The Treasury is on the spot for failing to use the Sh2.67 trillion borrowed locally between 2018 and 2023 to fund projects, thereby contravening rules that stipulate debt should not be used to for recurrent activities.
The Office of the Auditor-General has said the Treasury has been operating without a framework to ensure that funds generated from domestic loans are used for development projects, at a time when the public debt has exceeded Sh12 trillion.
A performance audit on the management of cash and domestic debt shows that the government borrowed Sh2.97 trillion via bonds between July 2018 and June 2023.
“Out of this amount, Sh2.67 trillion was transferred to Consolidated Fund Services (CFS) account, of which Sh558.87 billion was utilised to settle maturing domestic debt and the remaining balance of Sh2.1 trillion funded Exchequer releases to MDAs (ministries, departments and agencies),” says Auditor-General Nancy Gathungu.
However, the audit does not explain how the balance of Sh300 billion, which was not deposited into the Consolidated Fund, was used.
Although the public auditor faulted the use of bond sale proceeds to fund maturities, the Treasury defended the action, saying that debt obligations are a first charge to the Consolidated Fund.
The bonds proceeds were, however, mixed with other cash inflows, such as taxes, after being deposited in the Consolidated Fund, making it difficult to tell how they were used, Ms Gathungu notes.
“Because of fungibility of money, the monies were used to fund priority exchequer requests instead of lying idle in the Treasury bonds accounts and provided that at the end of the financial year the budget was fully funded, then there should be no problem,” the Auditor-General said.
“As a result, the audit could not verify what specific projects the Treasury bonds proceeds were expended on,” she added.
The audit also faults the Treasury for the lack of a mechanism to ring-fence prove projects to be funded with proceeds of infrastructure bonds, saying the government has been floating the papers without specifics of projects to be funded.
Ms Gathungu added that this continued non-adherence to fiscal principles risks weakening investor confidence and the development of markets for government securities.
“Review of a number of infrastructure bond prospectuses indicates the purpose of these bonds to be very general and not specific to a particular infrastructure project, thereby unable to confirm the utilisation of the treasury bonds proceeds,” she says.
The PFM Act 2012 requires the Treasury to ensure that government borrowings are only used for financing development. But, short-term borrowings, such as overdrafts are used to manage cash flows.
Kenya’s public debt hit Sh12.05 trillion in September, with domestic debt accounting for 55.3 percent of the total debt.
