Auditor-General’s report raises important questions on the accountability and sustainability of Kenya’s public debt expenditure
In a recent series of audits, Auditor-General Nancy Gathungu has raised the alarm on the non-accountability and sustainability of Kenya’s public debt expenditure, pointing to, among others, the payment of commitment fees on undrawn amounts and the non-disclosure of various financial obligations.
According to a House committee report obtained by Nairobi Law Monthly, one of the critical issues highlighted by the Auditor General is the inclusion of public debt as a mere annexure in the Consolidated Fund Statement of Expenditure, without comprehensive financial statements providing a clear overview of Kenya’s debt position.
The AG noted that this lack of detailed reporting makes it impossible to determine the amount redeemed and the current value of Kenya’s public debt, raising doubts about the validity of the expenditure on public debt.
Ms Gathungu further revealed that the government has failed to disclose all obligations guaranteed by the national government, such as loans guaranteed on entities like Kenya Airways, KenGen, KPLC, and Kenya Ports Authority. These undisclosed loans, totaling billions of Kenyan shillings, were not reported in 2022, creating a worrisome lack of transparency in the government’s financial management.
”There is non-disclosure of all obligations guaranteed by the national government. Notably, the loans guaranteed by the national government on Kenya Airways (Sh88.3 billion), KenGen (Sh24.5 billion), KPLC (Sh9.9 billion), and Kenya Ports Authority (Sh33.5 billion were not reported in the financial year 2022,” Gathungu stated.
The AG has also raised concerns over the non-disclosure of loans, overdrafts, and other government liabilities held by national and county government entities, which raises questions about the overall financial health of these entities and the potential impact on the country’s economy.
One of the most troubling findings was the government’s ongoing payment of commitment fees on undrawn amounts from loans signed with foreign lenders. The Auditor General revealed that within the first half of the 2022/2023 financial year, the National Treasury paid commitment fees amounting to a staggering Sh680.03 million. This brings to question the government’s readiness to execute projects before committing to loans and emphasizes the need for the involvement of key stakeholders in the pre-loaning process.
Additionally, the cost of servicing domestic debt has surpassed that of external borrowing, with interest on internal debt accounting for 74% of total finance costs in the 2021/2022 fiscal year. This growing disparity poses significant financial risks and further strains the country’s already burdened finances.
As of June 30, 2022, non-performing loans amounted to a staggering Sh218.8 billion. This alarming figure raises concerns over the potential legal consequences and risks the government faces due to defaults on loan repayment obligations.
Debt servicing exposes the government to foreign exchange losses, as evidenced by the need to allocate Sh3.43 billion to cover shortfalls in external debt payments due to fluctuations in foreign exchange rates. The Office of the Auditor General recommended that the national government explore hedging mechanisms to mitigate the risks associated with foreign exchange fluctuations.
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