The Treasury needs to plan its borrowing programme better to avoid incurring heavy losses on unused credit lines.
A report by the Controller of Budget tabled in Parliament shows that the government paid Sh680.3 million in commitment fees for undrawn loans in the six months to December last year.
These are fees charged by a lender for its commitment to provide credit to a borrower. It is meant to compensate the lender for making sure the funds are available for disbursement to the borrower.
In short, the Treasury in this case signed an intention to borrow from the unnamed institutions but did not follow through to take the loans.
This has left it paying significant commitment fees, which will continue unless the loans are disbursed or the agreements are terminated.
This calls for better planning of the State’s finances. The government, which has a better credit rating than most companies and households, should not be maintaining such arrangements for protracted periods as if it is not confident of obtaining loans when it needs.
More critically, it shows a lack of a plan with regard to such borrowing. One would expect that once a project has been identified and settled on, the Treasury should apply for funding if need be and actually take the loans to implement the project.
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