Kenya Pays Over KSh 6b in Foreign Loan Penalties as Public Debt Hits KSh 11t
- According to the National Treasury, Kenya's public debt hit over KSh 11 trillion in January 2025
- Auditor General Nancy Gathungu revealed that the country pays over KSh 6 billion in penalties for unused external loans
- Gathungu faulted the National Treasury for the late disbursement of funding that led to the underutilisation of KSh 515.1 billion foreign loans, leading to penalties
Wycliffe Musalia has over six years of experience in financial, business, technology, climate, and health reporting, providing deep insights into Kenyan and global economic trends. He currently works as a business editor at TUKO.co.ke.
Kenyans pay over KSh 6 billion in penalties for unutilised loans from external lenders.
Source: Twitter
An audit of donor-funded projects indicated that the country paid KSh 6.6 billion for undrawn KSh 304.4 billion, out of KSh 515.1 billion foreign loans.
Auditor General Nancy Gathungu told the National Assembly Budget and Appropriation Committee on Tuesday, May 27, that the country wasted public resources in payment of such penalties.
Gathungu faulted the National Treasury over what she termed as a lack of proper planning in the implementation of the projects.
"Between the financial year 2020/2021 and 2023/24, the government paid commitment fees totalling KSh 6.569 billion on the undrawn amount in respect of loans signed between the government of Kenya and foreign lenders.
"Commitment fees and penalties are waste of public resources. This means the implementing agency (National Treasury) was not ready when it entered the loan agreements," Gathungu told the committee led by Alego MP Sam Atandi.
Gathungu noted that the fine paid for low absorption of foreign loans in 2022/2023 amounted to KSh 1.4 billion, while in 2023/24 it stood at KSh 1.6 billion.
Source: Twitter
Which donor-funded projects attracted loan penalty?
The audit report listed several projects where the Treasury failed to utilise full funding, attracting a penalty or commitment fee.
These are:
- The East Africa Skills Transformation Project, funded by the World Bank for KSh 1 billion - commitment fees paid totalled KSh 526 million
- The Kapchorwa-Suam-Kitale and Eldoret Bypass Roads Project - unused balance of KSh 16 billion
- The Multinational Horn of Africa Isiolo–Mandera Corridor -spent KSh 16 million, with the balance attracting a penalty
Kenya's debt
This came as the country's debt increased to KSh 11.02 trillion in January 2025, after the Treasury secured a new KSh 194 billion Eurobond.
This increased the external debt stock to KSh 5.09 trillion, mainly from commercial lenders.
Kenya's public debt stock is projected to hit KSh 13 trillion by 2027 as the World Bank notes a sharp increase in domestic debt.
The Bretton Woods institution warned that the country faces a high risk of debt distress, calling for an immediate fiscal policy framework on debt management.
Which reforms does World Bank recommend?
The international lender recommended broadening of tax base to bring Kenya's debt-to-GDP ratio to GDP level at 44%.
The bank recommended an increase in the income tax rate for high-income earners making over KSh 800,000 monthly from 35% to 38%.
Proofreading by Mercy Nyambura, copy editor at TUKO.co.ke.
Source: TUKO.co.ke
