Several governors have been forced to negotiate for expensive bank overdraft facilities to pay salaries and other recurrent expenditures as a result of the current cash crunch that now threatens to halt service delivery in the devolved units.
The unfolding scenario is likely to expose the county governments to hefty fines and interests by the commercial banks in the event the National Treasury delays to disburse of funds.
The deals also threaten to cripple development projects in the counties as they will have to re-adjust their budgets to cater for the fines and interests accrued from the overdraft facilities.
Counties on Monday announced plans to shut down in two weeks should the National Treasury fail to disburse funds. The counties received the last disbursement in December last year and are yet to receive allocations for January, February, March and April, with workers going without pay for up to two months.
In Kakamega, the county has been negotiating for an overdraft facility of Sh500 million to pay salaries and sustain key operations, including paying for utilities and fuelling vehicles.
In the deal, the county government under Governor Fernandes Barasa, has a two-month window to repay the loan before seeking for another facility.
“The situation has been tough for us as a county. At one time, we ran out of fuel and everything came to a standstill. The governor and I were forced to fuel our own vehicles to be able to operate,” Kakamega Deputy Governor Ayub Savula said.
In Homa Bay, the devolved unit has announced plans to sign a memorandum of understanding with a local bank to enable it to continue applying for an overdraft facility for purposes of paying salaries and other recurrent bills.
Already, the county under Governor Gladys Wanga owes the bank Sh1 billion which has accumulated over three months. The MoU will be a sign of commitment between the bank and the county government that the money will be repaid.
In Vihiga, the county assembly has approved a proposal between the executive and Kenya Commercial Bank (KCB) allowing the devolved unit to access an overdraft facility of up to Sh100 million to pay net salaries for staff whenever disbursements delay.
The details of the memorandum of understanding, however, remained scanty with Majority Leader Karega Mboku, who moved the motion, saying the overdraft will come at a minimal cost.
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The assembly's decision only binds payment of net salaries and not any other recurrent expenditures, leaving the issue of statutory deductions in limbo as the county's monthly wage bill stands at Sh230 million.
"We approved only the overdraft for payment of net salaries. The total monthly salary is over Sh200 million, but the motion we approved only allows an overdraft to pay net salaries that stand at Sh100 million. The overdraft must be repaid within 50 days at the normal bank loan rates. If it goes beyond the 50 days, the repayment attracts a penalty of about 0.45 per cent," Deputy Speaker Eric Odei disclosed.
In Siaya, the county government has decided to spend its own source revenue instead of approaching banks for overdraft facilities for salaries.
County Finance Chief Officer Jack Odinga said the devolved unit had decided to spend its own revenue to deal with the tough economic times and avoid disruption of services.
It is the same situation Rift Valley counties with Nakuru, Kericho, Narok, Bomet, Nyandarua and Laikipia counties kicking off negotiations with financial institutions so as to pay salaries to their workers.
In the deals, it has emerged, the counties are looking for friendly banks and other financial institutions that will not charge interest immediately the loans are advanced.
Kericho has already entered into an agreement with Kenya Commercial Bank to pay its workers’ salaries on the 28th of every month.
"We have signed a Memorandum of Understanding with KCB to ensure workers are paid their salaries on time. Even as doctors strike in other counties for non-payment of salaries, we do not have such issues in Kericho," Governor Erick Mutai said recently.
In Nyandarua, the county assembly has already allowed the county administration to go for short-term loans from local financial institutions, to offset employees' salaries, but warned the executive against going on a borrowing spree.
“Short-term borrowing has been working in other counties and Nyandarua becomes the 12th county to consider it,” Finance and Economic Planning Committee chairman Zachary Njeru told the Assembly early in the week.
The county has since invited banks willing to partner or offer the overdraft services, after the assembly passed the Bill allowing the county to borrow.
“The biggest challenge is the payment of workers’ salaries. The workers depend on salaries for their families’ survival. We don’t have overdrafts as of now, because we were able to pay the salaries from our other sources, but going by the funds' disbursement by the national treasury since February, we have found it prudent to prepare in advance,” said Governor Kiarie Badilisha.
In Bomet, the governor is mulling negotiating with local financial institutions for loans to survive, with workers going for over three months without salaries.
An overdraft facility that had been secured with two local banks is said to have been discontinued two years ago after the county breached the contract.
In Kajiado, the county has survived on bank overdrafts to pay salaries alone. Finance Executive Michael Semera says the salaries for employees are up to date.
"We fear the banks might begin chickening out on extending overdrafts to counties in case the disbursements continue to delay. For the last four months, we depend on bank overdrafts and own source revenue for survival," said Mr Samera.
A majority of the staff have, however, gone without allowances for months, demotivating them from engaging in activities outside their workstations.
In Makueni, the county assembly passed the County Debt Management Strategy Paper, an instrument which allows the county government to borrow up to Sh1.7 billion from commercial banks.
The intervention notwithstanding, the delayed disbursement of funds, has seen the county government significantly scale down its operations.
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Makueni Finance executive Damaris Kavoi acknowledged that the devolved unit had been going through a rough patch.
However, she revealed the National Treasury had sent some money to the county government last week.
“We are not there yet, but the situation is easing after the national government sent us some money last week. We also expect some more this week. We are not yet off the hook but we are grateful,” Ms Kavoi said in an interview.
In the North Rift, Nandi County has signed a contract with Equity Bank and KCB, allowing it to secure a minimum overdraft of Sh250 million monthly.
“The overdraft arrangement by the two banks facilitates payment of salaries and other financial obligations,” said Dr Francis Sang, the County Secretary.
The overdraft facility was confirmed by Governor Stephen Sang who said delayed release of funds by the Treasury was impeding recurrent and development operations in counties.
“As chairman for the eight counties under the North Rift Economic Bloc, I can confirm that delayed release of funds by the National Treasury is hurting counties, forcing some of them to resort to overdrafts to sustain operations,” said Mr Sang.
Baringo, Trans-Nzoia, West Pokot and Turkana have not gone for the overdrafts. Officials from the counties say they have managed to pay their staff through other sources.
In Uasin Gishu, Deputy Governor John Barorot said whenever the government disburses the equitable share through monthly tranches, priority is always given to the staff welfare.
“Planning is key in ensuring the county operations go on without fail. If the workforce is not sorted, then it will eventually lead to poor service delivery and we are keen on forestalling such,” he said.
In Elgeyo Marakwet, Finance executive Alphaeus Tanui said their staff received their April salaries yesterday. “We did not use a bank overdraft because whenever we receive the allocation from the National Treasury, we budget for recurrent expenditure. We have not missed paying salaries because the salary account has never been used for any other purpose,” he said.
In Mombasa, Governor Abdulswamad Nassir revealed the challenges he inherited from the previous administration, including the Kenya Revenue Authority debt amounting to Sh365 million.
Mr Nassir blamed salary delays to debts and late disbursements of funds by the National Government. However, the county has partnered with KCB to pay salaries on time and also clear the KRA debt.
“I inherited a backlog of two months’ salary delays which I was able to address. We have worked very hard to ensure salaries are paid on time,” said Mr Nassir.
The county spends Sh480 million to pay its workers, Sh30 million on electricity bills and Sh15 million on fuel.
In Taita-Taveta, in the month of February, the county sought a Sh310 million loan from KCB to pay its over 3,200 workers.
In Murang'a, Governor Irungu Kang'ata said he has severed all the overdraft and interdepartmental borrowings that he inherited from his predecessor.
He said that he has instead embarked on the mobilisation of local resources to gap budgetary deficits occasioned by delayed county funding by the National Treasury.
"We have been using local revenue to fund our programmes," he said.
Also in Kiambu, Governor Kimani Wamatangi has severed overdrafts as a shortcut to county funding. He said he inherited a Sh1.2 billion salary overdraft equivalent to two months’ payroll.
"By the time I came in, there was another Sh600 million pending overdraft but I cancelled it," he said.
Mr Wamatangi said he has resorted to local taxes to survive delayed county funding and even raised enough to promote 709 health workers.
Reporting by Benson Amadala, George Odiwuor, Derick Luvega, Kassim Adinasi, Eric Matara, Vitalis Kimutai, Waikwa Maina, Steve Njuguna, Stanley Ngotho, Pius Maundu, Tom Matoke, Barnabas Bii, Sammy Lutta, Oscar Kakai, Florah Koech, Fred Kibor, Evans Jaola, Winnie Atieno, Lucy Mkanyika, Mwangi Muiruri and Mwangi Ndirangu
