Keep the commitment fees on loans in check
Tuesday April 25 2023
President William Ruto’s administration has suspended or scaled down dozens of projects such as roads initiated by the previous administration, a move that has seen a number of ministries fail to absorb their development funds.
This has led to a buildup in undrawn external loans that have continued to incur commitment fees annually, with the burden increased by the continued weakening of the shilling against the dollar.
Parliament was in February told the Treasury had paid Sh3.35 billion in commitment fees in the last three years, putting a strain on public coffers.
The Treasury needs to ensure that programmes and projects are ready for execution before committing the government to the loans.
Further, the Treasury should ensure that projects proposed by the ministries, agencies and State corporations are vetted before a final decision is made on the size, mode of funding and when to initiate them.
In addition, agencies implementing the projects should put proper mechanisms in place to enable the absorption of credit within the agreed timeframe to cut the commitment fees.
Such checks will ensure the State pays commitment fees towards loans it has a clear picture of the projects that will be funded and when they are to start.
Tighter checks will identify projects that have not been properly appraised, helping taxpayers to get value for money.
The Treasury should also consider cancelling some of the undrawn loans where there has been a change in project plans.