12 November 2018

Kenya: Rotich Cautions Ministries, Counties on Borrowing

Treasury Cabinet Secretary Henry Rotich has directed all government ministries, departments, agencies (MDAs) and county governments to refrain from engaging in negotiations for external borrowing without the approval of his office.

In the October 29, 2018 circular, Mr Rotich said that the mandate of mobilising external resources, which include loans and grants, is vested in the National Treasury as provided for in the constitution, the Public Finance Management (PFM) Act and the Kenya External Resources Policy of 2014.

"In view of the above, we therefore direct all MDAs and county governments to strictly adhere before seeking external financial support," Mr Rotich says in the circular that has been copied to all Cabinet secretaries and county governors.

The memo has also been circulated to principal secretaries, the accounting officers in ministries and all CEOs of state corporations.

This comes as it emerged that county governors have been trying to procure loans in the course of their numerous trips in foreign countries to fund election campaign projects without involving the Treasury.

Foreign funding

But even as the county governments argue that the resources they get from the national governments are not enough, the MDAs have also sidestepped the Treasury in their pursuit for foreign funding, a move that Mr Rotich says must be contained.

The financial risks include the possibility of the national government paying commitment fees and other charges on loan amounts incurred due to delays in commencement of project implementation.

To mitigate the government against any potential financial risk, Mr Rotich said that the ministry has developed a checklist of mandatory requirements that MDAs and counties must fulfill before seeking external financial support.

This means that it will now be mandatory that a feasibility study report inspected and approved by the relevant government entity informing the project economic viability, costing and design must be availed.

They are also required to undertake a confirmation of the land and way leave acquisition for the project as well as provide a resettlement action plan report.

"There should be commitment to relocate public utilities like electric and sewer lines and confirmation of adequate human resources capacity for the project implementation," Mr Rotich said.

Develop strategy

Where there is a shortfall, the implementing MDAs and the county governments must commit to develop a strategy to fill the gaps.

Due diligence is also critical to ascertain the financial, technical and legal competency for the firm procured competitively to undertake the project implementation, which mainly applies to projects undertaken under engineering, procurement, construction and financing model.

The MDAs and the county governments are also required to undertake advance surveys, mapping and ring-fencing government assets -- land, way leaves among others to avoid unnecessary compensations.

"Given the presidential directive, all government accounting officers must ensure that all ongoing projects are completed before initiating new ones. Sanctioning of new projects must receive express authority from the National Treasury but must be demand driven and priority to the people.

A circular issued by the Head of Public Service Joseph Kinyua on March 1, 2018 stated that all MoUs and commercial contracts with local and foreign parties are to receive the concurrence of the respective Cabinet secretary and approval of Cabinet prior to execution.

The commercial contracts and the MoUs must also receive the approval from the Treasury and the office of attorney general and department of justice on tax exemption and legal clearance.

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