MPs seek final say on Sh28.5 billion State loan write-off requests

A fresh power struggle is brewing over the handling of billions of shillings in State loans after MPs moved to take control of decisions on debt write-offs, restructuring and forgiveness involving government agencies that have failed to repay money borrowed through the National Treasury.

The National Assembly's Public Debt and Privatisation Committee wants all proposals to cancel, restructure or forgive on-lent loans to be brought before Parliament for approval, a move that would shift authority from the Cabinet and give lawmakers a direct role in overseeing the management of public debt owed by State entities.

The proposal is aimed at tightening accountability as defaults continue to rise among public institutions that receive loans from the Treasury for development projects and other activities.

“In order to address moral hazard in on-lent loans, the National Treasury should ensure that any proposed write-off, restructuring or forgiveness of on-lent loan obligations is submitted to the National Assembly for consideration and approval before implementation,” the committee said in a report to the House.

An on-lent loan is money borrowed by the government and then advanced to another public institution to finance a specific programme or project.

According to the committee, allowing Parliament to scrutinise such decisions would help ensure public agencies are held responsible for their borrowing obligations and prevent taxpayers from being left to shoulder losses arising from persistent defaults.

The recommendation comes as 29 State corporations seek approval for the write-off of loans worth about Sh28.55 billion after struggling to meet repayment obligations.

Under the current system, decisions on the restructuring, forgiveness or cancellation of on-lent loans are handled by the Treasury with approval from the Cabinet.

The committee argues that because public funds are used to finance these loans, Parliament should have a greater say whenever the government considers relieving agencies of their repayment obligations.

Among the institutions seeking debt relief is National Water Conservation, which has applied for the write-off of Sh5.44 billion. Other applicants include Agro-Chemical & Food Company Limited at Sh2.94 billion, Lake Basin Development Authority at Sh1.34 billion and Catering Levy Trustees together with Utalii College at Sh733.27 million.

The applications were made during the financial year ending June 2025, a period that also recorded a rise in unpaid principal and interest obligations to Sh405.11 billion, underlining growing repayment challenges among State-owned entities.

Treasury records show the requests for loan write-offs were submitted during the year ended June 2025, although it remains unclear whether the Cabinet has acted on the applications.

In addition to seeking approval powers, MPs have directed the Treasury to present a detailed report covering all entities that have defaulted on on-lent loans over the past ten years. The report is expected to outline the amounts written off, the reasons behind the defaults and the recovery measures taken.

For many State agencies facing financial strain, debt write-offs have become a key option when repayment becomes difficult.

Kenya Airways is among the biggest beneficiaries of such interventions in recent years. In 2019, the Treasury wrote off Sh24.2 billion in loans advanced to the airline, providing relief as the national carrier grappled with mounting losses and debt obligations.

The airline also failed to settle Sh8.5 billion in interest payments on on-lent loans that fell due during the year ended June 2025. The amount remained unpaid six months later, leading the Treasury to waive and defer the payment.