Kenya paid Sh1.44 billion in interest on foreign loans that the country has not yet received, Auditor General Nancy Gathungu revealed.
The Auditor General’s Report on the National Government for 2023 shows that commitment fees on undrawn amounts during the period amounted to Sh1.44 billion. These undrawn amounts refer to portions of loans approved but not yet accessed or utilized by the borrower. The commitment fees relate to loans signed between the Government of Kenya and foreign lenders.
Three loans totaling Sh25.24 billion were signed between April 24, 2017, and December 15, 2022. However, as of June 30, 2023, no funds had been withdrawn for the related projects and programs.
“Had the implementing agencies put proper mechanisms in place to enable absorption of the committed credit within the agreed timeframe, payment of commitment fees would have been minimized,” said Gathungu.
The report also shows that the government paid Sh617.7 billion in loan interest, including Sh154.7 billion for foreign borrowing. By June last year, debt records indicated Sh170.2 billion in guaranteed loans were given to state agencies, with the National Treasury as the guarantor.
If these agencies default, the government would be forced to cover the loans, making them potential liabilities and part of public debt.
The country also fell short on planned foreign debt repayment during the review period. Planned repayments for domestic and foreign borrowing were Sh1.39 trillion, but only Sh1.20 trillion was repaid, falling short by 13 percent (Sh184.5 billion).
The OAG noted that this shortfall might have hindered the implementation of planned activities, affecting service delivery.
Currently, Kenya is experiencing increased repayments from maturing debts. Public debt data compiled by Bretton Woods shows that biannual payments to China for loans contracted from 2014 for the construction of the standard gauge railway accounted for 81 percent or $433 million (Sh56.1 billion) of July’s external debt payments.
The remainder of July’s debt payments were to a mix of multilateral and bilateral lenders, including the Eastern and Southern African Trade and Development Bank (TDB) at $22.3 million (Sh2.9 billion), France at $18.6 million (Sh2.4 billion), and the World Bank at $12.9 million (Sh1.7 billion).
The government is also paying $31.5 million (Sh4.1 billion) in semi-annual interest for the $1 billion Eurobond issued in June 2021, which carries an annual interest rate of 6.3 percent.
“The National Treasury, being the overall supervisor of Government Ministries, Departments, and Implementing Agencies, needs to ensure that programs and projects are ready for execution before committing the Government to bear the loans,” Gathungu noted.