The Commission on Revenue Allocation (CRA) is evaluating the credit risk of counties, laying the ground for issuance of bonds to fund infrastructure projects.
Chairperson Jane Kiringai said the agency has chosen nine counties to be evaluated by Metropol Corporation based on their financial reports and ongoing projects, which will determine their ability to service the bonds.
The commission in partnership with the World Bank and Capital Markets Authority has already trained senior staff from the financial departments in the counties on capital market products and on how to prepare the devolved units for borrowing.
The move comes as the units struggle to allocate funds for development projects amid huge expenditures on wage and low revenue collection.
“By evaluating their credit risk, then private investors will realise which counties to best invest in infrastructure projects. The rating will also help counties seal leakages in their expenditures,” Mr Kiringai said.
The bonds will ease financing pressure on the counties whose borrowing must be approved by the respective county assemblies and backed by the National government that acts as a guarantor for the loans.
Counties continue to feature huge financing gaps for development projects with recurrent expenditure taking the biggest chunk of their budgets.
Data by the Controller of Budgets shows the devolved units spend Sh236.94 billion on recurrent expenditures from a total of Sh303.83 billion, squeezing funds for development projects.
The plans to issue the domestic bonds come a year after Laikipia County last November proposed the sale of a Sh5 billion infrastructure bond to bridge financing deficit hampering its development projects.
In 2010, the then Nairobi City Council had proposed a Sh100 billion municipal bond to fund projects like expanding health centres and construction of city roads.
Nyandarua and Makueni counties that received un-qualified audit opinion in the 2017-18 financial period have been chosen alongside Mombasa, Meru, Bungoma, Nandi, Laikipia, Samburu, Kisumu and Lamu counties for the exercise.
The counties will join regional peers in Kigali where four out of the 30 districts received ratings paving the way for issuance of bonds to fund solar energy projects, reducing reliance on transfers from the national government and loans.
Nairobi and other municipalities have in the past decade issued municipal bonds to finance development.