Towards enhancing creditworthiness of counties
Kennedy Oliver Mwenda
In recent years, county governments have made fundamental progress in entrenching devolution into the social, economic and political fabric of the country. As devolution continues to mature, counties are now facing competing financial demands from development and recurrent expenditure, thus hindering their capability to effectively provide crucial services to residents.
Under Article 216 of the Constitution, the Commission on Revenue Allocation (CRA) is mandated to make recommendation on financing of county governments. Article 212 of the Constitution gives the conditions which counties must meet to access loans—the National government guarantees the loan while the County Assembly must approve the loan.
The commission purposes to leverage on the present regulatory framework that govern county governments borrowing, including the Public Finance Management Act. Good legislation is important because it underpins sound debt management. It is vital that we build the technical capacity of counties to enable them effectively manage and administer public finances.
Another key objective involves a reformed fiscal decentralisation typology that supports responsible borrowing regulated by market discipline. This is aimed at insulating against potential abuse by the devolved systems by providing clear authorisation on how, why and when counties can borrow.
In the capital markets master plan—a Vision 2030 project—a key objective is to support growth of the capital market to be ready for county borrowing and develop products which county governments can use to access capital market finance.
Expanding and strengthening the capacity of the local capital market is crucial in mobilisation of funds to provide a pool upon which counties can borrow to fund development projects that are capital intensive.
This initiative, however, requires CRA to develop strategic partnership with other key stakeholders. One such is with the Capital Markets Authority (CMA), which will develop products and regulate county governments borrowing.
The World Bank, also a key partner,provides resources and technical support to counties towards creditworthiness. The National Treasury is expected to be the provider of guarantees to counties while the Intergovernmental Budget & Economic Council’s Loans and Grants Sub-committee provides an essential platform for dialogue on institutional reforms.
The County Creditworthiness Academy, an intensive one-week capacity building workshop for county financial officials, held earlier in the year brought together representatives from nine pilot counties who were trained in understanding the capital market, the market products as well as how to effectively prepare for county borrowing.
The academy now seeks to work with these counties to improve their creditworthiness.
Counties are facing heightened pressure to provide services particularly with growing population. Furthermore, the diminishing public funds make it difficult for counties to finance capital-intensive projects. This grave reality implores the need for devolved governments to identify and possibly explore private capital to finance development.
For counties to be considered creditworthy by private lenders, they need to manage finances, enhance revenue sources, plan development and engage citizens using methods that emphasise financial and environmental sustainability and transparency.
A county will be considered creditworthy when it meets the risk standards of a lender. It goes without saying that without a positive risk assessment, counties will find it difficult to attract private capital.
To remedy this, counties have to be financially sound through implementation of proper development plans, enhance and increase productivity of its human resource, limiting recurrent expenditure and wastage, streamline procurement processes and critically attend to growing indebtedness through the pending bills.
—The writer is the communications manager, Commission on Revenue Allocation.