•House Committee raises concerns taxpayers financing an unsecured loan.
•A whopping Sh14 billion has been paid out in the now-flagged arrangement.
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Lawmakers have asked Treasury to explain circumstances under which it took over loans guaranteed to Kenya Airways.
The move saw the ministry pass the debt burden to taxpayers.
It has emerged that starting this financial year, Treasury assumed the role of the primary debtor for the debt owed by the loss-making national carrier (last posted a profit in 2012).
Treasury data before Parliament revealed that payment of KQ guaranteed debt of Sh83.1 billion as of June last year, was converted to mainstream external public debt.
The ministry said following the completion of the novation of the government-guaranteed debt to KQ, the debt service payments were reallocated to the budget line for principal and interest payments on external debt.
The ministry thus has to bear the burden of repayment of the loan – largely from US lenders Citibank and JP Morgan (now taken over by US’ Private Export Funding Corporation).
Following the revelations, the National Assembly Public Debt and Privatisation Committee wants Treasury to provide full details of the events that led to the exchequer assuming the debt.
“Treasury should submit the full details, including its contracts with all parties, which resulted in the assumption of Kenya Airways’ guaranteed debt,” the Balambala MP Abdi Shurie-led committee said.
About Sh14 billion was paid as interest and principal to Pefco this fiscal year for the loan now guaranteed by the US Exim Bank and the government.
About Sh21 billion is projected to be paid out in the current budget and Sh21.3 billion and Sh10.7 billion in subsequent year budgets.
“This transaction, unlike other debt, resulted in the creation of a liability, without a corresponding asset,” the committee said.
The committee said with the billions (over Sh80 billion) pumped into Kenya Airways through cash bailouts and payments to cover guaranteed debts, taxpayers deserve value for money.
Bailouts have helped sustain KQ operations during financial losses – which have become an annual trend.
“Cash injections are expected to yield returns comparable to the benefits that would have been realised if the funds were invested in other government expenditures,” the committee said.
With the report having been adopted last week, Treasury has until mid July to submit the documents for scrutiny.
MPs want the ministry to undertake an impact assessment of the assumption of debtor responsibilities for KQ's debt.
“Submit a report to the National Assembly covering the cost-benefit analysis of the transactions to the country,” the committee said.
It wants KQ to submit a ‘realistic and comprehensive report on its turnaround strategy’.
MPs want the national carrier to state measures in place to replenish public resources utilised to pay the guaranteed debt, cash bailouts and expenses relating to the debt assumed by Treasury.
Auditor General Nancy Gathungu, in her review of national government books, said the debt was Sh88 billion as of June 30, 2022.
She said there could be more. “It is an indicator that the total government-guaranteed debt could not be confirmed as it is understated,” she said.
The audit said there is no evidence Treasury had entered into any formal agreement with KQ on how some of the loans will be recovered.
“There is no evidence the airline provided any security to the government as a fallback,” the report said.
For the committee, the funds could be recovered under the laws that govern the public finance management sphere.
“Recoverability of public funds used to support entities is a critical element of Kenya’s Public Financial Management framework, aimed at ensuring prudent use of public resources,” the committee said.
“Payments related to guaranteed debts are thus recoverable under Section 54 of the PFM Act, 2012.”
Bretton Wood’s IMF had earlier disclosed that the guaranteed loans (Sh113 billion in 2022) were to be serviced by the government.
At the same time, MPs have warned that there are no provisions in the law regulating expenditures from the consolidated funds.
“There are no provisions under the Public Finance Management, Act, 2012 regulating CFS expenditures despite being the largest expenditures of the government thus creating a loophole in their management,” the committee said.
“There is a need for regular audits, publishing financial reports and promoting citizen participation in the budgetary processes.”
On CFS expenses, MPs have trained their guns on some Sh200 billion which it wants Treasury to explain how the amount, which was allocated for redemption of treasury bills, was spent.