Counties turn to expensive loans to cover essential expenses amid Treasury delays

Several governors have turned to commercial banks for costly loans to cover essential expenditures, including salaries, as the National Treasury delays monthly disbursements.

A recent report by the Controller of Budget (CoB) Margaret Nyakang'o reveals that at least eight counties have borrowed over Sh2 billion to sustain operations during the first quarter of the Financial Year 2024-2025.

The affected counties include Kisumu, Kakamega, Kisii, Migori, Laikipia, Homa Bay, Bungoma, and Nyandarua.

These counties, facing financial constraints due to the delayed funds, have entered into loan agreements to cover recurrent expenses.

Governance experts are concerned that the borrowing, combined with the delays, could lead to serious financial strains on the county governments.

To manage the immediate cash flow shortfalls, some counties have signed agreements with banks.

These agreements are meant to facilitate salary payments during periods of Treasury delays, with the loans to be repaid once the allocated funds are released.

For instance, Homa Bay County borrowed Sh473.69 million from KCB Bank and Equity Bank, arranging for an advance payroll processing facility. KCB offered a 0.5 per cent interest rate, while Equity Bank provided a 1 per cent rate.

As of September 30, 2024, the county still owed Sh473.69 million to KCB.

In Bungoma, Governor Ken Lusaka's administration borrowed Sh595.12 million from KCB, with Sh509.28 million allocated for the executive and Sh85.84 million for the county assembly.

In Kisumu County, the administration of Governor Peter Anyang Nyong'o borrowed Sh449.50 million from KCB to pay salaries, a debt that remained unpaid as of September 30, 2024.

In Kisii County, Governor Simba Arati's administration borrowed Sh256.27 million from Family Bank in July 2024 to pay salaries for both the executive and county assembly members.

Migori County Assembly secured a Sh50 million overdraft from KCB bank at an interest rate of 3 per cent to cover arrears for members and staff allowances. As of September 30, 2024, the overdraft remained unpaid.

Although Kakamega County did not report any borrowing, both the executive and assembly signed renewable agreements with commercial banks to cover salary delays.

In Laikipia, while the executive did not borrow, the county assembly secured Sh24 million from Family Bank.

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Nyandarua County also signed an MoU with Tower Sacco to ensure timely salary payments during Treasury delays.

The growing reliance on loans to cover salaries and essential services has raised concerns about the long-term sustainability of county finances and the impact on development projects.

As the Treasury continues to delay disbursements, counties are under increasing pressure to find alternative funding sources to keep their operations running smoothly.