Kenya is set to pay creditors Ksh 1.583 billion in commitment fees due to delays in disbursing contracted loans worth Ksh 1.38 trillion. This revelation by the Parliamentary Budget Office raises concerns over the financial burden on taxpayers and the potential derailment of economic and social development programs meant to benefit from these funds.
According to the Budget Options for the FY 2025/2026 and the Medium Term, Kenya has cumulatively paid Ksh 18.9 billion in commitment fees for undisbursed loans between June 2016 and June 2024. Commitment fees are charges imposed by lenders for making loan funds available to a borrower, regardless of whether the funds are utilized. These charges have continued to mount as the National Treasury struggles to ensure timely disbursement of borrowed funds.
Parliament has expressed alarm over the increasing accumulation of non-disbursed committed loans, citing the negative impact on development projects. The delays in loan disbursement hinder the timely implementation of critical economic and social programs, particularly concessional loans from institutions such as the World Bank. These loans, which often come with favorable terms including low interest rates and extended grace periods, are crucial for Kenya’s economic development.
“The delays in the disbursement of loans defer the expected economic and social gains of the planned projects or programs. Given the developmental importance of these loans, particularly concessional ones from the World Bank, it is critical to ensure their timely utilization to avoid unnecessary commitment fees,” the Parliamentary Budget Office noted.
Despite these financial pressures, the government’s fiscal consolidation efforts have shown some success. The report highlights that public debt growth, which had been rising annually, peaked at 71% of GDP in FY 2022/23. However, the government’s fiscal consolidation measures have since led to a reduction in the stock of public debt as a share of GDP for the first time since FY 2011/12.
The reduction was primarily seen in domestic debt, which decreased from 37% of GDP in FY 2022/23 to 33% in FY 2023/24. However, external debt increased slightly from 33% to 34% of GDP during the same period. This shift underscores the government’s strategy to manage debt levels while addressing economic challenges.
As Kenya continues its fiscal consolidation journey, experts warn that failure to address loan disbursement inefficiencies could lead to further financial strain. The need for better financial planning and timely utilization of borrowed funds remains critical to ensuring sustainable economic growth and minimizing unnecessary costs to taxpayers.
