State redirects Sh170 billion in Covid-19 loans to pay salaries

The Treasury building, Nairobi. [Elvis Ogina]

The Treasury illegally spent Sh169.8 billion in money borrowed on recurrent expenditure in the financial year that ended in June.

In a new report, the Treasury attributed the spending on the need to allocate additional resources to help Kenyans navigate the adverse effects of Covid-19.

“The recurrent spending was occasioned by spending interventions to cushion the poor and vulnerable members of society, as well as to contain the spread of Covid-19, including recruitment of additional health staff, additional support to health workers and acquisition of Covid-19 vaccines,” said the Treasury in the Budget Review and Outlook paper 2021.

But the Public Finance Management Act, 2021, says over the medium term, the government’s borrowing shall be used only for financing development expenditure.

In the financial year 2020-21, the Treasury borrowed Sh893.6 billion, with a big chunk of the cash going into development projects. Of the amount borrowed, project loans that go directly to line ministries, such as loans for the Standard Gauge Railway, were Sh168 billion.

Programme loan development partners, such as the World Bank and African Development Bank, provided Sh168.6 billion, while domestic securities amounted to Sh556.3 billion.

The Treasury noted that the money was spent on project loans of Sh168.7 billion, external redemptions of Sh128.3 billion and domestically funded development expenditure of Sh594.5 billion (inclusive of 30 per cent equitable share).

Infographics: The Standard Checkpoint

However, directing 19.1 per cent of the borrowed money on recurrent spending is against the fiscal responsibility principle spelt out in Section 15(2)(c) of the PFM Act, 2012.

In the last financial year, the State set aside Sh14.3 billion for the procurement of vaccines. It will also recruit 5,000 diploma and certificate level healthcare workers for one year under the Universal Health Coverage programme.

Some of the debt that was used for recurrent spending came from the World Bank, which in June disbursed $750 million (Sh80.2 billion) to Kenya, pushing the global lender’s loans to the country in the last one year to Sh1.1 trillion.