Treasury under fire over billions spent in service of phony debts

The Treasury has continued to spend billions of taxpayer funds to service questionable debts that the government incurred more than 30 years ago with nothing to show for it. 

The latest report by the Controller of Budget says billions of shillings were in the past 12 months used to service debts despite there being no evidence that the money borrowed was used to finance any project.

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Top in the list of questionable loans on which the Treasury has spent billions of shillings is a fertilizer factory debt that was incurred in 1978 but for which the country has nothing to show.

“The (Controller) notes with concern that government resources are being used to repay a loan for a non-existent asset,” the Controller of Budget, Agnes Odhiambo, says in a report covering the three months to July 31, 2012. “It is, therefore, imperative that this matter is fully investigated and the findings made public,” the report says.

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The debt, which has been questioned by various arms of government, including Parliament, consumes billions of shillings in principal and interest payments even as farmers continue to suffer inflated fertiliser prices arising from heavy reliance on imports.

Mrs Odhiambo said Sh731.7 million of taxpayer funds was spent on the debt in the financial year ended July 31, 2012. The Treasury paid Sh676 million in principal and Sh53.7 million as interest chargeable on the debt that was incurred to finance the construction of the fertilizer plant.

Public Debt Department records show that the taxpayer will continue to bear the burden until the loan is fully paid in 2015. The report also questions the continued use of taxpayer funds to service debts that ministries and public agencies incurred through the use of overdraft facilities at the Central Bank of Kenya before 1997.

The report says no information is available as to which ministry borrowed, how much they borrowed and the purpose for which the debt that has since accumulated to Sh36.9 billion was incurred. Sh1.1 billion was paid out of the Consolidated Fund Services (CFS) to service this debt in the past financial year.

The CFS is the account that the government uses to make payments that are provided for in the Constitution or common law.

The debt is said to have been incurred as the CBK’s bail-out of a number of ministries that were facing cash constraints in the wake of poor tax collections and bad relations with development partners.

The Controller of Budget’s report also questions the government’s decision in 2004 to sign a bilateral agreement with Italy to consolidate the debt into a Sh12 billion ($142 million) facility for a swap without making clear what the money was used for.

“There is need to undertake monitoring and evaluation of the projects to ascertain whether the funds were utilised to meet the objectives of the loan swap,” says Mrs Odhiambo.

The government has also guaranteed billions of shillings in loans to parastatals and other state agencies that it is now servicing without declaring the borrowers bankrupt or insolvent, despite their failure to pay debts.