The Treasury has allowed counties to borrow up to 5% of their audited annual revenues from the Central Bank of Kenya in a move likely to ease financial strain that has slowed their operations.
Central Bank of Kenya Governor Patrick Njoroge however said the overdraft facility will be payable within one year. The CBK will next month draft guidelines, paving the way for implementation by December.
Counties are legally allowed to borrow from the CBK with approval of the Treasury and county assemblies but none has exploited that credit window.
The decision to open the credit line was reached yesterday at a meeting bringing together Treasury secretary Henry Rotich, Dr Njoroge, Commission of Revenue Allocation officials and county chiefs.
“I want to make it clear that CBK will only allow counties to borrow up to five per cent of their audited revenues and nothing more than that,” Dr Njoroge said in the meeting chaired by Deputy President William Ruto at his Karen offices.
The governors, including Wycliffe Oparanya (Kakamega) and Peter Munya (Meru) welcomed the CBK overdrafts, saying they would avert interruptions in the event of shortfalls or delays.
County governments have in recent years grappled with cash flow problems blamed on delayed disbursement by the national government.
The devolved units have in the past opted for expensive loans from commercial banks to plug their budgetary deficits and respond to emergencies such as salaries and payment to suppliers.
The IMF had in September last year warned against counties accessing the CBK’s overdraft facility, saying that the debt would complicate monetary policy implementation.
The fund said counties borrowing directly from the CBK is viewed as printing new money that would require frequent mopping up to prevent demand-driven escalation of prices.
Wednesday’s meeting also resolved to cap expenditure by counties in fresh efforts to seal loopholes for cash wastage.
County officials have in the past been on the spot for misusing public funds, splurging on unnecessary foreign travels and sitting allowances.
“Counties have been borrowing money from commercial banks in a manner not convenient. It is because of this that we have resolved that Central Bank allows borrowing to help counties with challenge of resources to fund their activities,” said Mr Ruto.
The IMF had also expressed concerns that counties could abuse the CBK’s borrowing window as some devolved units have in the past borrowed loans from banks without the required authorization.