Business Success
Strategic Insights That Drive Business Success
Strategic Insights That Drive Business Success
