Senators reject governors' bid for independent borrowing

Governors have suffered a major blow in their quest to borrow independently from financial markets, similar to the national government, bypassing the National Treasury oversight.

Senators rejected the governors’ request for independent borrowing, warning that direct borrowing could lead counties into unsustainable debt, ultimately placing the burden on taxpayers.

The 47 counties are currently facing pending bills exceeding Sh150 billion, alongside unpaid overdrafts with commercial banks, running into millions of shillings.

Last week, Council of Governors (CoG) Vice Chairman Muthomi Njuki and CoG Finance Committee Chairperson Fernandes Barasa appeared before the Senate Finance and Budget Committee in an attempt to persuade the senate into giving in to their demand for independent borrowing.

“The council of Governors recommends that the Senate initiates the establishment of a threshold for county governments’ borrowing entitlements pursuant to section 50(5) of the Public Finance Management (PFM) Act,” said Njuki.

Currently, counties cannot borrow directly from lenders without the Treasury acting as guarantor, with the PFM Act mandating the national government to guarantee and manage borrowing for state entities, including counties.

Section 50(1) requires the government to meet financing needs at the lowest market cost while keeping public debt sustainable, while section 50(5) allows Parliament to set borrowing thresholds for both national and county governments.

Barasa argued that counties should be allowed more autonomy under strict guidelines with the CoG proposing that the Senate invokes section 50(2c) of the PFM Act to explain measures being taken to ensure thresholds are met and high debt stress risks are managed within medium term.

However, the Senate Finance Committee, chaired by Mandera Senator Ali Roba, turned down the proposal, warning that direct borrowing could unleash a wave of financial mismanagement.

“Very few governors have the instruments or ability to borrow responsibly in international markets. Opening this window could be disastrous,” said Migori Senator Eddy Oketch.

Senator Roba echoed concerns over the “immaturity” in county financial management saying that they have seen cases where successive governors abandon projects or reject pending bills left by their predecessors.

“What happens if we allow counties to borrow directly? Debts may be abandoned, creating messy and costly outcomes. That would be a ticking time bomb,” said Roba.

Senators remained firm that loosening borrowing rules could expose counties, and the national economy, to unnecessary risk, stressing that without proper capacity and financial discipline, direct access to international loans could lead to unsustainable debt levels, project abandonment and long-term fiscal instability.

Despite the rejection, Governor Njuki tried to persuade senators, insisting that counties would act responsibly stating that if they borrow, it would be their responsibility to pay and that they would work overtime to meet the obligations.

“Currently, most counties rely on commercial banks overdrafts to cover urgent operations, including salaries, when exchequer releases are delayed with direct access to loans, allowing counties to plan and execute development projects more efficiently without constant Treasury intervention,” said Njuki.

 The standoff underscores ongoing tension between devolved units seeking financial autonomy with Members of Parliament prioritizing oversight and fiscal prudence, while governors argue that borrowing independence will accelerate development, Senators maintain that the current safeguards are essential to protect public resources.

As it stands, counties will continue to rely on Treasury-backed borrowing and short-term overdrafts, keeping ultimate fiscal control at the national level with the debate, however, is far from over, with county leaders vowing to push for greater autonomy in the coming parliamentary sessions.