Kenya’s Treasury is under fire for not using Sh2.67 trillion borrowed locally over five years to fund development projects as required by law.
An audit by the Auditor-General shows that the funds were instead deposited into the Consolidated Fund, where they were mixed with other government income, making it impossible to trace their specific use.
The performance audit on domestic debt and cash management indicates that between July 2018 and June 2023, the government borrowed Sh2.97 trillion through Treasury bonds.
Of this, Sh2.67 trillion was transferred to the Consolidated Fund Services account.
The report reveals that Sh558.87 billion was spent to settle maturing domestic debt, while Sh2.1 trillion went to fund Exchequer releases for ministries, departments and agencies. The remaining Sh300 billion not deposited into the Consolidated Fund remains unaccounted for.
Auditor-General Nancy Gathungu criticized the practice of using domestic borrowing to cover regular government expenses instead of financing development, noting that once deposited into the Consolidated Fund, the money became part of general government revenue, making it difficult to track.
“Because of fungibility of money, the moneys were used to fund priority exchequer requests instead of lying idle in the Treasury bonds accounts and provided that at the end of the financial year the budget was fully funded, then there should be no problem,” Gathungu said.
“As a result, the audit could not verify what specific projects the Treasury Bonds proceed were expended on,” she added.
The Treasury has defended the approach, saying repayment of domestic debt is a first charge on the Consolidated Fund. However, the audit notes the lack of a clear framework to ensure borrowed funds are specifically directed toward development projects, raising concerns as Kenya’s public debt surpasses Sh12 trillion.
The report further criticizes the issuance of infrastructure bonds without specifying which projects the funds would support.
Gathungu warned that such general-purpose borrowing could undermine investor confidence and slow growth in the government securities market.
“Review of a number of Infrastructure Bond prospectuses indicates the purpose of these bonds to be very general and not specific to a particular infrastructure project, thereby unable to confirm the utilisation of the treasury bonds proceeds,” she said.
According to the Public Finance Management Act 2012, government borrowing should be focused on development, while short-term loans like overdrafts are meant to manage cash flows. As of September, Kenya’s public debt stood at Sh12.05 trillion, with domestic borrowing accounting for more than half of the total.
