The Intergovernmental Budget and Economic Council (IBEC), chaired by DP William Ruto, and the National Treasury, have reached an agreement that allows counties to borrow up to Ksh60 billion for development purposes.
The agreement means that counties can borrow up to 28 percent of their last audited total revenue. This was revealed by Council of Governors Finance Committee Chairman Ndiritu Muriithi.
The Ksh60 billion limit is based on the audited revenues of the 2018/2019 Financial Year.
“The money can be used for capital projects as anticipated in the Constitution and Public Finance Management Act. Importantly, counties can issue securities such as bonds,” said Muriithi who is also the governor for Laikipia County.
Laikipia county is set to be the first to borrow for development since it is scheduled to hold a public launch of its Credit Rating Report today.
The governor added that the provision for counties’ borrowing has strict legal guidelines that counties will have to meet before they can borrow.
“For instance, it requires counties to undertake feasibility studies to find out if the projects have any economic or social gains or returns. Then, their ability to conduct timely procurement to ensure cash borrowed can be absorbed.
“The pricing is likely going to be uniform because all county borrowing has treasury guarantee. In the future, we may see pricing based on perceived risk of the sub-sovereigns,” the governor added.
Before this deal was reached, counties could borrow money from banks for recurrent expenditure, but could not borrow long-term loans.
The Ksh60 billion debt provision has increased counties’ equitable shareable revenue by Ksh44 billion to Ksh409.88 billion in the next financial year.
Repayment of public debt in Kenya is set to cross the Ksh1 trillion mark from July. The treasury revealed to parliament that Ksh1.023 trillion will be paid for loans starting in the July. This will be the single largest expenditure paid.
Jude Njomo, Kiambu Town MP, while speaking during a meeting with Parliament Budget Office in Mombasa said that there was need to initiate reforms in the budgeting process with the aim of enhancing fiscal discipline and controlling national debt.
