The value of loans issued by banks to counties hit the highest level in 16 months in May as the devolved units continued to battle delayed disbursement of funds from the National Treasury forcing them to rely on overdrafts.
The latest data by the Central Bank of Kenya (CBK) shows that the value of bank loans to counties rose to Sh6.9 billion in April – the highest since December 2021 when they hit a record high of Sh18.3 billion.
Figures from the CBK show the loans taken by counties have been rising steadily from Sh5.3 billion in September last year underlining an increase of Sh1.6 billion in just eight months.
The increased reliance on loans comes at a time the 47 devolved units have been facing months-long delays by the Treasury to disburse billions of shillings which has negatively affected county operations.
The conflict between the Treasury and the counties hit a new high in April when the counties issued a 14-day notice to shut down operations over failure by the exchequer to release a total of Sh94.35 billion owed for January, February, and March.
“The four-month delay is unprecedented in the history of devolution and negates the spirit of the meeting held in Naivasha between His Excellency the President and governors,” said Council of Governors chairperson Anne Waiguru.
The overdrafts are coming at a cost to the counties, however, as senators recently warned that the devolved units risk accumulating huge pending bills in the form of interest on the overdrafts.
Senators said that owing to delayed disbursement of funds from the exchequer, counties are struggling to clear outstanding bills and pay statutory deductions with most forced to rely on bank overdrafts to sustain their operations.
Counties have accumulated about Sh158 billion in pending bills, according to the latest figures released by Controller of Budget, Margaret Nyakang’o.
“We are in a very big problem at the counties and I wish that as Senate we can find a way to ensure that resources due to the counties are there on time,” said Nairobi senator Edwin Sifuna in April.
In a slight relief for counties, however, the Treasury last month released Sh29.6 billion in equitable shares owed for March.
The Treasury has been facing a biting cash crunch that saw it delay salaries for public servants in April even as the Kenya Revenue Authority (KRA) struggles to meet the tax revenue target for the financial year 2022/23.
The Treasury has allocated Sh385.4 billion as equitable revenue share to counties for the fiscal year 2023/24, an increase from Sh370 billion in the current year.
In addition to county equitable share, the county governments will receive additional conditional and unconditional allocations amounting to Sh56.7 billion, which brings the total allocation to counties in the financial year 2023/24 to Sh442.1 billion.
Part of this includes Sh425 million for the transfer of library services being a devolved function, Sh2.9 billion as outstanding mineral royalties share to 32 county governments, and a conditional grant of Sh100 million per county for the aggregated industrial parks programme.
