The Treasury’s failure to release devolved funds has paralysed most county government operations, including payment of salaries to the workers.
Governors said last Friday that they have been unable to pay workers and contractors as well as purchase essential drugs for local hospitals and dispensaries nearly four months after they were sworn in.
The delayed release of funds has also hit hard small and medium enterprises (SMEs) that do business with the devolved units.
Most contractors have difficulty servicing their loans, spreading the risk to the banks who have responded by auctioning the borrowers’ assets, including heavy-duty transportation vehicles.
“We are struggling to pay salaries and to buy essential goods such as drugs for our hospitals,” Machakos governor Alfred Mutua said. The Treasury is required to disburse the share of revenue belonging to the counties by the 15th day of every month.
Total pending bills by counties stand at more than Sh35 billion, according the annual county governments budget implementation review report for the financial year 2016/2017.
Counties with the highest bills include Mombasa, Turkana and Nakuru with Sh3.9 billion, Sh2.9 billion and Sh2.79 billion respectively.
The delay, which entered the fourth month this November, is according to the Treasury, linked to contradictions between the disbursement schedule and the County Allocation of Revenue Bill that Parliament passed.
Treasury officials said the hitch has now been fixed, paving the way for gazettement of the disbursement schedule.
There was a flicker of hope last Thursday when the Senate passed an amendment to the County Allocation of Revenue Act, paving the way for county governments to start receiving their allocations once the Bill is signed into law. The National Assembly is expected to be recalled this week to pass the County Allocation of Revenue (Amendment) Bill, 2017 as required before it is forwarded to the President for assent.
The National Assembly is on a 21-day recess and is expected back on November 29. “Senate did approve a disbursement schedule but unfortunately it was not aligned to the County Allocation of Revenue Bill.
If a portion of the funds that was supposed to be in column D was reflected in column C, then you must remove that portion and take it to the correct portion. That had to be corrected,” the acting director of Inter-Governmental Fiscal Relations at the Treasury, Albert Mwenda, said.
“I think in the next one or two weeks that should be done. We couldn’t gazette before the correction was done,” Mr Mwenda said ahead of Senate’s move. Total allocation to the counties in the current financial year stands at Sh329.96 billion.
This consists of the equitable share of national government revenue, conditional grants from the State and conditional loans and grants from development partners.
The Treasury is expected to release Sh77.4 billion to the 47 counties, which is part of the money that was to be disbursed in the first quarter.
Mr Mutua said his county was among those unable to pay workers.
“In Machakos we have issued a memo to employees advising them that we have no idea as to when they will receive their salaries and development projects have come to a screeching halt,” Dr Mutua said. Kisumu governor Anyang’ Nyong’o said that while his administration was able to cater to its recurrent expenditure and pay employees, its development programmes had been derailed.
“Recurrent expenditure has been provided for… (but there are) no development funds hence no development,” said Prof Nyongo. The snowball has engulfed commercial banks, including Kenya’s largest bank by assets, KCB #ticker:KCB.
KCB’s head of corporate and regulatory affairs, Judith Sidi Odhiambo, said most of the bank’s customers who have difficulties servicing their loans had blamed it on failure by county governments to pay contractors.
“Low business volumes and difficulty in getting new contracts have led to a decline in business fortunes,” Ms Odhiambo said.
KCB said it was talking to the debtors and in some cases structured payment plans to ensure the debts are paid in good time.
“We also have several options such as administration or receiverships, negotiated settlements, sale of assets through private treaty and auctions,” she said.
Treasury secretary Henry Rotich had earlier sought to explain the funds delay in a letter to the Council of Governors chairman, Josphat Nanok.
Mr Rotich said the Treasury would continue providing cash advances to county governments with low cash balances in the Central Bank of Kenya in order to ensure services are not disrupted.
“The counties are also getting facilitated by way of getting funds disbursed to them as advances. It is being done under Article 223 of the Constitution to ensure that services are not disrupted,” said Mr Mwenda.