Treasury to advance counties credit during financial crunch

The government through the national treasury will soon start lending to county governments.

Speaking while chairing the Inter-Governmental Budget and Economic Council, Deputy President William Ruto said that the national treasury would offer these monetary advances as a short term remedy to cash strained counties, as they wait for the Central Bank of Kenya (CBK) to get ready and take up that mandate.
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The CBK had in September last year agreed to offer to county governments overdrafts not exceeding five percent of their audited revenues.

“I want to make it clear that CBK will only allow counties to borrow up to five per cent of their audited revenues and nothing more than that,” CBK governor Dr Patrick Njoroge said in a meeting last year.

But after what appears to be teething problems in the CBK arrangement approved last year, the national treasury as taken up the mandate and will soon be the one to offer advances to counties with urgent financial needs.

“The treasury is now willing to front load that money, provide it in advance and then its deducted over a period of between three months and one year. As a better mechanism as the other issues are being worked out by the central bank,” Mr Ruto told governors.

County governments have been pushing for the opening of this window citing possible delays and shortfalls in disbursement of funds from the national government.

Since October last year, a number of counties have grappled with cash flow challenges following a failure in the integrated financial management information system (IFMIS)  that used to clear government transactions.

This even as the DP assured governors that the system is now functioning reliably.

“We all agree that now IFMIS is working well and that’s very important for all of us and we should progressively transit fully to IFMIS platform for all our transactions so that we can improve the levels of accountability.”

Though counties are by law allowed to exploit this opportunity, it should be with approval from both the treasury and respective county assemblies.

It is however not clear how much a county will be allowed to borrow.

To ensure prudent financial management, treasury will deduct the advance from the yearly county allocation.