Treasury moves to lift Meru funding freeze over Sh640m investor debt

The Meru government is set to receive a major reprieve after the National Treasury committed to lifting the suspension of its funds and paying Sh139 million to a French investor.

The move follows months of uncertainty surrounding a Sh640 million debt dispute that had threatened both the county’s operations and Kenya’s diplomatic relations with France.

National Treasury Cabinet Secretary John Mbadi told the Senate Finance and Budget Committee that his ministry would formally communicate to Controller of Budget Margaret Nyakang’o on the withdrawal of the order stopping approval of Meru County withdrawals.

Appearing before the committee chaired by vice chairperson Tabitha Mutinda, Mbadi said the Treasury had already initiated steps to restore normal funding operations to the county.

“The move to stop the Controller of Budget from approving withdrawal of funds for Meru county had already been subjected to the provisions of Article 225 of the Constitution. The best we could do was to give the new development in writing,” Mbadi said.

“We agreed that we would communicate it formally to her so that when she is doing the report to the Senate, that is captured and then the matter is dispensed with.”

Mbadi explained that once Article 225 of the Constitution is invoked to halt funds, the Controller of Budget is constitutionally obligated to act, making the process difficult to reverse informally.

“According to the way the law is crafted, once I invoke Article 225 and write for the stoppage, the Controller of Budget responds automatically because the law kicks in. That is why we are going to fast-track the process,” he said.

“We will have communicated to the Controller of Budget so that she can conclude her constitutional responsibility and then we go back to normalcy in terms of funding the Meru county.”

The Treasury CS, however, indicated that the national government may still assume responsibility for any liabilities beyond the Sh139 million if necessary.

“Should there be any liability beyond the Sh139 million, the national government will still intervene in that respect,” Mbadi said while sympathising with Meru Governor Isaac Mutuma over the debt burden facing the county.

Mbadi further disclosed that negotiations over accrued interest on the debt are ongoing through the Ministry of Foreign Affairs and the Treasury.

He said the Treasury had directed the Finance Principal Secretary, through the Foreign Affairs PS, to engage stakeholders on the issue of interest.

The CS also revealed that Meru had ignored several letters from the Treasury regarding the debt dispute, including correspondence sent in January this year, only responding after the national government halted disbursement of county funds.

Mbadi said the matter escalated into a diplomatic concern after the French government raised the issue directly with President William Ruto.

“Our bilateral relationship with France, including some of their funded projects, were at risk,” Mbadi told senators.

“They had indicated that if we were not going to resolve this matter, they were going to review future funding. We have many projects funded by the French government and we felt it was not right for mismanagement by a county to jeopardise relations between two countries.”

The dispute traces back to lease agreements signed between Leopard Rock Mico Limited and the former Nyambene County Council in 1997.

The original agreement was later replaced by another lease signed on October 30, 2008.

The revised agreement set monthly rent at Sh60,000 with a 10 per cent increment every two years and introduced a 10 per cent daily bed occupancy contribution payable monthly.

In July 2018, the Meru government terminated the lease, arguing that some building plans had not received the required approvals.

The dispute later escalated into a legal and diplomatic matter after the French investor sought compensation.

In May 2025, President William Ruto reportedly declared that the national government would settle the Sh640 million debt.

Mbadi, however, said the directive had never been formally communicated to the Treasury in writing.

“Had I known earlier that such communication existed formally, I probably would not have taken the steps I took,” he said.

“When I take decisions at the National Treasury, I do not always refer to the President. I act within the law, the Constitution and the Public Finance Management Act.”

He said he later learnt of a meeting concerning the matter, but insisted that financial decisions require formal written communication.

“I have written to the Head of Public Service, who is acting on behalf of the Head of State, to communicate that decision officially because up to now there is no official communication to that effect,” he said.

“There is no financial decision I can take based on a verbal directive. The Head of State must communicate in writing.”

Mbadi expressed confidence that the communication would be received soon, paving the way for restoration of normal funding operations in Meru County by next week.