The National Treasury has committed to support plans by Laikipia County to float a Sh1.4 billion infrastructure bond, a first for the devolved units seeking funds through the capital markets.
Under the Public Finance Management (PFM) Act, the Treasury guarantees borrowing by counties. Cabinet Secretary Ukur Yatani, who gave the nod to the bid to seek financing through alternative means, said counties are allowed to borrow as long as they meet the parameters set by the PFM Act.
These include fiscal responsibilities, such as not spending more than 35 per cent of total county revenues on wages and benefits, county public debt not exceeding 20 per cent of total county revenue, and spending at least 30 per cent of the county government’s actual expenditure on development.
“Within certain parameters, counties are allowed to borrow for capital projects. One of the parameters is that the fiscal framework is good,” he said.
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“Treasury has no hesitation as long as those parameters are right and the counties have the ability to pay within the required time.”
Yatani said the projects ought to be viable, provide a good return and improve livelihoods. He was speaking after a meeting with governors on county revenue allocations alongside Laikipia Governor Ndiritu Muriithi, who is the chair of the Finance, Planning and Economic Affairs Committee at the Council of Governors.
Muriithi said the county bond was at an advanced stage, and they had the framework in place.
“We’re early in the process because we have to make the formal application. The Treasury team has to look at it and pronounce itself,” he said.
“We stepped forward because we believe we meet all the necessary conditions, but you can’t pre-empt, you can only wait for a nod.”
The governor said the county would seek help from the public debt management office.
The PFM Act allows counties to borrow up to 20 per cent of recent audited revenues approved by the county assembly. Laikipia’s most recently audited books for the financial year 2019-20 show its revenue was Sh7.113 billion, meaning 20 per cent would be Sh1.4 billion.
The financing raised will go towards projects such as smart towns and irrigation, including reticulation.
Laikipia has been releasing quarterly and annual financial results. In 2018, it became the first county to produce a statistical data abstract, providing key information on all sectors of the economy, crucial information for investors.
Counties, with an estimated cost of long-term development projects ranging between Sh13 billion and Sh132 billion, rely on equitable share and grants from the national government.
Other sources of cash are own source revenue and donor funds. With a window open to the capital markets, the 47 counties could access up to Sh2.6 trillion by floating bonds.