Counties have borrowed four times more cash from commercial banks compared to two years ago, according to new data from the Central Bank of Kenya (CBK).
The data shows the devolved units borrowed Sh4.3 billion as of last October compared to Sh1 billion by the same month in 2016, with analysts indicating these were mainly in overdrafts in times of cash shortages.
Delays in the period came against the background of slow tax collection and disbursement to counties.
In the past, the Office of Controller of Budget and the Auditor-General have admonished counties for borrowing without seeking guarantees or approval of the Treasury.
“These loans are mainly in the form of overdrafts; they are short-term and are normally incurred when there are delays in the disbursement of their allocations from the Treasury,” said John Mutua, budget programmes officer at the Institute of Economic Affairs, a think tank.
“The borrowing normally happens in the first quarter of the fiscal year mostly because of the delays in disbursement. You also notice that this is the quarter when revenue collection is lowest and this, therefore, leads to delays affecting the liquidity of county governments.”
The borrowing could have been higher had the government liberally allowed higher contingent liabilities. The county loans would have to be State-guaranteed.
The Treasury is supposed to be working on a framework for borrowing for counties, setting out the criteria to be considered in taking the loans, the budget expert noted.
In approving the loans, the Treasury would consider these criteria. In the absence of the Treasury approvals and guarantees, the loans have remained one of the major queries whenever the national government audit the county books.
Currently, the national government has forwarded a Bill to help counties raise revenues without adversely affecting other economic policies or activities across county boundaries.
The Bill is intended to ensure that counties can raise enough money without resorting to borrowing or failing to undertake projects of benefit to their residents.
“Draft legislation has been forwarded to Parliament which is intended to ensure that County Governments’ taxation and other revenue-raising powers are not prejudicial to national economic policies, economic activities across County boundaries or the national mobility of goods, services, capital or labour,” the Treasury says in the Budget Policy Statement recently issued ahead of the upcoming 2019/20 budget.