Manage county assets, liabilities better

Management of assets and liabilities is a key pillar of any Public Finance Management system.

Its effectiveness ensures public investments provide value for money, assets are recorded and managed efficiently, risks are identified and debts and guarantees prudently planned, approved and monitored.

Good practice includes fiscal risk reporting, public investment management, public asset management and debt management.

Promotion of social and economic development is one of the objectives of devolution.

Section 15(2a) of the Public Finance Management (PFM) Act 2012 requires at least 30 per cent of the budget to be allocated for development.

NO FORMULA

However, most county governments are yet to develop effective tools for economic analysis and technical analytical methods for assessing the main investment projects. They employ need-based analysis and public participation.

Many counties have not developed standard procedures to guide investment project selection. Instead, costing is based on ceilings set by County Treasury and Budget and Appropriation Committee.

Cost projections of major projects for the current year and the next are included in the budget, but recurrent costs hardly appear in the budget documents.

A Kenya Institute for Public Policy Research and Analysis (Kippra) assessment in 2017 showed that most counties do not identify fiscal risks associated with unfavourable macroeconomic situations, financial positions of their public corporations and contingent liabilities.

Investment initiatives and projects are also often not based on any analytical appraisal methods. Rather, county assemblies have the final say on the projects.

LOAN SCHEMES

Mortgages and car loan schemes have been rolled out for members of county assemblies, but there are no clear mechanisms or framework for repayment compliance.

But the counties rarely provide guarantees for student, mortgage, agriculture and small-scale business loans, among others.

Nonetheless, they pay statutory social security schemes, including NSSF and NHIF.

Besides, entities such as the early childhood development education and technical training institutes receive development funding, but do not present the expenditures from fees for scrutiny by the executive.

Counties’ financial assets are mostly cash and cash equivalents. Revenues are deposited in County Revenue Fund accounts in commercial banks and Central Bank accounts.

BETTER ALTERNATIVES

Most counties have automated or are automating systems to increase efficiency in collection, increase coverage and reduce pilferage of revenue.

But investments in other forms of financial assets such as securities, bonds, loans and receivables is yet to take root in the counties.

A number of counties keep an asset register for non-financial assets such as those acquired since devolution began in 2013.

However, the non-financial registers are incomplete, as they do not include all properties inherited from the defunct local authorities.

Some counties were still relying on the 2015 Transition Authority Report for Assets and Liabilities. Therefore, they should engage the IGRTC to finalise transfers of assets, liabilities and pending bills.

Most counties rely on the Public Procurement and Assets Disposal (PPAD) Act 2015 for transfers and disposal of their assets while many have not developed supplementary procedures for disposal.

Nevertheless, Makueni has adopted the disposal procedure and incorporated it in the County Financial Regulation and Procedures Manual.

DEBT MANAGEMENT

Article 212 of the Constitution, Section 123 of the PFM Act and County PFM Regulation (2015) permit counties to borrow domestically and externally, but there is a moratorium.

Loans have to be guaranteed by the national government and approved by the county assembly.

Development of Debt Management Strategy (DMS) is at various stages among the county governments.

DMS should assume underlying debt management, total debt stock, sources of loans, principal risks associated with loans, analysis of the sustainability of debt and debt servicing framework.

PROCEDURES

Whereas it is possible that counties might not have incurred debts, most of them inherited debts from the defunct local authorities, hence the need to develop a debt management framework.

The ones available seem to lack mechanisms of handling financial liabilities arising from domestic, foreign and guaranteed loans.

County governments should develop standard procedures and guidelines for public investment management, capacity building of their officers in charge of public investments for effective economic analysis of investment projects, project selection, project costing, and monitoring and evaluation.

Messrs Odhiambo, Onyango and Otieno are policy analysts at the Kenya Institute for Public Policy Research and Analysis (Kippra). [email protected]