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Enhancing the financial position of cities : Evidence from Kisumu county government

Financing Sustainable Urban Development
Author : Lennart Fleck
University of Oxford

5 mai 2023

The Kisumu County Government (KCG) provides an interesting case study of the common pitfalls of Municipal Finance reforms. Over the past few years, the KCG undertook reforms, which on paper looked promising. It digitalised its tax collection processes, carried out capacity building initiatives, updated its valuation roll, outsourced property tax arrears collection, and acquired its first credit rating. However, the clear benefits of these seemingly promising initiatives are yet to materialise. Own-source revenue (OSR) per capita, access to credit and private investment in infrastructure have remained low.

The KCG’s tax base has not changed, the efficiency of its collection and compliance mechanisms leave room for improvement, its property arrears remain high, and its revenue strategy continues to be focused on regressive/low-potential revenue streams. Yet, it is the very challenges of the KCG in successfully bringing reform to fruition, which offer important lessons on why promising technical Municipal Finance interventions often do not achieve the desired outcomes.

In implementing these reforms, the KCG faced a host of challenges from technical implementation problems, to capacity bottlenecks and budget constraints. One particularly complex challenge appeared to be vested interest in the status-quo of the OSR system of various stakeholders, including landowning elites and tax collection personnel. These interest groups were firmly entrenched, benefiting from tax collection loopholes, porous public financial management (PFM) processes and weak overall rule of law. Overcoming these interest groups required considerable political capital and political will.

Addressing Municipal Finance issues in Kisumu and other similar contexts thus requires placing greater emphasis on political realities and incentive mechanisms when designing reform initiatives. The more defective a Municipal Finance system appears to be, the greater the rents it allocates in unintended ways and the more resistant to change it may become. Overcoming such flawed but stable equilibria requires more than isolated technical tweaks.

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