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Treasury sets guarantee terms for county external loans

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National Treasury building. FILE PHOTO | NMG

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Summary

  • Counties must raise at least 15 percent of project funds from their own internally generated resources before the national government can guarantee their borrowing, the Treasury now says.
  • In new stringent conditions for the devolved units aimed at curtailing reckless borrowing, counties will also be assessed on their loan repaying ability over the medium term.

Counties must raise at least 15 percent of project funds from their own internally generated resources before the national government can guarantee their borrowing, the Treasury now says.

In new stringent conditions for the devolved units aimed at curtailing reckless borrowing, counties will also be assessed on their loan repaying ability over the medium term, meaning counties that are in the red will be blacklisted from external borrowing.

“A county government for which a guarantee is requested shall contribute a substantial portion of project funds from their own resources and in any case not less than 15 per cent,” said National Treasury Cabinet Secretary Ukur Yatani in a circular.

The Constitution allows counties to borrow from the capital markets and foreign sources once cleared by the National Treasury.

In the new regulations, Mr Yatani says that the Treasury will not guarantee any county loan unless the financial position of the specific County Government is deemed to be “satisfactory” over the medium term.

“The CS shall not guarantee the loan unless the county government has the ability to repay the loan, pay any interest or other amount payable in respect of it,” he said.

The new regulations are likely to lock out many counties from accessing external debt markets based on their recent performance in generating own source revenue.

Data from the Controller of Budget (CoB) shows counties reported a Sh880 million drop to Sh28.04 billion in internally generated revenues in the nine months to March 2020.

Since March last year, Makueni, Kisumu, Bungoma and Laikipia counties have been adjudged fit to borrow through the Nairobi Securities Exchange and external markets.

Laikipia plans to float a Sh4 billion infrastructure bond next month.