Shock of Sh220bn state agencies failed to spend

Situation contrasts the cash flow crisis staging budget cuts and project rationalisations

In Summary

•The loans were to be used by various implementing agencies [unspecified in the dossier] to fund projects and programmes.

•Kenyans paid Sh1.4 billion as commitment fees for the undrawn lawns during the period under review.

Central Bank of Kenya headquarters building along Haile Selassie avenue in Nairobi.
Central Bank of Kenya headquarters building along Haile Selassie avenue in Nairobi.
Image: FILE

Key government agencies have been put on the spot for failing to spend billions of shillings, mostly donor cash and loans, meant for projects.

At the end of the 2023 financial year, the agencies had not spent about Sh223 billion. The amount could be higher.

This is even as it emerged that some government agencies could be sourcing for loans before they are ready to roll out projects.

This means the loans begin to accrue interests while the intended project is yet to be launched.

Auditor General Nancy Gathungu has questioned the loan rush in her review of the national government books of accounts as of June 30 last year.

For instance, the report reveals that the National Treasury sourced loans to the tune of Sh25 billion, which lied idle in CBK accounts.

"The National Treasury, being the overall supervisor of MDAs needs to ensure that programmes and projects are ready for execution before committing the government to bear the loans,” Gathungu said.

Most alarming is that Kenyans paid Sh1.4 billion as commitment fees for the undrawn loans during the period under review.

“Had the implementing agencies put proper mechanisms in place to enable absorption of the committed credit within the agreed time frame, payment of commitment fees would have been minimised,” Gathugu said.

Health Ministry is also on the spot over an unspent Sh28 billion which was meant for sector upgrades in preparation for pandemics.

The government secured a grant of Sh33 billion for the venture, which was to run between March 2020 to March 2025.

However, as of June 30 last year, the project had not drawn disbursements of Sh28.4 billion—which translates to about 84 per cent.

As agencies keep holding on to cash, pending bills have continued to pile, the figure racing to Sh800 billion.

The government has also told off striking doctors that it has no money.

Gathungu’s new report shows that infrastructure projects are holding the lions share of borrowed and donated cash.

Most of the unspent amounts were for mega projects executed in the sunset days of President Uhuru Kenyatta’s term.

Ketraco, for instance, had an undrawn balance of Sh23.5 billion meant for the Eastern Highway project, which had pending bills of Sh582 million.

The auditor warns that as agencies keep money, other projects are starved of cash.

“The significant undrawn balance may result in funds being locked in the current project whereas these funds could have been utilised on other projects to deliver services to Kenyans,” Gathungu said.

Roads agency Kenha failed to spend Sh4.4 billion on the Mombasa-Nairobi-Addis corridor project.

“The credit thus lapsed without being fully utilised and the project’s planned deliverables earmarked for completion using the funding may not be realised,” Gathungu warned.

The agency also failed to utilise Sh5.8 billion – which translates to 31 per cent, in the third phase – the Moyale-Turbi stretch.

Auditors flagged the amount after roads agency Kenha failed to disclose it in its financial statements. The credit also lapsed without being fully utilised.

Another Sh3 billion remained undrawn in the Arusha-Holili road corridor development project.

Only about 73 per cent of the Sh13 billion had been funded. “It was therefore impossible to confirm whether the project’s goals were achieved with only 73 per cent of funds received.”

Kenha had also not withdrawn Sh16 billion or about 84 per cent of the expected funding for the National Urban Transport Improvement project.

Fears are abounding that the credit, which was to help improve a number of town roads, may lapse without being fully utilised.

The Highways Authority has also been put on the spot for failing to utilise Sh19 billion on the virtual weighbridges project.

The project started on July 20 2015 and was expected to end by December 29 last year with a donor commitment of Sh49.3 billion.

The loan’s financing agreement says it will continue to attract a penalty on the undrawn balance in the form of commitment fees.

“In the circumstances, the project costs may continue escalating as a result of penalty payments which are irregular and avoidable charges to public funds,” Gathungu said.

At the Mombasa Gate Bridge project, Sh48 billion remained unspent halfway through the project’s period.

“The absorption rate of funds is slow, an indication that the project may not be completed within the remaining period,” the report says.

Donor projects in the Health Ministry have also been cited for billions in undrawn balances.

Some Sh1,112,185,506 that was to support biomedical researches were yet to be spent yet the project was to end in December last year.

“Failure to spend funds already released to the project may have denied the beneficiaries of the project critical services,” the report says.

The department also has yet to spend some Sh675 million out of a Sh1.1 billion grant for a project which had only a year to its end date.

Auditors say there is a risk that the programme will come to an end without all planned activities undertaken and the project objectives being met.

Meru National Polytechnic is also yet to utilise Sh788 million out of donor commitment of Sh1,242,791,640.

At the Roads department, auditors bemoaned the slow absorption rate.

KMA  was called out for failing to spend Sh263 million, which attracted a commitment charge of (Sh1.3 million).

Borrowers are required to pay a commitment charge at the rate of 0.5 per cent on the undisbursed portion of the loan.

 Donors closed funding for a green growth project at a time when 51 per cent of the cash – about Sh154 million, remained undrawn.

Gathungu is also apprehensive that Kenya Forest Service may not absorb some Sh3 billion for green zone development.

“Management may not absorb the undrawn balance by 30 June, 2025 when the project is to end,” the auditor said.

Central Rift Valley Water Works Development Agency had also not spent Sh6.2 billion.

Rerec also had Sh2 billion of donor commitment undrawn for a project that had ongoing for nine years.

The audit warned that with the project closing on 30 December, 2024, the credit may lapse without being fully utilised.

The Ethiopia-Kenya electricity highway project funded by the African Development Bank also had Sh1.8 billion.

With six months to go, Gathungu said, “The public may not obtain value for money from the resources already allocated to the project.”

Rerec was further found to have failed to utilise Sh602,809,888, which was part of a loan from the World Bank.

Geothermal Development Company also had an unspent Sh38.9 billion, which the audit says may have negatively impacted the achievement of objectives.

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