Counties drowning in debt as Treasury delays fuel borrowing spree

Erratic cash disbursements by the National Treasury have sparked a borrowing spree by county governments, plunging devolved units deeper into debt and attracting millions in interest and bank charges on short-term loans.

The latest county expenditure report reveals that many devolved units have increasingly turned to commercial bank loans and Saccos to keep their operations afloat, amid the unpredictable release of national funds.

These loans are mainly used to pay salaries for county executives and staff, in a bid to stave off strikes and work slowdowns that would disrupt service delivery.

As of March 31, counties had collectively borrowed over FSh20 billion. However, the actual figure may be higher, as some counties did not disclose their borrowing. 

In addition, pending bills stood at Sh172.51 billion, highlighting the widespread financial distress facing devolved units.

According to the report by Controller of Budget Margaret Nyakang’o, most of the loans are short-term, with repayment periods ranging from one to three months. Counties that fail to repay on time face steep penalties.

In Nairobi, the county assembly borrowed Sh298.53 million from Family Bank. 

The county executive, on the other hand, has a bank overdraft facility with the Co-operative Bank of Kenya Limited to pay for its personnel emoluments, which average Sh1.6 billion per month. 

By end March, it had an overdraft balance of Sh1.54 billion and had paid Sh43.14 million in bank charges and commissions for the same. 

In addition, the county has a long-standing KCB loan of Sh4.5 billion – taken in 2010 during the defunct Nairobi City Council tenure – which is listed in the pending bills.

The Homa Bay government borrowed Sh488.93 million to support its operations. 

“The county agreed with Diamond Trust Bank (K) Limited for the Payroll Management Overdraft facility at an interest rate of 0.5 per cent and an excise duty of 10 per cent on the interest the bank charges,” the report states.

As of March 31, the outstanding amount for the facility stood at Sh488.93 million. 

In addition, the county government entered into a tenant purchase agreement with the County Pension Fund for the construction of the Homa Bay County Headquarters and ancillary facilities – the amphitheatre and the Ushuru Centre. 

The total project cost is Sh820 million, with a monthly repayment of Sh17.25 million for four years.

In Bungoma, the government borrowed Sh556.13 million from KCB – Sh516.21 million for the executive and Sh39.92 million for the county assembly. 

“As of March 31 2025, the county had a short-term arrangement with Kenya Commercial Bank, Bungoma branch, to facilitate salary payments and avoid delays,” the report states.

Kisii county borrowed Sh521.73 million from Family Bank, with Sh470.53 million allocated to the executive and Sh51.19 million to the assembly. 

Of this, Sh496.43 million has been repaid, leaving Sh24.9 million outstanding – owed by the assembly. 

“The borrowing was utilised in payment of net salaries,” the report notes.

In Kisumu, Sh1.68 billion was borrowed from KCB to support operations and ensure prompt salary payments. 

The report shows that Laikipia county followed suit with a Sh250.60 million loan from the National Bank to maintain its operations, while Makueni borrowed Sh352.4 million from KCB to cover March salary payments, which remained unpaid at the end of the reporting period.

Migori county assembly secured a Sh50 million overdraft facility from KCB at an interest rate of three per cent, repayable within one month.

“The borrowed funds were utilised for payment of members’ and staff allowances in arrears for FY 2023/24 and to defray office operations for July 2024, as a result of the delayed disbursement of June 2024 shareable revenues,” the report adds.

In Kakamega, the county did not disclose any borrowed amounts as of March 31. 

However, both arms of the government have each signed a renewable salary MoU with commercial banks to manage monthly salary payments.

In Nyandarua, the county government has an MoU with Tower Sacco for the payment of salaries whenever there is a delay in the disbursement of the equitable share.

Since the advent of devolution in 2013, county chiefs have consistently blamed the National Treasury for prolonged delays in exchequer releases. These delays have frequently led to salary arrears, stalled development projects and threats of county-wide shutdowns.

In November 2024, Council of Governors chair Ahmed Abdullahi issued a stern warning: “We demand the National Treasury immediately releases the funds owed to counties, failing which, county governments will have no choice but to shut down operations completely.”

The Treasury is legally obligated under Section 17 of the Public Finance Management Act, 2012 to release counties’ equitable share by the 15th of every month. However, this timeline is routinely violated.

In the last financial year, for instance, the Treasury failed to release Sh30 billion to counties in what the Treasury attributed to cash flow challenges. 

In 2022-23, the counties received more than Sh60 billion at the tail end of the fiscal year – too late to absorb the entire amount. 

Some monies for FY 2021-22, about Sh30 billion, were not disbursed until August of the same year, two months into the new fiscal year. 

In the financial year 2020-21, the Treasury had only released Sh123 billion of the total allocation of Sh316.5 billion. 

The amount included arrears of Sh29.7 billion for the previous financial year (2019-20), meaning counties struggled with delays and inadequate services. 

By the end of 2021, the counties were yet to get Sh26.9 billion, against legal provisions requiring county cash to be disbursed without undue delay or deduction. 

The previous years were no different, as Treasury released money too late in the spending year – sometimes on the last day.

While the Treasury cites cash flow problems and competing obligations for the funds, critics say the exchequer is biased against counties. 

Governors have argued the Treasury favours the national government over counties in releasing cash.

INSTANT ANALYSIS

Legally, county governments have at least five sources of income. They include their annual equitable share, that is, the money Parliament shares vertically between the national and county governments. Other sources of income include own-source revenue collection, loans, grants and investments. However, despite the constitution empowering the counties to generate their own revenue, they are still overly reliant on the exchequer.