By Ronald Owili

NAIROBI, Feb 5 Kenya’s National Treasury has alerted financial institutions in the country to cease extending credit to counties and begin recovering unsecured loans.

In his draft 2016 Budget Policy Statement, National Treasury Cabinet Secretary (Minister) Henry Rotich indicates that in the 2013-2014 financial year, four counties obtained loans amounting to 1.9 billion shillings (about 18.64 million US dollars) which were neither guaranteed by the national government nor Parliament.

Although the national government continues to borrow locally and externally to bridge its Budget deficit and finance some of its key infrastructure, the Treasury says the country’s debt to gross domestic product (GDP) ratio is still sustainable and well below the World Bank threshold of 74 per cent.

The ratio of public debt to GDP has been declining in the last two financial years, from 44.9 per cent in financial year 2013-2014 and is forecast to drop to a projected 41.3 per cent in 2017-2018.

According to Rotich, a new threat is emerging in the devolved units of government, the country’s 47 counties. He said: “Reports by the Auditor-General indicate that some County Governments are borrowing domestically without National Government guarantee, which calls for an audit of such debt.”

This contravenes Article 212 of the Kenyan Constitution and the Public Financial Management Act.

In 2013/14 financial year, four counties procured commercial loans totalling 1.9 billion shillings, the majority being accrued by Nairobi County which, in 2014/15, borrowed 300 million shillings.

Rotich says the debt is also not approved by parliament and that its purpose is unclear. He says revenue which the devolved units generate from their own sources are also not being put to service delivery but rather servicing the debts and interest accrued.

In 2014/15, financial liabilities comprising deposits and retentions held on behalf of third parties by counties grew to 1.1 billion shillings, up from 500 million in the previous financial year.

Fourteen counties accounted for the entire stock of liabilities, with Migori County being responsible for nearly 60 percent.

Rotich wants all banks and non-bank financial institutions to suspend credit to counties and begin recovering unguaranteed loans.

Source: KBC