Eleven Counties Risk Missing Out Ksh 11.1B Budget Cash

The National Treasury has disbursed Ksh 836 billion as at 18 January, 2017 to the County Governments.

“With regard to FY 2016/17, 46.9 percent of equitable share transfers has been disbursed. The only outstanding amounts in respect of the equitable share due to County Governments in the first half of FY 2016/17 is Ksh 11.1 billion,” said Dr. Kamau Thugge, PS,  National Treasury in a public statement on the status of Fiscal Transfers to County Governments.

However,Treasury faults 11 Counties for failing to meet their financial obligations linked to low budget absorption capacity, escalation of the wage bill and shortfalls in own source revenue collections leading to budget deficits.

“In view of the fact that the National Treasury has largely been on schedule with disbursements, County Governments do not have justifiable reasons to default on their commitments, which include timely payment of salaries and fulfilment of other contractual obligations,” said Thugge.

According to the public notice, as at 18 January, 2017, County Governments had collectively accumulated cash balances in various Central Bank of Kenya accounts amounting to Ksh 33 billion, equivalent to 11.8 percent of their equitable share allocation in the current fiscal year.

“Some 11 counties have unspent reserves above Ksh 1 billion each, while the average balance per county exceeds Ksh 700 million. Evidence suggests that the iel cash balances could be much higher if deposits irregularly held in commercial bank accounts are taken into account,” notes Treasury.

Counties that have unspent reserves include:  Baringo (, Bungoma (Ksh 1.45B) Embu (Ksh1.46B), Kakamega (Ksh 1.05B), Kisumu (Ksh1.06B), Kitui (Ksh1.75 B), Makueni (Ksh 2.3B), Mandera (Ksh1.37B), Nakuru (Ksh 1.3B), Nyeri (Ksh1.37 B) and Wajir (Ksh1.06 B).

Thugge states that with the prevailing drought situation in the country, county governments are able to deal with it.

“With proper planning and prudent financial management, County Governments should be able to deal with contingencies such as the ongoing drought situation as required under the Public Finance Management Act, 2012 by setting aside 2 percent of their revenues for purposes of the Emergency Fund.”

However, governors of the affected counties described as “erroneous” and “misleading” to the  statement by National Treasury Principal Secretary Kamau Thugge.

Treasury states that the amount the remains to be disbursed, they will prioritise those with least balances in their Central Bank of Kenya accounts.

The objectives of the the Public Finance Management Act is to ensure that—

a) Public finances are managed at both the national and the county levels of government in accordance with the principles set out in the Constitution; and,

b) Public officers who are given responsibility for managing the finances are accountable to the public for the management of those finances through Parliament and County Assemblies.

In line with the constitution and the PFM Act 2012, a contingency provision of KSh 5.0 billion was provided for in the FY 2016/17 budget to cater for unforeseen expenditures. The Equalization Fund was allocated KSh 6.0 billion to cater for critical development expenditure in water, roads, health, and energy in marginalized areas to improve services in those areas to the standards in other areas. Together with the accumulated deposits of KSh 6.4 billion, brings the total available resources in the Equalization Fund to KSh 12.4 billion.

For this Fiscal Year, the Government  has borrowed Kshs 164.0 bn domestically against a target of Kshs 132.5 bn.

“However,It is in the process of revising its domestic borrowing target upwards to Kshs 294.6 bn, which will take the pro-rated borrowing target to 170.0 bn, meaning that the government will fall slightly behind its borrowing target, especially in a tight money market liquidity condition such as we are now experiencing,” according to insights from Cytonn Investments.

The government has only borrowed Kshs 45.8 bn from the foreign market against its foreign borrowing target of Kshs 462.3 bn, and the Kenya Revenue Authority (KRA) having already missed its first quarter of 2016/17 fiscal year revenue collection target by 18.4 percent.

“This creates uncertainty in the interest rate environment as the government might have to plug in the deficit likely to arise from the lag in revenue collection and foreign borrowing from the domestic market, a move which may exert upward pressure on interest rates,” adds the Analysts.

The country’s budget deficit has risen by 9.6 per cent of gross domestic product, from 7.2 per cent in the 2015/16 financial year, to currently stand at $5.16 billion till end of June 2016.

Read: Kenya Sets FY2016/17 Budget Deficit to 9.3 percent Starting July

Further, the government has re-opened a 15-year bond with an effective tenor of 5.4 years, to raise Kshs 30.0bn for budgetary support.

“Given that a 5-year bond is currently trading at a yield of 13.4 per cent in the secondary market, and there is skewed liquidity currently being witnessed in the market, we expect investors to bid for the bond at yields above the secondary market yield, at a bidding range of 13.6 percent – 14.5 percent,” according to Cytonn Investments.

Related: Parliamentary Budget and Appropriation Committee Casts Treasury on the Spot over Reliance on Long-term Debt