A National Assembly committee has raised a red flag over the persistent surge in payments by the State for commercial loans that have been tapped but not disbursed for use in intended projects.
The Public Debt and Privatisation Committee revealed that the State incurred an additional Sh770.5 million in commitment fees on external commercial debt by April 30, adding to the billions of shillings amassed over the years and mirroring the financial burden of non-disbursed committed loans.
A commitment fee is a payment that is charged by a lender to a borrower to compensate the lender for keeping a credit line open. The fee also secures a lender’s promise to provide the credit line on the agreed terms at specific dates, regardless of the conditions of the financial markets.
The committee blames the sustained pile-up of loan commitment fees on low project readiness, slow disbursements, and inefficiencies in loan execution.
The committee now wants the National Treasury to adopt and enforce performance-based benchmarks and disbursement readiness protocols, to limit the pressure from commitment 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 committee said in a report.
A separate report by the Parliamentary Budget Office showed that between June 2016 and June 2024, the country cumulatively incurred a total of Sh8.9 billion in commitment fees for undisbursed loans, underscoring the financial burden of underutilised borrowed funds.
Auditor-General Nancy Gathungu.
Photo credit: File | Nation Media Group
The Auditor-General Nancy Gathungu also revealed that the government paid Sh6.6 billion in commitment fees on undrawn loans procured from foreign lenders to finance capital projects in four financial years, between 2020/21 and 2023/24.
According to Ms Gathungu, of the Sh515.1 billion that was borrowed to finance 14 capital-intensive projects, Sh304.4 billion had not been spent.
“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,” Ms Gathungu previously told the National Assembly Budget and Appropriations Committee.
To address the matter, the National Assembly Public Debt and Privatisation Committee recommends that “no new loan agreements should be executed without full compliance with the performance-based benchmarks and disbursement readiness protocols.”
The committee further wants the National Treasury to develop and publish a comprehensive national strategy for mobilising non-debt financial resources, including grants, climate finance, and other concessional funding, to reduce reliance on debt as it pushes for the enhancement of access to alternative funding.
Kitui Central MP Makali Mulu.
Photo credit: File
Kitui Central MP Makali Mulu, a member of BAC, blamed officials of the National Treasury mandarins for deliberately sitting on parliament resolutions “whose implementation would have enhanced fiscal discipline in the usage of public funds.”
“Non-use of loan amounts, among others, are issues this committee has deliberated on and recommendations made and adopted by the House. Why the National Treasury is not keen to implement the resolutions is a matter that requires our intervention,” said Dr Mulu.
“How can someone give you funds and you are not using them?” posed the Kitui Central MP as Ms Gathungu challenged MPs that “it is time parliament took decisive action on future borrowings.”
