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Tips for State to avoid costly loan penalties
What you need to know:
- The legal and operational liabilities include up to Sh55 billion in commitment fees for loans not taken, or fully absorbed and the shame of stalled projects. These loopholes must be sealed to avert losses and prevent wastage.
The government should heed the sound advice from someone who really knows what she is talking about. Auditor-General Nancy Gathungu has been keenly watching and documenting the frivolous use of public funds.
As the country grapples with its debt burden, the Auditor-General has offered valuable tips on how to avoid costly penalties on loans. Her recommendations should enable proper utilisation of the billions taken in loans for projects.
President William Ruto’s administration has faced tough challenges, necessitating budget cuts. This was, especially after he withdrew the controversial Finance Bill, 2024, over its “punitive and oppressive” tax proposals. He had earlier pledged austerity measures to ease the debt burden.
Ms Gathungu says in her report that the country is suffering from unnecessary loan penalties that could have been avoided. According to her, the National Treasury should ensure before signing any loan that a proper audit is done for a clear understanding of the financial commitment. This calls for proper scrutiny and negotiation of loan terms.
These are valuable tips, but the officials know exactly what is expected of them to comply with the Public Investment Management Guidelines. But they continue to underperform or fail to strictly monitor government loans and contracts.
The commitment fees accrue due to delays in drawing the first disbursement and undrawn balances after project completion. Some Sh626 million has, for instance, been wasted due to delays in cancelling a single project.
Of the 32 projects sampled, only two drew down the first disbursement on time. As a result, taxpayers do not get value for money and the government risks paying penalties for stalled projects. The Treasury should ensure that implementing agencies regularly review their targets and performance.
The legal and operational liabilities include up to Sh55 billion in commitment fees for loans not taken, or fully absorbed and the shame of stalled projects. These loopholes must be sealed to avert losses and prevent wastage.
