Governors are working with the World Bank on modalities that will see the devolved units acquire external borrowing powers and start issuing municipal bonds on the NSE.
Both Chapter 12 of the Constitution and the Public Finance Management (PFM) Act 2012 allow counties to float capital market securities and borrow or receive grants from foreign markets, with express permission of the National Treasury.
Such loans must be guaranteed by the Treasury and be used to finance development projects only.
Kenya’s cash-starved counties are seeking to raise project funds from the Nairobi Securities Exchange (NSE) and foreign sources in a move likely to make the debt situation worse.
The Council of Governors (CoG) is working with the World Bank on modalities that will see the devolved units acquire external borrowing powers and start issuing municipal bonds on the NSE.
Chairperson of CoG’s Committee on finance, planning, budget and ICT Wycliffe Wangamati said six counties including Nyandarua, Kisumu, Makueni and Bungoma are set to pilot issuance of municipal bonds and external borrowing.
A clean audit report and prudent management of public funds are among the parameters required for the pilot.
The World Bank is assisting the counties to prepare their books and rating them to have the initiative materialise in one year, Mr Wangamati said.
“As it is today, only national governments can borrow, but if you go to countries like South Africa, sub-national governments are allowed to issue municipal bonds,” Mr Wangamati said at Lake Olbolosatt Resort in Nyandarua County during the public finance management forum organised by the CoG and the World Bank.
He added: “With this initiative, the county governments will be able to go to the market and borrow for long term developments especially infrastructural development, the same way the national government is doing.”
Both Chapter 12 of the Constitution and the Public Finance Management (PFM) Act 2012 allow counties to float capital market securities and borrow or receive grants from foreign markets, with express permission of the National Treasury.
Such loans must be guaranteed by the Treasury and be used to finance development projects only.
The 47 counties that received Sh378.4 billion in equitable share and conditional allocations for 2019/20 have consistently claimed “acute underfunding” by the national government.
Allowing the devolved units to float debt instruments locally and borrow directly from foreign markets is likely to worsen Kenya’s public debt position which crossed the Sh6 trillion mark in July.
On pending bills, Mr Wangamati said majority of the counties will have cleared their dues in three years, adding that the new governors inherited huge pending bills.
Nyandarua Governor Francis Kimemia said the resolutions of the forum will be implemented by the CoG.
“I can assure you that this was not just a talking shop. The recommendations you have made will be implemented, you have the full support of the CoG. You have asked for an annual review forum and it shall be implemented so that we have fundamental changes and improvements as counties,” said Mr Kimemia.
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