NAIROBI, Kenya, Mar 18—The National Treasury has defended its decision to turn to external borrowing to fund county allocations, citing the need to sustain service delivery in the devolved units.
Appearing before the Senate Finance Committee, Treasury Cabinet Secretary John Mbadi dismissed concerns over rising public debt, arguing that external financing remains a necessary tool in keeping counties operational.
Mbadi revealed that the government has outstanding arrears for county disbursements, including two months’ payments for February and March, along with an additional balance of Sh14.6 billion for January.
“We recognize the challenges posed by our debt levels; however, securing affordable external financing is crucial to support our counties, which are the backbone of local development and service delivery,” Mbadi said.
The Senate Finance Committee, chaired by Mandera Senator Ali Roba, raised concerns over the country’s debt sustainability, noting that Kenya’s debt-to-GDP ratio stood at 65.7% as of June last year, surpassing the recommended threshold of 55%.
Senators questioned the government’s ability to manage its fiscal obligations, particularly in light of rising debt-servicing costs.
However, Mbadi assured the committee that the government is implementing a structured borrowing strategy to prevent economic strain.
“We are not just borrowing for the sake of it. Every loan we secure is meant to address critical funding gaps, especially where domestic revenue is insufficient. The counties need these funds to pay salaries, provide essential services, and complete ongoing projects,” he stated.
To address the financial shortfall, the government has sought a $1.5 billion budget support loan from the United Arab Emirates (UAE) at an 8.25% interest rate. Discussions are also ongoing with the World Bank for a $750 million loan under the Development Policy Operations program, which is contingent on policy reforms.
“We are also in talks with other international lenders, including the World Bank and the African Development Bank, to secure financing that will allow us to meet our obligations without putting too much pressure on domestic borrowing,” Mbadi explained.
Revenue Automation
Beyond borrowing, the Treasury is ramping up efforts to improve revenue collection through automation, aiming to reduce leakages and curb mismanagement of public funds.
The Kenya Revenue Authority (KRA) has already made strides in this area, rolling out the e-TIMS system and expanding digital payment platforms to enhance tax compliance.
The Treasury is also working on an integrated financial management system for counties to improve transparency in public funds utilization. However, Mbadi noted that its rollout is yet to begin due to ongoing stakeholder consultations with intergovernmental agencies.
“Automation is the future. We are committed to ensuring that every shilling collected is accounted for, and that counties can access their funds efficiently without unnecessary bureaucratic hurdles,” he said.
He expressed optimism that these reforms would help the country reduce its reliance on borrowing over time.
“As we enhance revenue collection through automation and streamline our financial management processes, we expect to reduce the need for borrowing in the long term,” he added.
