Auditors in call for county loans law to ease cash crunch

Audit and advisory firm Ernst & Young (EY) is calling for speedy finalising and enactment of the county borrowing regulations to help devolved units meet needs of the electorate.

The firm says in the 2019/2020 pre-budget update that taxes collected at the county level rarely meet the development and operational requirements, therefore the need for counties to be allowed to borrow.

Under Article 212 of the Constitution, county governments’ borrowing must be guaranteed by the national government and approved by the county assemblies. “However, county governments have not been able to borrow to date because regulations for county borrowing have not been enacted,” says EY Kenya country managing partner Celestine Munda.

She added that counties’ overreliance on allocations from the national government has been worsened by delays in monthly disbursements. This has led to counties focusing on recurrent expenditure such as salaries and utility bills as opposed to focusing on development.

While allocations to county governments are 32 percent in the 2018/2019 budget, well above the required at least 15 percent of last audited accounts, it remains insufficient to perform the functions allocated to counties.

Counties are also struggling to increase own-source tax revenue. Currently, they are only allowed to levy property tax, entertainment tax and any other tax authorised by an Act of Parliament.

This, Ms Munda says, is a very limited portion of revenue taxes which amounts to Sh50.54 billion in 2015/2016 available to county governments compared with the nationally collected revenue in the consolidated fund of Sh1.85 trillion.

According to EY, delays in monthly disbursements and security of tenure for workers has made it difficult for counties to retain high calibre staff.

This worsens the situation given that many counties are facing shortage of officials with the necessary technical, managerial and financial skills.