Kenya was forced to tap Sh3.43 billion to cover the budget hole in the foreign debt service obligations created by the depreciation of the shilling against the US dollar in the first half of the financial year 2022/23, the Auditor-General has revealed.
The Auditor-General has now asked the Treasury to use hedging in cushioning the taxpayer from rising debt service obligations owing to the foreign exchange exposure component in the country’s stock of public debt.
“Debt service is prone to foreign exchange loss exposure on payment of external debt.
Recent data from the Controller of Budget indicates that in the first half of 2022/23 Sh3.43 billion was approved to cover shortfalls in external debt payments due to foreign exchange fluctuations,” the Auditor-General states.
The concerns come at a time fresh data from the Central Bank of Kenya (CBK) reveal that the country’s stock of public debt closed April 2023 at Sh9.63 trillion, 52.9 percent of which was attributable to foreign debt up from 50.9 percent in January, pointing to the impact of the sliding shilling on the country’s debt profile.
CBK data show that the shilling has depreciated by 13.9 percent against the US dollar since the start of 2023 and is now exchanging at 140.52 units to the greenback.
In March, the government unveiled a deal to source petroleum products on credit for six months from Saudi Aramco and the Abu Dhabi National Oil Company in a bid to ease foreign exchange pressures in the domestic market.
The Office of the Auditor General has also raised the red flag over the growing burden of commitment fees attracted by secured yet untapped loans with the shocking revelation that the government paid Sh680 million for loans it was yet to draw down on in the first half of the financial year 2022/23.
The Auditor has decried what she terms as opacity in the manner in which liabilities at both the national and county governments are captured, calling for greater transparency.
Pending bills
“There is the non-disclosure of loans and overdrafts held by other national and county government entities as well as other government liabilities such as pending bills and pension arrears. The government continues to pay commitment fees on undrawn amounts in respect of loans signed between the government of Kenya and foreign lenders. Within the first half of 2022/23, the National Treasury paid commitment fees worth Sh680 million,” the audit office reports.
State enterprises
Similarly, the office has raised queries over the Treasury’s disclosure regarding the debt the taxpayer has guaranteed for State Owned Enterprises, notably Kenya Airways, KenGen, Kenya Power and the Kenya Ports Authority.
As of the close of June 2022, the total guaranteed debt was reported to be Sh145.4 billion.
Kenya Airways defaulted on its debt in 2022 and in the financial year 2023/24 Sh71.2 billion has been earmarked to be charged on the Consolidated Fund to honour the national carrier’s debt obligations.
“There is non-disclosure of all obligations guaranteed by the national government. Notably, loans guaranteed by the national government on Kenya Airways (Sh88.3 billion), KenGen (Sh24.5 billion), Kenya Power (Sh9.9 billion) and Kenya Ports Authority (Sh33.5 billion) were not reported in the financial year 2022.
“There are non-performing loans where recipients have defaulted on payment obligations. As of June 30th, 2022, the portfolio of non-performing loans was Sh218.8 billion”, the Auditor reports.
The submissions are contained in the report tabled on June 21, 2023, by the National Assembly Public Debt and Privatisation Committee covering Consolidated Fund Estimates for 2023/24.
