Taxpayers part with Sh3.4bn for undrawn foreign loans


The National Treasury building in Nairobi. FILE PHOTO | NMG

The government has paid Sh3.35 billion in commitment fees on undrawn loans contracted by the Treasury with foreign lenders in the last three years.

The National Assembly’s committee on Public Debt and Privatisation now wants accounting officers who fail to utilise loans leading to the charge of commitment fees to be held personally liable for the losses.

The committee said the government incurred Sh1.18 billion in commitment fees in the 2020/21 financial year, Sh1.49 billion in the 2021/22 financial year and Sh680 million in the current financial year.

“The National Treasury should submit an amendment to the PFM Act to provide for appropriate sanctions against the accounting officers whose actions have led to the incurrence of commitment fees,” the committee chaired by Balambala MP Abdi Shurie said in a report.

The committee has further proposed changes to the Act to compel the Treasury to involve other stakeholders before entering loan agreements with lenders.

“This would enable stakeholders to be cognisant of the significance of some of the processes and the importance of adhering to the agreed loan conditions,” Mr Shurie said in the report.

The committee has further recommended that the National Treasury make an effort to renegotiate the Sh1.18 billion commitment fees incurred in the 2020/2021 fiscal year, noting that the fees were avoidable and point to weak debt management policy, poor public finance management and weak institutional framework.

The MPs issued a two-week deadline to the Treasury to submit to the National Assembly a complete list of loans undisbursed, affected projects, reasons for non-disbursement and the corrective measures being undertaken.

The committee further directed the Treasury Cabinet Secretary Njuguna Ndung’u to submit an amendment to the PFM Act to ensure that budgeted counterpart funding is ring-fenced by law and to provide appropriate sanctions for its contravention within six months of tabling the report.

When it appeared before the committee, the Central Bank of Kenya (CBK) proposed that the government improves the process of negotiating with lenders for loan terms to get better terms and better clauses in a bid to minimise the issue of commitment fees.

The CBK said commitment fees arose because of a lack of absorption rate by implementing agencies and poor fiscal planning that did not involve implementing agencies at the early stages of acquiring a loan.

The banking sector regulator said the lack of capacity to negotiate better terms for the country’s loans in addition to some creditors placing unfair provisions within the loan contracts were to blame for rising commitment fees.

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