Kenya paid Sh1.4bn commitment fees in 2023 for loans not yet received – Gathungu

The National Treasury paid Sh1.44 billion in commitment fees in 2023 for loans the country is yet to receive seven years later and counting.

According to Auditor-General Nancy Gathungu's report on the national government for the 2022/2023 Financial year, the commitment fees relate to three undrawn loans which cumulatively amount to Sh25.2 billion.

The loans were signed between April 24, 2017 and December 15, 2022.

"However, no drawdowns on these loans had been made by the various implementing agencies for the funded projects and programmes as of June 30, 2023," the report says.

Undrawn amounts refer to portions of a loan or credit facility that have been approved but have not yet been accessed or utilised by the borrower.

Ideally, these funds remain available for future use, and the borrower can access them when needed, typically under specific conditions outlined in the loan agreement.

On the other hand, a commitment fee is a cost associated with borrowing charged on an unutilised portion of the loan or credit facility.

in the report, Gathungu expresses concern that had the implementing agencies put proper mechanisms in place to enable the absorption of the committed credit within the agreed timeframe, the payment duration of commitment fees would have been minimised.

Ensure projects are ready

"The National Treasury, being the overall supervisor of government ministries, departments and implementing agencies, needs to ensure that programmes and projects are ready for execution before committing the government to bear the loans," she says.

The report further shows the finance costs in the period under review, including loan interest, amounted to Sh617.7 billion. This includes interest payments of Sh154.7 billion on foreign borrowing.

Interest rate is also a borrowing cost that is charged on an already utilised loan or credit facility.

The report further reveals that guaranteed debts in the 2022/2023 financial year stood at Sh10.3 trillion, with loans amounting to Sh170.2 billion advanced to state agencies with the National Treasury as the guarantor.

Although the guaranteed loans are serviced by the recipient entities, they would otherwise be charged to the Consolidated Fund in cases of default, meaning the National Treasury would cater for the costs.

This, therefore, means the guaranteed loans constitute contingent liabilities and form part of public debt.