Kenyan tax payers were forced to come to the rescue of The Nairobi City Council after it defaulted on the Sh212 million loan it borrowed from the United States Agency for International Development (USAID).
City Hall borrowed the Sh212 million from USAID in 1985 to be paid at an interest of 8.5 per cent per annum with the Treasury as the guarantor therefore leaving the taxpayer as the ultimate owner of the debt in the event of a default. At current rates, the loan amounts to Sh1.5 billion. The 30-year loan was to be repaid by 2014 but City Hall has defaulted, leaving the Treasury to pay the residual amount plus interest., .The loan was to be used for residential construction projects in Umoja Estate.
The report, which was presented to Parliament three weeks ago also indicates that Tana and Athi River Development Authority (TARDA) and the Kenya Broadcasting Corporation (KBC) also received millions of shillings from the Treasury to service bad debts. The Treasury is making the payments as the guarantor of the loans who the lenders must hold accountable when the borrowing public institutions default.
The Controller of Budget’s report covering up to the third quarter of the financial year indicates that the Treasury had by the end of March drawn a total of Sh1.40 billion out of the Sh1.41 billion it had set aside to meet its public debt guarantee obligations and that the money was drawn to service City Hall, TARDA and KBC’s debts.
Servicing City Hall’s debt to USAID took Sh120 million while Sh678 million was paid to the Japanese agency for international development (JICA) on behalf to TARDA and the remaining Sh557 million to JICA to service KBC debt.
Use of taxpayers’ money to bail out public institutions is however proving to be an unpalatable settlement that is expected to put the Treasury and City Hall under the spotlight.
Agnes Odhiambo, the Controller of Budget, has questioned the move in her latest report to parliament where the Treasury and the institutions in default are expected to come under intensive scrutiny.
“There is need for the Treasury to make a follow-up to determine why government agencies, which are not insolvent defaulted on loans and to recover these amounts from them,” Mrs Odhiambo says in her report for the third quarter of 2011/12 financial year.