Economy

Kidero gets MCAs’ green light to borrow Sh4bn for salaries

KIDERO

Nairobi governor Evans Kidero. PHOTO | FILE

City Hall has received the County Assembly’s approval to borrow Sh4 billion from banks to stave off a cash crunch that has seen it delay workers’ pay.

Nairobi had asked its MCAs to approve the borrowing of a Sh1.5 billion bank overdraft to help it make timely salary payments and Sh2.5 billion for capital projects in the year to June.

The new loans will increase City Hall’s bank loans to Sh7 billion and total dues to Sh19.5 billion, inclusive of debts owed to suppliers and non-remittance of taxes and workers’ pension deductions.

The approval comes a day after the county revealed it had completed the transfer of a Sh2.97 billion loan from Equity to KCB Group. KCB offers a lower interest rate, longer maturity and a six-month grace repayment period.

The borrowing reflects the cash flow difficulties facing Governor Evans Kidero’s administration, which is struggling with a ballooning wage bill and increased expenditure demands.

This year, the city expects to spend Sh13.9 billion in wages, which accounts for 48.5 per cent of its Sh28.76 billion budget. The Sh2.5 billion for projects is more than a quarter of Nairobi’s Sh9.4 billion annual development budget.

Nairobi will also need to seek the approval of the National Treasury, which must guarantee loans borrowed by counties.

The Public Finance Management Act allows such short term borrowing provided it is for cash management purposes only and does not exceed five per cent of the most recent audited revenues of the county.

City Hall’s revenues last year stood at Sh20.2 billion meaning that City Hall can only qualify for Sh1.1 billion in short term borrowings. Such monies whould also be repaid within a year, adds the Act.

To go around this, City Hall has opted for a revolving overdraft, which can be renewed after its tenure that is normally capped at a year. Nairobi will also borrow the Sh2.5 billion debt in tranches of Sh600 million.

“The disbursement shall be in tranches of Sh600 million, at any one time, to be paid off before the next drawdown,” said Gregory Mwakanongo, Nairobi’s Finance executive in a letter to the Speaker.

City Hall debts include the Sh2.9 billion KCB loan, Kenya Revenue Authority (Sh1.4 billion), Laptrust (Sh2.9 billion), suppliers of goods and services (Sh2.3 billion) and payroll arrears of Sh2.4 billion.