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Credit rating paves way for counties to borrow from capital market

BUSINESS
By Wainaina Wambu | March 12th 2020
L-R Governors Kivutha Kibwana (Makueni), WycliffE Wangamati (Bungoma), Anyang Nyong’o (Kisumu) and Francis Kimemia (Nyandarua) hold their scorecards during the unveiling of county credit ratings at a Nairobi hotel. [George Njunge/Standard]

Counties are set to borrow from the capital markets after three of the devolved units received their creditworthiness reports.

Kisumu, Bungoma and Makueni counties were yesterday given a “stable outlook” in a pilot programme that paves the way for the devolved units to find alternative funding sources.

Counties, with an estimated cost of long-term development projects ranging between Sh13 billion and Sh132 billion, currently rely on equitable share from the national government, grants, own-source revenue or donor funds to carry big projects such as infrastructure.

With a window open to the capital markets, counties can be able to access up to Sh2.6 trillion for example through floating county bonds.

Commission of Revenue Allocation (CRA) Chairperson Dr Jane Kiringai said the initiative will assist counties access financing through capital markets for public infrastructure development and service delivery.

“Coming from a contentious Division of Revenue Bill, going forward next year there’s no headroom to up the shares we’re sending to counties. It’s time to look for innovative financing,” she said in Nairobi yesterday.

“This was approved at the 12th session of IBEC that from the next fiscal year counties can access alternative sources of finance from the capital markets.” This will, however, require the approval of county assembly and guarantee of the national government.

CRA Vice-chair Humphrey Wattanga said credit rating is an essential precursor to accessing alternative financing through capital markets. “Rated institutions that attain investment grade or better should be able to access debt markets immediately,” said Wattanga.

However, the Capital Markets Authority (CMA) said only one county would be able to issue a bond on a pilot basis to demonstrate it can work.

Makueni County got an initial issuer rating of BBB in the long term and A3 in the short term. Kisumu received a rating of BB in the long term, B in the short term while Bungoma received BBB in the long term and A3 in the short term.

Senate Speaker Kenneth Lusaka, however, asked counties practice “fiscal discipline” in light of a new ability to access more money. “Do not be inclined to overspend, undertax, and borrow excessively,” warned Lusaka.

CRA said the programme would eventually be extended to the remaining 37 counties if the pilot proved a success.

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