Counties on the spot over expensive commercial loans
Auditor-General Nancy Gathungu.
What you need to know:
- Ms Gathungu said counties have for years used late disbursements as an excuse for billions in pending bills.
- She said if the excuse is true, then there should be a correlation between outstanding Exchequer release and incurred pending bills.
- “Counties should then be able to clear their pending bills once they get the full disbursement but that never happens. Most of the pending bills are more than two years old yet counties never fail to get their full allocations,” she said.
Counties are on the spot over unrealistic budgets leading to the uptake of expensive commercial loans to fund recurrent expenditure, a move that has seen county governments grapple with huge pending bills.
The development comes at a time when county governments are grappling with outstanding debts owed to contractors and suppliers amounting to at least Sh156.3 billion resulting from over-commitment.
The move follows concerns raised by lawmakers over the recent trend by county governments to resort to expensive commercial loans to fund recurrent expenditure.
Consequently, the devolved units could now be forced to have budgets reflecting the funds they can raise from own-source revenue and Exchequer release in a bid to rein in huge pending bills incurred by the counties.
Appearing before a Senate watchdog committee, Auditor-General Nancy Gathungu said counties incur pending bills because of over-committing on various projects in the county beyond the funds they have.
She called for guidelines to stop counties from taking such loans but be pushed to enhance their source revenue instead.
Nominated Senator Tabitha Mutinda faulted the counties, saying it is not clear how the county governments take the loans and the agreements they have with the banks.
Ms Gathungu told the Senate County Public Investments and Special Funds Committee chaired by Vihiga Senator, Godfrey Osotsi, that MPs should now come up with a law prohibiting counties from approving unrealistic budgets.
Further, she recommended that county governments should not be allowed to have pending bills older than two financial years, adding that pending bills should be put as part of public debt.
“Counties overextend themselves by budgeting with revenue projections that are not feasible. They come up with a figure that is an assumption then they commit expenditure as if the funds are available,” said Ms Gathungu.
“There should be a law stopping counties from committing expenditures beyond what they can raise in terms of funds. Let us tighten the controls,” she added.
For instance, Governor Johnson Sakaja’s Nairobi County announced a budget of Sh43.56 billion for the financial year ending June 30, 2025.
To fund the highest-ever budget to have been approved by the county, City Hall projects to collect Sh20.06 billion as own-source revenue, excluding the facilities improvement fund.
The amount will then add to Sh22.5 billion, including conditional grants, as Exchequer transfers, a figure which is also not guaranteed amid the national government’s Sh20 billion planned reduction on allocation to counties.
Interestingly, the county government collected local revenue of Sh12.8 billion in the fiscal year ending June 30, 2024.
This is the highest-ever collection for the county government, however, the figure is a staggering Sh7.26 billion off the target of Sh20.06 billion projected by the devolved unit.
“Counties are resorting to commercial loans to fill the gap but no one is asking whether they are improving their source revenue. If the national government fails to raise enough revenue, does it mean the counties will collapse?” posed the auditor-general.
Migori Senator Eddy Oketch said the huge pending bills are possible avenues for siphoning off money through payments of “ghost” contractors and suppliers.
“We want your office to conduct a programme-based audit to see how the bills are accumulated. Also, ensure county budgets reflect only the funds they have,” said Narok Senator Ledama Olekina.
A report by the Controller of Budget Dr Margaret Nyakang’o showed that as of December 2023, Nairobi City County accounted for 68.5 percent of the stock of pending bills at Sh107.04 billion.
Other counties with a high level of pending bills are Kiambu (Sh5.71 billion), Mombasa (Sh3.92 billion), Machakos (Sh3.03 billion), Mandera (Sh2.3 billion), and Busia (Sh2.29 billion).
Ms Gathungu said counties have for years used late disbursements as an excuse for billions in pending bills.
She said if the excuse is true, then there should be a correlation between outstanding Exchequer release and incurred pending bills.
“Counties should then be able to clear their pending bills once they get the full disbursement but that never happens. Most of the pending bills are more than two years old yet counties never fail to get their full allocations,” she said.
