Commitment fees Kenya paid on untapped external loans hit Sh833.85 million in the six months to December 2023 driven by a weak shilling.
This places the cost of commitment fees in the financial year 2023/24 on course to surpass the Sh1.35 billion that was paid for the same in the entire 2022/23.
It is also more than the Sh680.3 million the government paid on the undisbursed loans in the corresponding period in the previous financial year.
The commitment fee is paid to compensate the lender for their commitment to lend. The fee is charged because the lender has set aside funds for the loan but cannot yet charge interest pending drawdown.
The fee is typically associated with unused credit lines or undisbursed loans and forms part of the country’s external debt and is, therefore, heavily affected by a depreciation of the local currency.
Controller of Budget Margaret Nyakang’o, in her report to Parliament regarding the implementation of this year’s budget, shows external debt servicing amounted to Sh238.08 billion during the six months to December.
This consists of Sh133.19 billion for redemption, Sh97.36 billion in interest, Sh6.69 billion classified as “other charges” and Sh833.85 million in commitment fees.
The National Treasury spent a further Sh359.48 billion to repay domestic debt. This consists of Sh101.67 billion redemptions and Sh257.81 billion interest.
However, the government has been in the spotlight for the pile-up of the commitment fees which is largely caused by delays in absorbing borrowed loans.
This is a result of a lack of proper planning for projects by the government before loans for financing the projects are signed. This means that while loans are signed, their absorption remains low.
As a result, the lender charges the commitment fee because it cannot yet charge interest until the borrower takes it up.
“Notably, the public debt stock has surpassed the parliamentary limit,” said Dr Nyakang’o.
“Growth in public debt strains the revenue as public debt is a first charge to the consolidated fund.”
