NAIROBI, Kenya — Kenyan taxpayers spent Sh13.92 billion in loan-related charges on funds that were not fully utilised during the first nine months of the 2025/26 financial year, raising fresh concerns over public debt management and project implementation.
The figures are contained in a report by Controller of Budget Margaret Nyakang’o submitted to Parliament, which shows that the government paid lenders through commitment fees, penalties, and other borrowing-related costs despite delays in using the funds.
Multilateral lenders accounted for the largest portion of the charges at Sh11.38 billion, followed by bilateral creditors at Sh2.52 billion. Commercial banks and international sovereign bond-related costs made up the remaining amount.
Out of the total Sh13.92 billion, Sh1.01 billion went to commitment fees, while Sh12.91 billion was spent on other related charges.
Nyakang’o warned that such costs reduce the value derived from borrowing and called for improved planning and coordination before taking loans.
“There is a need to minimise commitment fees, penalties and other incidental borrowing costs, as such charges do not contribute to the productive utilisation of borrowed funds,” she said.
Funds Could Have Supported Education
The Controller of Budget noted that the money spent on unused loan charges could have supported critical public services.
She estimated that the Sh13.92 billion could have funded secondary education for about 624,888 learners per term based on a unit cost of Sh22,244 per student.
The report comes amid financial pressures affecting key sectors, including education, healthcare, and infrastructure.
Public secondary schools have recently faced challenges linked to delayed government funding, with some institutions reporting difficulties meeting operational costs.
Debt Currency Risks
The report also raised concerns over Kenya’s exposure to foreign exchange risks.
According to the Controller of Budget, 52 per cent of Kenya’s external debt is denominated in US dollars, while the remaining 48 per cent is held in other currencies.
“This exposes the country to significant exchange rate risks, as fluctuations in the Kenya shilling against major currencies such as the US dollar directly affect debt valuation and servicing costs,” the report stated.
A weakening shilling increases the cost of repaying foreign-denominated loans, placing additional pressure on public finances.
Poor Coordination Blamed for Rising Costs
Appearing before the National Assembly Committee on Public Debt and Privatisation, Nyakang’o attributed part of the problem to weak coordination between the National Treasury and government agencies implementing loan-funded projects.
She said some ministries and agencies are unaware of loans secured on their behalf, resulting in delays in project execution and poor absorption of funds.
“To maximise the development impact of borrowing, the government should strengthen project planning, procurement and implementation frameworks, particularly for externally financed projects,” she said.
She cited examples, including Kenya Technopolis, where the implementing ministry was reportedly not fully aware of borrowing arrangements, and an underground power cabling project in Nairobi where Kenya Power had not been sufficiently involved.
“This is a debt trap we are being forced into. We are borrowing for loans that we are not ready to utilise,” Nyakang’o warned.
Parliament Pushes for Stricter Controls
The National Assembly Public Debt and Privatisation Committee has raised concerns that continued payment of commitment fees reflects weaknesses in project readiness, slow disbursement, and poor implementation of externally funded programmes.
The committee has recommended stricter measures, including ensuring projects are ready before borrowing, improving monitoring, and cancelling idle loan portions to prevent unnecessary costs.
The concerns come under the framework of the Public Finance Management Act, 2012, which requires the government to promote transparency, accountability, and efficient use of public resources.
Nyakang’o also highlighted the rising cost of debt servicing, noting that high interest rates on government securities have increased borrowing expenses.
She disclosed that Kenya spent USD657.9 million, approximately Sh86.2 billion, during the first half of the 2025/26 financial year on a bond buyback targeting a 2018 Eurobond due for maturity in 2028.
The transaction involved repurchasing USD628.4 million, valued at about Sh82.3 billion, at a premium that resulted in an additional cost of about Sh3.86 billion above the principal amount.
