A fiscal time bomb is ticking in Kenya’s devolved units. A damning report by the Controller of Budget (CoB) Margaret Nyakang’o has revealed that County Governments have accumulated over KES 8 billion in unauthorized loans from commercial banks, largely to pay salaries amidst Treasury disbursement delays.

The Public Finance Management (PFM) Act strictly prohibits counties from borrowing without a guarantee from the National Treasury. Yet, faced with the threat of strikes by health workers and mounting pending bills, Governors have resorted to high-interest overdraft facilities. The CoB warns that these expensive loans are eating into development budgets, with some counties spending up to 20% of their revenue on debt servicing alone.

"Living Beyond Their Means"

"We are witnessing a blatant violation of the law," Nyakang’o told the Senate Committee on Finance yesterday. "Banks are complicit in this. They know the counties lack the legal standing to borrow, yet they extend credit at predatory rates." The report singles out five counties—Nairobi, Mombasa, Kisumu, Kiambu, and Machakos—as the biggest offenders, accounting for 60% of the commercial debt.

• The Interest Trap: Unlike concessional government loans, these commercial facilities attract interest rates of upwards of 18%. This means for every shilling borrowed to pay a nurse today, the taxpayer will pay two shillings tomorrow.
• The Service Delivery Hit: The immediate casualty is development. Projects are stalling as funds meant for roads and water are diverted to service bank charges. In one county, a KES 200 million hospital wing has been abandoned because the funds were "garnished" by a bank to recover an overdraft.

The Treasury Standoff

The Council of Governors (CoG) defends the practice as a survival tactic. "The Treasury has not released funds for three months," argued CoG Chair Ahmed Abdullahi. "Should we close down hospitals? We borrow to keep the lights on." However, the Senate is now threatening to surcharge Governors personally for the illegal interest accrued, setting the stage for a bruising legal battle between the two levels of government.