Senators have raised concern over county governments resorting to expensive commercial loans to cover recurrent expenditures, particularly salaries and wages due during exchequer delays.
The issue was raised at a Senate Finance and Budget Committee meeting where sessional chair Bony Khalwale questioned National Treasury Cabinet Secretary John Mbadi on the matter.
“CS, you are aware that many county governments have actually been borrowing money from commercial banks when funds which are supposed to be dispatched from Exchequer to the counties are delayed,” asked Khalwale.
The Senator questioned whether the Treasury sanctions the borrowing. Mbadi acknowledged that Treasury is equally concerned with the ‘unsanctioned’ borrowing to pay salaries and wages, saying it has exposed the devolved units to costly debt servicing burden.
He said despite counties resort to borrowing when funds are not released on time, the budgetary provisions for loan interest payments is not factored in county budgets.
Data in the latest budget implementation review report for the first quarter of the 2024-2025 financial year by Controller of Budget (COB) Margaret Nyakang’o shows that Kisumu, Kakamega, Kisii, Migori, Laikipia, Homa Bay, Bungoma, and Nyandarua borrowed over Sh2 billion from commercial banks for recurrent expenditure.
The committee questioned whether the loans were legal and whether the interest was included as pending bills.
“I want to agree with you that there is a problem when counties don’t receive money in time and start borrowing fast. The borrowed funds are very expensive, as you have clearly stated, because they are borrowing from our local commercial banks and it is very costly to service bank loans,” said Mbadi.
