The National Treasury has paved the way for county governments to take loans either externally or internally to finance projects. Many counties have suffered because they have been unable to borrow.
The state has made Public Debt and Borrowing Policy 2020 effective after it was approved by the Cabinet in March.
National Treasury Cabinet Secretary or a county Executive Committee member for Finance can now initiate the process of acquiring a loan.
“All borrowing by the national and county governments will be issued or contracted by the Cabinet Secretary for National Treasury or County CECs (Finance),” reads part of the policy.
This means counties can now got the markets to access funds to finance development projects with payments to be made over time, as can the national government.
Borrowing will only be applied to fund projects with great potential and environmental rehabilitation projects or refinancing debt related to green-eligible projects will also be prioritised.
Loans to counties will be guaranteed by the National Treasury or the Treasury will borrow and then lend to the counties as they may request.
“The entity for which the Treasury will occasion a borrowing will be required to demonstrate that it is financially capable of meeting debt service obligations,” policy reads.
Regional governments could not borrow after the Intergovernmental Budget and Economic Council (IBEC) opposed their proposal to acquire short-term loans from the Central Bank of Kenya.
IBEC rejected the proposal after East African Community member states agreed that governments should avoid borrowing from their central banks.
To acquire loans, MCAs will have to approve the county strategy paper, medium-term debt strategy and annual budget estimates.
But entities of the national government entities will need the Budget Policy Statement, annual budget estimates and medium-term debt strategy.
The policy gives Public Debt Management Office (PDMO) responsibility for day-today operations on public debt. It will monitor county government debt operations and maintain a debt database and a report on performance of county government guarantees.
In an event of any default, it will be the responsibility of the treasury to institute a recovery mechanism for any on-lent or guaranteed debt.
National Treasury Secretary Ukur Yatani says with the policy will improve the quality of decisions and better articulation of policy goals adding that it gives clear guidelines for the structure of debt issuance, and a demonstration of commitment to long-term capital and financial planning.
The policy will also guide public borrowing practices and coordinate effective decisions in debt management.
But the policy paving way for counties to borrow will not save taxpayers who will still be exposed to an ever-increasing debt stock. “Expenses incurred by the CS in respect of the guarantee shall be a debt due to the national government from the borrower whose loan was guaranteed,” policy says.
As of June 30, Kenya’s public debt stood at Sh6.7 trillion, the figure is almost six times its value of Sh1.2 trillion 10 years ago.
The debt is still expected to increase since the Treasury will borrow Sh657.4 billion more to fund the budget deficit for 2019-20 financial year. This is after Mps voted to increase the debt ceiling to Sh9 trillion last october.
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