Erratic
cash disbursements by the National Treasury have sparked a borrowing
spree by county governments, plunging devolved units deeper into debt
and attracting millions in interest and bank charges on short-term
loans.
The
latest county expenditure report reveals that many devolved units have
increasingly turned to commercial bank loans and Saccos to keep their
operations afloat, amid the unpredictable release of national funds.
These
loans are mainly used to pay salaries for county executives and staff,
in a bid to stave off strikes and work slowdowns that would disrupt
service delivery.
As
of March 31, counties had collectively borrowed over FSh20 billion.
However, the actual figure may be higher, as some counties did not
disclose their borrowing.
In addition, pending bills stood at Sh172.51 billion, highlighting the widespread financial distress facing devolved units.
According
to the report by Controller of Budget Margaret Nyakang’o, most of the
loans are short-term, with repayment periods ranging from one to three
months. Counties that fail to repay on time face steep penalties.
In Nairobi, the county assembly borrowed Sh298.53 million from Family Bank.
The
county executive, on the other hand, has a bank overdraft facility with
the Co-operative Bank of Kenya Limited to pay for its personnel
emoluments, which average Sh1.6 billion per month.
By
end March, it had an overdraft balance of Sh1.54 billion and had paid
Sh43.14 million in bank charges and commissions for the same.
In
addition, the county has a long-standing KCB loan of Sh4.5 billion –
taken in 2010 during the defunct Nairobi City Council tenure – which is
listed in the pending bills.
The Homa Bay government borrowed Sh488.93 million to support its operations.
“The
county agreed with Diamond Trust Bank (K) Limited for the Payroll
Management Overdraft facility at an interest rate of 0.5 per cent and an
excise duty of 10 per cent on the interest the bank charges,” the
report states.
As of March 31, the outstanding amount for the facility stood at Sh488.93 million.
In
addition, the county government entered into a tenant purchase
agreement with the County Pension Fund for the construction of the Homa
Bay County Headquarters and ancillary facilities – the amphitheatre and
the Ushuru Centre.
The total project cost is Sh820 million, with a monthly repayment of Sh17.25 million for four years.
In
Bungoma, the government borrowed Sh556.13 million from KCB – Sh516.21
million for the executive and Sh39.92 million for the county assembly.
“As
of March 31 2025, the county had a short-term arrangement with Kenya
Commercial Bank, Bungoma branch, to facilitate salary payments and avoid
delays,” the report states.
Kisii
county borrowed Sh521.73 million from Family Bank, with Sh470.53
million allocated to the executive and Sh51.19 million to the assembly.
Of this, Sh496.43 million has been repaid, leaving Sh24.9 million outstanding – owed by the assembly.
“The borrowing was utilised in payment of net salaries,” the report notes.
In Kisumu, Sh1.68 billion was borrowed from KCB to support operations and ensure prompt salary payments.
The
report shows that Laikipia county followed suit with a Sh250.60 million
loan from the National Bank to maintain its operations, while Makueni
borrowed Sh352.4 million from KCB to cover March salary payments, which
remained unpaid at the end of the reporting period.
Migori
county assembly secured a Sh50 million overdraft facility from KCB at
an interest rate of three per cent, repayable within one month.
“The
borrowed funds were utilised for payment of members’ and staff
allowances in arrears for FY 2023/24 and to defray office operations for
July 2024, as a result of the delayed disbursement of June 2024
shareable revenues,” the report adds.
In Kakamega, the county did not disclose any borrowed amounts as of March 31.
However,
both arms of the government have each signed a renewable salary MoU
with commercial banks to manage monthly salary payments.
In
Nyandarua, the county government has an MoU with Tower Sacco for the
payment of salaries whenever there is a delay in the disbursement of the
equitable share.
Since
the advent of devolution in 2013, county chiefs have consistently
blamed the National Treasury for prolonged delays in exchequer releases.
These delays have frequently led to salary arrears, stalled development
projects and threats of county-wide shutdowns.
In
November 2024, Council of Governors chair Ahmed Abdullahi issued a
stern warning: “We demand the National Treasury immediately releases the
funds owed to counties, failing which, county governments will have no
choice but to shut down operations completely.”
The
Treasury is legally obligated under Section 17 of the Public Finance
Management Act, 2012 to release counties’ equitable share by the 15th of
every month. However, this timeline is routinely violated.
In
the last financial year, for instance, the Treasury failed to release
Sh30 billion to counties in what the Treasury attributed to cash flow
challenges.
In
2022-23, the counties received more than Sh60 billion at the tail end
of the fiscal year – too late to absorb the entire amount.
Some
monies for FY 2021-22, about Sh30 billion, were not disbursed until
August of the same year, two months into the new fiscal year.
In the financial year 2020-21, the Treasury had only released Sh123 billion of the total allocation of Sh316.5 billion.
The
amount included arrears of Sh29.7 billion for the previous financial
year (2019-20), meaning counties struggled with delays and inadequate
services.
By
the end of 2021, the counties were yet to get Sh26.9 billion, against
legal provisions requiring county cash to be disbursed without undue
delay or deduction.
The previous years were no different, as Treasury released money too late in the spending year – sometimes on the last day.
While
the Treasury cites cash flow problems and competing obligations for the
funds, critics say the exchequer is biased against counties.
Governors have argued the Treasury favours the national government over counties in releasing cash.
