Puzzle of Sh1.9 billion Kenya paid for undisbursed loans

A commitment fee is charged by a lender to a borrower to compensate the bank for its commitment to set aside the funds. Commitment fees typically are associated with unused credit lines or undisbursed loans.

The lender is compensated for providing access to a potential loan because it has set aside the funds for the borrower and can’t therefore charge interest.

Read: Budget Controller takes fight with Central Bank to Senate

Dr Nyakang’o told MPs that there is a need for the Treasury to be transparent in the management of the Consolidated Fund Services (CFS) expenditures.

“There should be measures to enhance transparency and accountability in managing Consolidated Funds expenditures including conducting regular audits, publishing financial reports and promoting citizen participation in the budgetary processes,” she said.

The Treasury, she said, should publish more information about CFS spending such as a breakdown of costs and debts-funded projects.

“There should be an explanation on why CFS budget relating to salaries, allowances and miscellaneous service is significantly inflated in the original estimates then later revised downwards,” Dr Nyakang’o said.

Kitui Central MP Makali Mulu said there is a need to establish where the money which Kenyans are paying commitment fees for is.

“We actually need to know as a country where this money that we have never taken or utilised is yet we are paying commitment fees. We are shocked that some of these loans have been there as long as 10 years,” Dr Makali said.

Dr Nyakang’o told the committee that there is a need for a review of government accounting policies to ensure the accurate recording of public debt that matches the borrowed funds to the projects funded by the funds.

“Considering the current public debt levels, new public borrowing should only be undertaken for projects that will positively impact the national budget,” Dr Nyakang’o told MPs.

She called on the Treasury to review some of the policies of the International Monetary Fund (IMF), saying they have a negative impact on the country’s budget implementation and the economy.

“The National Treasury should conduct a thorough review of these policies to protect the economy from the negative impact,” Dr Nyakang’o said.

The Controller of Budget also warned that the pension wage Bill has been increasing, a trend she said poses a risk to the growth of the economy.

Documents before the committee indicate that in the period of July to November 2023, the cumulative expenditure was Sh44.73 billion.

“Adequate measures should be taken to fast-track pension and gratuities conversion from defined benefit to defined contribution,” Dr Nyakang’o said.

In a bid to effectively manage the high cost of external debt service, Dr Nyakang’o said the government needs to review the current borrowing policy and develop measures to ensure public debt sustainability is maintained in the medium- to long-term.

In addition, Dr Nyakang’o said the government should consider public debt restructuring and engage with bilateral creditors to review debt repayment terms.

MPs on Tuesday increased the country’s budget by Sh200 billion on account of payment of interest rate and the depreciation of the shilling.

The Budget and Appropriations Committee (BAC) says it has allocated Sh145 billion in Supplementary Budget I to take care of interest payments on public debt.

The committee chaired by Kiharu MP Ndindi Nyoro said the overall budget for the current financial year will rise from Sh3.74 trillion to Sh3.95 trillion.

The Treasury had tabled a mini-budget that cut development expenditure but increased the budget by Sh187.3 billion in an effort to confront economic headwinds related to missed tax targets, huge debt repayment obligations and spending pressures from critical sectors such as education and health.

Read: Treasury decries high loan commitment fees

The Treasury cut development spending by Sh41.96 billion, with road transport losing Sh20.7 billion.

Affordable housing, Dr Ruto’s pet project, also suffered a Sh13.3 billion cut.

“The essence of this Supplementary Estimates I for 2023/24 is that we are revising the budget upwards by Sh200 billion to take care of interest and other pressing issues,” Mr Nyoro said.

“The primary reason of the Supplementary Budget I is to take care of interest payment occasioned by the hike in interest rate globally and the depreciation of the shilling.”

The CFS budget was created to cater for obligatory or non-discretionary commitments or payments to be made by the national government in any particular year.

The payments include salaries to holders of constitutional offices and subscriptions to international organisations.

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