Bank overdrafts hurting counties, senators warn

Senate sitting

A Senate sitting on March 23, 2021. Senators say devolved units are struggling to clear outstanding bills and remit statutory deductions due to delayed disbursement of funds from the national government.  

Photo credit: File | Nation Media Group

County governments that use bank overdrafts to fill fiscal gaps caused by delayed disbursement of funds by the National Treasury risk accumulating huge pending bills in form of interests, senators have warned.

The same goes for the penalties accrued from statutory deductions owed to various government agencies.

The legislators said county governments are struggling to clear outstanding bills and paying statutory deductions, with most forced to rely on bank overdrafts to stay afloat.

However, the reliance on bank overdrafts continues to attract huge interests while failure to pay employee contributions to agencies such as National Health Insurance Fund and National Social Security Fund has seen counties slapped with penalties by the Kenya Revenue Authority (KRA).

The development comes at a time when counties are grappling with huge pending bills, which stood at Sh158 billion as of February 28, 2023, according to figures released by the Controller of Budget Dr Margaret Nyakang’o.

The amount comprises Sh157.18 billion by the county executive and Sh1.63 billion by assemblies.

The arrears continue to mount even with counties having settled Sh22.9 billion between June and December 2022, according to a December report by the CoB.

Nairobi Senator Edwin Sifuna said the delays in disbursement of funds to the counties has seen most counties unable to remit their statutory deductions.

He cited an example of Trans Nzoia County Assembly which, while appearing before the Senate County Public Accounts committee last week, said they had failed to remit Sh7.9 million to KRA in the financial year ended June 2020 for Pay As You Earn (PAYE).

Consequently, the county assembly was slapped with Sh16 million penalties and Sh2 million in interest for a cumulative Sh18 million.

“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 sent there on time,” said Mr Sifuna.

Nominated Senator Esther Okenyuri said the situation has led to all development projects stalling in the counties.

“I think we are not biting enough as a Senate. It is time we bite and show we are here talking on behalf of ordinary citizens relying on services in the counties,” said Ms Okenyuri.

Wajir Senator Mohamed Abass added that his county has not received money for the past five months, with staff worst hit as they have not been getting their salaries.

The situation is replicated in most county governments. 

“What is happening in the counties is very unfortunate. While the national government is paying its staff on time, the county governments are not able to do the same,” he said.

Last week, while appearing before a Senate watchdog committee, National Treasury Principal Secretary Dr Chris Kiptoo said the cash crisis in the counties will continue, with the national government missing its latest revenue target by Sh67 billion.

He admitted the government is facing a financial crisis, with the Treasury struggling to raise funds for disbursement to counties and even to ministries, departments and agencies.

The PS said devolved units are owed Sh92.5 billion in delayed disbursements for the months of January, February and March.

Vihiga Senator Godfrey Osotsi said the situation is dire despite the Senate having passed the disbursement schedule last year.

“This is a very serious matter as the county which I represent here has not been paying salaries and this is as a result of late disbursement of funds,” said Mr Osotsi.

“When salaries are not paid on time then we run a risk of the counties grinding to a halt. All we hear are promises,” added Makueni Senator Dan Maanzo.

Narok Senator Ledama Olekina urged the Senate to move a motion to compel KRA to only penalise counties or any other entity where the Exchequer has released money to on time.

“We have an issue where if the Treasury fails to release money on time, these statutory deductions end up accruing a lot of interests and penalties leading to huge pending bills,” he said.