Don’t borrow from banks to pay salaries, Deputy President Rigathi Gachagua has exhorted counties caught in the grips of a crippling financial crisis following the failure by the National Treasury to release an equitable share of revenue to the devolved units, with the delays now running into months.
Doing so, the second-in-command told a gathering of deputy governors in Mombasa City yesterday, is neither sustainable nor prudent, with the banks charging highs of 14 per cent interest.
“Let nobody push us to go and borrow money from banks at exorbitant rates to fund our recurrent budgets. What we are doing as a government is doubling our efforts in revenue collection by closing all loopholes [that contribute to tax leakage] and digitising the collection process. We have also suspended tax exemptions,” Mr Gachagua said.
“It is true we have had challenges because President William Ruto and his government have made a conscious decision that it is not sustainable and prudent to borrow money from banks at 14 per cent interest to pay salaries.”
Some counties have been grappling with huge wage bills, forcing governors to sign agreements with financial institutions to find a way of paying workers.
Mombasa County is among the devolved units that have such agreements with banks. Governor Abdulswamad Nassir said this was necessitated by late disbursements from the Exchequer.
The DP said the only way to restore the economy was through improving revenue collection.
“That is why, last month when we had a challenge, there was a slight delay in the payment of salaries because the previous administration used to borrow money from banks owned by the same leaders to pay salaries. But we have said no; we will pay salaries using national revenues,” revealed the DP.
Mr Gachagua’s sentiments came barely two weeks after senators voiced similar concerns.
The lawmakers had warned that county governments that use bank overdrafts to fill fiscal gaps caused by delayed disbursement of funds by the Treasury risked accumulating huge pending bills in form of interest.
This, the MPs said, was also true for penalties accrued from statutory deductions owed to various government agencies. The senators said devolved units are struggling to clear outstanding bills and pay statutory deductions, with most forced to rely on bank overdrafts to stay afloat.
However, the legislators said reliance on bank overdrafts continued to attract huge interest while failure to pay employee contributions to agencies such as National Health Insurance Fund and National Social Security Fund had seen counties being slapped with penalties by the Kenya Revenue Authority (KRA).