Auditor General exposes Sh6.6 billion lost in foreign loan penalties

Kenya has paid Sh6.6 billion in commitment fees over four years due to failure to utilise foreign loans, a new report by Auditor General Nancy Gathungu has shown.

Speaking to Parliament, Gathungu said the country continues to incur losses from underutilised donor funds, blaming it on poor planning and low project implementation.

The report shows a pattern of poor absorption of foreign-funded projects, with billions remaining unutilised even after being allocated. In the 2023/2024 financial year alone, Sh304.4 billion out of a total Sh515.1 billion allocation for 14 major projects went unused.

“For instance, in the financial year 2023/2024, 14 projects which had total project allocations of Sh515.1 billion had not utilized Sh304.4 billion or 59.1% of the total allocation,” said Gathungu.

The Auditor General explained that commitment fees are charged on undrawn amounts in some loan agreements, resulting in unnecessary penalties.

“Some of the projects have clauses where they attract commitment fees for any undrawn amounts, leading to wastage of funds and lack of value for money,” she said.

In the current financial year, Sh1.6 billion was lost in commitment fees, while another Sh1.4 billion was paid in the 2022/2023 financial year under similar circumstances.

Gathungu noted that these funds could have been used for service delivery if the projects had been effectively implemented.

Among the affected projects is the East Africa Skills Transformation Project, where half of the Sh1 billion donated by the World Bank was lost to commitment fees.

Similarly, the Kapchorwa-Suam-Kitale and Eldoret Bypass Roads Project recorded a Sh16 billion undrawn balance that attracted penalties.

Another major project affected is the Isiolo–Mandera Corridor under the Multinational Horn of Africa initiative.

Despite high-level visits like the one by Deputy President Kithure Kindiki to El Wak–Rhamu Road, only Sh16 million has been used, yet billions were allocated.

The revelations sparked tension in the committee session, with Chairperson Sam Atandi and his predecessor, Ndindi Nyoro engaging in a verbal clash over the line of questioning to the Auditor General.

The discussion also shifted to the Hustler Fund, with MPs demanding explanations on its continued funding despite accountability challenges. Gathungu criticised the system’s lack of transparency and traceability.

"Even arriving at Sh6 billion as a missing figure is difficult... The Hustler Fund is a problem, including its systems. You borrow Sh500 here, Sh1,000 there—surely how can you trace," stated Gathungu.

The audit highlights growing concerns over fiscal discipline, as Kenya continues to pay dearly for loans that deliver little or no public benefit.