County Governments Will no Longer Take Loans From Banks

The financial woes that have been facing the counties are set to be renewed once again after banks were ordered by the National Treasury to recover all the loans advanced to the counties with immediate effect.

In a directive issued by the National Treasury to the banks, the Counties have to remit back the loans after it emerged that most counties are securing loans without the knowledge of the National Government.

County Governments have been relying on loans to set off most of their bills including salaries due to delays form the Treasury in releasing the funds meant for the devolved units.

This directive now means that the counties will no longer take loans as a stop-gap measure and they will have to wait for the funds to come from the treasury.

The storm is even set to be more explosive after the National Treasury, in its budget estimates proposed to reduce the county allocations by more than 70 billion shillings.

Late last year, in a report released by the Auditor General, some counties were heavily borrowing from the domestic market without the knowledge of the National Government and that such debts often went unaudited.

According to the report by the Auditor General, a total of four counties had taken commercial loans of up to 1.9 billion shillings by the end of the fiscal year of June 2014 with Nairobi County leading the pack with a total of 300 million shillings debt.

According to financial experts, the securing of loans by the county governments is harmful to the economy of such counties because and amount gotten will often be redirected from offering service to the county residents to the offsetting of the loans.

In the recent past, most counties have been blaming the National Government for always delaying to release funds meant for devolution something that has led to some of them, failing to pay salaries to county employees on time.

Article by Juma Fred.