Banks avoid lending to counties in debt fallout
The National Treasury building in Nairobi.
What you need to know:
- Suppliers are facing auctioneers as banks seize their assets to recover loans.
- Increased delays in public payment can affect private firms liquidity and profits.
Nairobi had a Sh78.7 billion debt, representing 69.1 per cent of the total bills by counties.
Peter Gatimu (not his real name) is a dejected man.
The contractor working with a county government in Mt Kenya has been receiving warnings from a banks to pay a loan he took three years ago.
Despite Mr Gatimu getting the notices, he is not ready to go public on his financial woes, fearing a backlash from county government officials.
“It’s tough doing business with the devolved government. Banks are not willing to finance county government contracts. I’m owed Sh2.5 million by this county despite completing the project,” Gatimu told the Nation on Wednesday.
The businessman’s woes mirror those of many other contractors.
Suppliers are facing auctioneers as banks seize their assets to recover loans.
The backlog of payments could lead to a crisis, with the National Treasury and Controller of Budget admitting the problem.
Revenue targets
Inability to meet revenue targets, reckless spending and irregular hiring of staff by governors has been blamed for the debts amounting to billions of shillings accumulated in the last three years.
In her latest report on the 2019/20 financial year county spending, Controller of Budget Margaret Nyakang’o lists 41 devolved governments bogged down by debt totalling Sh113.85 billion.
Increased delays in public payment can affect private firms’ liquidity and profits.
Banks have also complained of delays in settling contractor and supplier claims, saying, lending to small and medium enterprises has been hit hard.
Only Mandera reported zero pending bills, while Isiolo, Kirinyaga, Marsabit, Mombasa and West Pokot did not submit their information.
Nairobi had a Sh78.7 billion debt, representing 69.1 per cent of the total bills by counties.
Procurement plans
Others with huge bills were Kwale (Sh2.8 billion), Wajir (Sh1.8 billion), Meru (Sh1.9 billion), Kajiado (Sh1.5 billion) and Migori (Sh1.3 billion).
Dr Nyakang’o said counties are not aligning their procurement plans with their cash flows and budgets, leading to the pending bills quagmire. She also cites delays in disbursing county funds by the Treasury, an assertion supported by governors.
Treasury disbursed Sh286.78 billion in the last financial year against the equitable share of Sh316.5 billion as per County Allocation of Revenue Bill, 2019.
The balance of the equitable share — about Sh26 billion — was disbursed on August 5.
The piecemeal disbursement of funds, which comes very close to the end of the financial year, complicates the expenditure by county governments.
“From analyses of reports received from county governments, pending bills may be attributed to the delay in the release of money by the National Treasury, [and] the underperformance of own source revenue collection among other reasons,” Dr Nyakang’o’s report says.
“The Controller of Budget recommends a special audit by the Office of the Auditor-General to verify the veracity of the pending bills. We recommend that county governments ensure pending bills are prioritised as a first charge in the budget implementation cycle for the 2020/21 financial year before embarking on new commitments.”
Most devolved governments have not met their revenue targets largely due to corruption in the collection systems, leading to borrowing from banks at higher interest.
Resort to legal means
Nairobi, for instance, failed to meet its Sh17 billion own revenue target, collecting only Sh8 billion, according to county reports.
Nakuru county had planned to raise Sh3 billion, but collected Sh2.5 billion, representing 82 per cent of the revenue target.
Last year, the government said it would resort to legal means to compel devolved governments to settle their pending bills promptly.
The National Development Coordination and Communication Committee, chaired by Interior Cabinet Secretary Fred Matiang’i, warned devolved units against giving excuses on pending bills despite getting money from the government.
Companies had also complained of accumulating pending bills amid credit rationing by commercial banks due to interest rate capping that had made them to put on hold investment and expansion plans, badly hitting job creation.
