MPs push Treasury to curb rising fees on unused foreign loans
The committee is now urging the National Treasury to enforce strict measures, including performance-based benchmarks and readiness checks before approving new borrowing, to reduce the accumulation of unnecessary fees.
Parliamentary oversight committees have raised concerns over the growing financial burden from external loans that have been approved but remain largely unutilised, highlighting inefficiencies in project implementation and fund management.
The National Assembly Public Debt and Privatisation Committee disclosed that as of April 30, the government had incurred an extra Sh770.5 million in commitment fees on commercial loans that were never drawn.
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This contributes to a long-standing pattern of payments for funds that have yet to be utilised, highlighting a broader issue of underperformance in project readiness and loan execution. Lenders charge commitment fees to ensure that the agreed credit line is available when needed, even if the funds are not immediately used.
The committee attributed the recurring charges to delays in disbursing borrowed money, slow project preparation, and ineffective monitoring of ongoing projects.
It is now urging the National Treasury to enforce strict measures, including performance-based benchmarks and readiness checks before approving new borrowing, to reduce the accumulation of unnecessary fees.
“The government must ensure project readiness before contracting loans and actively track undisbursed funds to cancel idle loan tranches promptly. This will prevent accumulation of undrawn external loans, which continue to attract costly commitment fees,” the report stated.
A separate analysis by the Parliamentary Budget Office indicated that from June 2016 to June 2024, Kenya spent a total of Sh8.9 billion on commitment fees for loans that were not drawn down.
These payments highlight the financial strain of borrowing without immediate utilisation, further straining the national budget.
Auditor-General Nancy Gathungu also noted that between the financial years 2020/21 and 2023/24, Sh6.6 billion was paid in commitment fees on external loans intended to fund major capital projects.
Out of Sh515.1 billion borrowed for 14 large-scale initiatives, Sh304.4 billion remained unused, raising concerns about the efficiency of public spending.
“Some of the projects have clauses where they attract commitment fees for any undrawn amounts, leading to wastage of funds and lack of value for money,” Gathungu told the National Assembly Budget and Appropriations Committee.
To address the issue, the Public Debt and Privatisation Committee has recommended that no new external loans be contracted unless the projects meet full compliance with performance-based benchmarks and disbursement readiness protocols.
The move is intended to ensure that borrowed funds are actively utilised, reducing the financial burden of idle loans and improving overall efficiency in project execution.
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