Counties were not allowed to borrow without the approval of the National Government. This has changed and they have been allowed to borrow up to a maximum of 5% of their audited revenues and can only borrow from the Central Bank of Kenya (CBK). The borrowed monies are to be repaid back in a period of one year from the date of borrowing.
All borrowing requests will first be approved by the relevant County Assemblies before they are submitted to the Central Bank of Kenya. This decision was agreed upon during an Intergovernmental meeting held on 28th September, 2016.
Why set the maximum that counties can borrow?
The maximum amount that a county government can borrow was set to tame over-borrowing and related wasteful spending. The Central Bank Governor indicated that relevant laws to allow this kind of borrowing will be ready by the end of October. This issue was addressed after National Treasury complained of the unrestrained borrowing by counties from commercial banks without approval by the National government.
The Intergovernmental meeting also discussed additional plans for the counties. First, there are plans to create a new pension scheme for counties. Secondly, county governments want to be represented at Kenya Medical Services Agency (KEMSA) and the National Hospital Insurance Fund (NHIF) boards.
What will be the effects of County Borrowing?
The approval for borrowing by counties will help deal with deficit budgets. It’s a fact that most counties do not reach the targets in local revenue. This may be due to being over-ambitious or existence of leakages in revenue collection. When there is a deficit, the social programs are the first victim of cuts. This results into violation of people’s economic, social and cultural rights.