Markets & Finance

Budget chief warns counties taking illegal loans

AGNES

Controller of Budget Agnes Odhiambo. PHOTO | FILE

The Controller of Budget has cautioned several county governments against taking irregular loans and engaging in unbudgeted expenditures.

The counties, including Machakos, Murang’a, Uasin Gishu and Trans Nzoia borrowed money without the guarantee of the National Treasury in the first nine months of 2014-15.

They borrowed hundreds of millions of shillings—liabilities that could eventually fall on the taxpayer through the National Treasury should the governments fail to repay.

“The challenges that hampered effective budget implementation included irregular borrowing from local banks through overdraft facilities,” said the Controller, Agnes Odhiambo.

According to the spending implementation report by Mrs Odhiambo for the first nine months of this financial year, Machakos County Government borrowed from a bank but the amount was not indicated.

She said Murang’a took a bank overdraft of Sh200 million from a commercial bank that was not named.

“Murang’a incurred irregular overdraft facility from a commercial bank of Sh200 million,” said Mrs Odhiambo.

Besides following provisions of the Public Finance (PFM) Act 2012, borrowing by county governments must be accordance with Article 212 of the Constitution, which requires county assembly approval and Treasury guarantees.

“A county government may borrow only if the national government guarantees the loan and with the approval of the county government’s assembly,” says the Article.

National Treasury Secretary Henry Rotich has however warned counties to be careful when contracting debt because they already have substantial liabilities.

READ: Treasury warns counties against investment deals

In the recently released Budget Estimates, Mr Rotich said the old local authorities owe the National Treasury nearly Sh8 billion.

“As the county governments become more established, caution is required before they consider borrowing. Many of them have inherited substantial liabilities. It should be underscored that even if the National Government takes over to write off the inherited debts and guarantee new borrowing, this will require Kenyans to forego other critical services,” said Mr Rotich while giving a recent update on Kenya’s debt situation.
The Council of Governors chairman Peter Munya was not available for comment.

Other counties including Kwale, Bungoma, Meru, Mombasa, Narok, Kisii, Nyeri, Kajiado and Homa Bay diverted cash to unbudgeted uses.

“Some counties have continued to divert approved releases to expenditure items that were not included in the funded work plans. These diversions have resulted in reconciliation challenges of exchequer records and may result in overdrawing and/or over-expenditure of some votes,” said Mrs Odhiambo.

She said county treasuries should ensure strict exchequer controls and prohibit diversion of exchequer issues to other purposes other than what was contained in the approved work plans.

She noted the county governments had spent 63.7 per cent of their recurrent expenditure on salaries and other emoluments due to the fact that they had continued to recruit staff well beyond what they needed.

“The high expenditure on personnel emoluments is due to continued recruitment by counties despite the high wage bill. We recommend that each county Public Service Board and county assembly public service board liaise with the national government to review staff establishment with a view to optimising its levels,” said Mrs Odhiambo.