Kenya paid Sh1.44 billion in interest on foreign loans that the country is yet to receive, Auditor General Nancy Gathungu has revealed.
The Auditor General Report on National Government covering the year 2023 shows that commitment fees on undrawn amounts paid during the period under review amounted to Sh1.44 billion.
Undrawn amounts refer to the portions of a loan or credit facility that have been approved but have not yet been accessed or utilised by the borrower.
These funds remain available for future use, and the borrower can draw them down as needed, typically under specific conditions outlined in the loan agreement.
According to Gathungu, the commitment fees relate to undrawn loans signed between the Government of Kenya and foreign lenders.
Three loans totalling 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However, as of June 30, 2023, no funds had been withdrawn for the related projects and programs.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 minimised,” said Gathungu.
The report shows that the government paid costs including loan interest amounting to Sh617.7 billion, which, included interest payments on foreign borrowing of Sh154.7 billion.
As of June last year, debt records showed that Sh170.2 billion in guaranteed loans were given to state agencies, with the National Treasury as the guarantor.
While these agencies are responsible for repaying the loans, the government would be forced to cover them if they default. These loans are considered potential liabilities and part of public debt.
This coming even as the country fell short on the planned foreign debt repayment in the review period.
The report shows that planned repayments for domestic and foreign borrowing were Sh1.39 trillion but only Sh1.20 trillion was actually repaid, falling short by 13 per cent (Sh184.5 billion.)
The OAG said that this shortfall in funding and repayment might have hindered the implementation of planned activities, affecting service delivery.
Currently Kenya is experiencing increased repayments from maturing debts.
For instance, Public debt data compiled by the Bretton Woods shows that the biannual payments to China for the loans contracted from 2014 towards the construction of the standard gauge railway accounted for 81 per cent or $433 million (Sh56.1 billion) of the July external debt payments.
The remainder of July's debt payments are to a mix of multilateral and bilateral lenders, key among them the Eastern and Southern African Trade and Development Bank (TDB) at $22.3 million (Sh2.9 billion), France ($18.6 million or Sh2.4 billion) and the World Bank ($12.9 million or 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 cost of 6.3 per cent.
January and July usually account for the lion's share of the country's annual external debt payments due to the SGR loans.
“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,” Gathungu noted.