Kenya is losing Sh89.4 million annually in commitment fees on undrawn donor funds for Covid-19 vaccines, an audit found.
A commitment fee is a payment that is charged by a lender to a borrower to compensate for keeping a creditline open. The fee also secures a lender's promise to provide the credit line on agreed terms at specific dates, regardless of the conditions of the financial markets.
A review of donor commitments for Supplementary Financing II by Auditor General Nancy Gathungu revealed that of the Sh18.67 billion allocated, only Sh800 million had been drawn, leaving an undrawn balance of Sh17.87 billion - a staggering 96 percent of the total commitment.
This undrawn balance continues to attract a commitment fee of 0.5 percent per annum, resulting in unnecessary financial losses.
The undrawn balance refers to a portion of the approved loan that has not yet been accessed or used by the lender, while a commitment fee is a charge that a borrower pays to the lender for the unused portion of the loan.
"This situation is contrary to regulations 193 and 194 (m) of the Public Finance Management Regulations 2015, which state that the objective of the Public Debt Management Office (PDMO) is to ensure that the financial needs of the government and its payments are met at the lowest possible cost while maintaining a prudent level of risk," Ms Gathungu said in a report for the financial year ended June 30, 2024.
The financial mismanagement goes beyond unspent funds.
In May 2021, the government, the African Vaccine Acquisition Trust (AVAT), and the African Export-Import Bank (Afreximbank) signed an agreement for Kenya to procure at least 10 million doses of Covid-19 vaccine at $10 per dose.
Subsequently, the Ministry of Health placed an order for 13.33 million doses valued at Sh7.5 billion ($57.68 million), which included both the cost of the vaccine and the AVAT.
However, at the time of the audit, only 1.8 million doses valued at Sh1.5 billion had been delivered, leaving a balance of 11.53 million doses to be delivered.
According to a letter from the ministry dated August 19, 2024, a further 2.72 million doses had been manufactured but never delivered.
These doses have been marked as no longer needed and are awaiting destruction, raising concerns about the waste of taxpayers' money on vaccines that were procured but never used.
In a letter from AVAT dated June 10, 2024, Kenya owes Sh8.34 billion ($64.9 million) for the 13.33 million vaccine doses, including Sh7.5 billion for the vaccines and Sh930 million in accrued interest. This means that Kenya is paying interest on vaccines that were available for delivery but were never received.
"Although the government has engaged with AFREXIMBANK in an attempt to have the interest waived the Bank had not accepted to this request as at the time of the audit. From the foregoing, the value may not have been realised from the agreement for the supply of Covid-19 does while the government is at risk of accruing further interest with the continued delays in settlement of the accounts,” the report read.
The Auditor-General is concerned that the Sh89.4 million lost annually could have been used to improve health infrastructure, increase vaccine distribution, or strengthen emergency response mechanisms.
In addition, continued delays in spending these funds could weaken Kenya's ability to negotiate favourable loan terms in the future, as lenders may impose stricter conditions due to poor financial management.
