Fees on unused external loans hit Sh834m

Commitment fees paid by Kenya 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 entirety of the financial year 2022/23.

It is also more than the commitment fees of Sh680.3 million that the government paid on the undisbursed loans in the corresponding period in the previous financial year.

The fee is paid by a borrower to compensate the lender for their commitment to lend and is charged because the financier 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 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 pay domestic debt. This comprises Sh101.67 billion redemptions and Sh257.81 billion interest.

However, the government has been under the spotlight for the pile-up of the commitment fees which is largely caused by delays in absorbing borrowed loans.

This is caused by poor planning for projects by the government before loans for financing the projects are signed.