Some of the affected counties have signed Memorandums of Understanding (MoUs) with banks to manage salary payments during cash shortages.
Several governors have resorted to negotiating costly loans from commercial banks to cover recurrent expenditures, including salaries and essential services, as the National Treasury delays monthly disbursements.
The latest budget implementation review report for the first quarter of the 2024/2025 financial year by Controller of Budget (CoB) Margaret Nyakang’o has revealed that eight counties borrowed over Sh2 billion from commercial banks to sustain operations and pay salaries.
The affected counties include Kisumu, Kakamega, Kisii, Migori, Laikipia, Homa Bay, Bungoma, and Nyandarua.
Governance experts warn that such borrowing, coupled with delayed Treasury disbursements, exposes county governments to heavy fines and mounting interest, further jeopardising development projects.
“These loans threaten to cripple county development plans, as budgets will have to be adjusted to cover fines and interest,” said governance expert David Ngugi.
Some counties have signed Memorandums of Understanding (MoUs) with banks to manage salary payments during cash shortages, agreeing to repay the loans once funds are released.
For instance, Homa Bay County borrowed Sh473.69 million from Kenya Commercial Bank and Equity Bank. The county executive arranged for an advance payroll processing facility with KCB at an interest rate of 0.5 per cent and 20 per cent excise duty.
Equity Bank offered a similar facility with a one per cent interest rate. As of 30 September 2024, the county owed Sh473.69 million to KCB.
In Bungoma, Governor Ken Lusaka’s administration and the county assembly borrowed a total of Sh595.12 million from KCB, with Sh509.28 million for the executive and Sh85.84 million for the assembly.
Kisumu County, under Governor Prof Peter Nyong’o, borrowed Sh449.50 million from KCB to pay salaries, an amount still outstanding as of 30 September 2024.
In Kisii, Governor Simba Arati’s administration and the county assembly borrowed Sh256.27 million from Family Bank in July 2024 to pay salaries.
Migori County Assembly secured an overdraft of Sh50 million from KCB at an interest rate of 3 per cent to pay arrears for MCAs and staff allowances and to fund operations. By 30 September 2024, the overdraft remained unpaid.
Although Kakamega County did not report borrowing, both the executive and assembly have signed renewable salary MoUs with commercial banks.
In Laikipia, while the executive did not borrow, the county assembly obtained Sh24 million from Family Bank. Nyandarua County signed an MoU with Tower Sacco to facilitate salary payments during delays in Treasury disbursements.
