The Controller of Budget (CoB), FCPA Dr. Margaret Nyakang’o, hosted officers from the Office of the Auditor-General (OAG) for an audit entry meeting on Friday, 6th March 2026, to review the management of fiscal risks in Kenya and assess the country’s public debt legal and policy framework. The engagement marks the start of two key performance audits: a main study on fiscal risk management and a pre-study on public debt frameworks. The OAG team introduced the performance audit methodology and discussed the audit plan for the two studies.

The exercise builds on a pre-study completed in February 2025, which involved consultations with the National Treasury, selected State-Owned Enterprises (SOEs), County Governments, and the Office of the Controller of Budget (OCoB). With the preliminary phase concluded, the OAG is now advancing to the main audit stage to gain deeper insights into how fiscal risks are identified, monitored, and managed across government institutions.

To set the stage for the discussions, the Controller of Budget sought clarification on the auditee for the exercise. The OAG explained that the National Treasury is the primary auditee, while OCoB will serve as a key stakeholder, providing information on budget execution and public debt settlement. The discussions also highlighted the oversight role of the CoB under Article 228 of the Constitution, which mandates the Office to authorise withdrawals from public funds and to monitor the implementation of the national and county budgets.

The focus was on emerging fiscal risks, including revenue shortfalls, expenditure overruns, low absorption of development funds, and the accumulation of pending bills, which continue to strain public finances. Kenya’s rising public debt, now exceeding KSh 12 trillion, was a major point of discussion. The audit will review legal provisions governing borrowing, debt servicing, withdrawals from debt-related exchequer accounts, reporting requirements, and oversight mechanisms.

The meeting also explored emerging financing instruments such as securitisation and Treasury bonds and bills, and whether current legal and policy frameworks sufficiently support prudent debt management in a changing financial environment.

Dr Nyakang’o outlined the procedures followed before authorising public debt payments. She explained that her office reviews loan agreements, legal opinions, invoices, and official correspondence, rejecting any requests with incomplete documentation. Verified requests are approved in Kenyan shillings, after which the National Treasury handles foreign currency conversions. Participants also highlighted challenges, such as foreign exchange fluctuations, which can increase the cost of servicing external loans, and emphasised that integrating the Integrated Financial Management Information System (IFMIS) with the Central Bank of Kenya (CBK) systems strengthens oversight of exchange rates during the approval process.

Recent reforms in the 2024/2025 financial year were highlighted, which improved transparency and controls in public debt settlements. All verified invoices must now be processed and settled within agreed timelines. The meeting also examined government overdrafts, whose interest obligations are paid from the Exchequer. High CBK rates previously increased costs, but the Treasury Single Account system has helped reduce reliance on overdrafts, lowering rates from about 13.5% to 8%.

Fiscal risks at the county level were also discussed, including ambitious revenue projections, overdraft borrowing, and delays in complying with documentation requirements when requesting funds. It was explained that delays in disbursements are often linked to non-compliance with financial guidelines and supporting documentation.

The meeting further addressed Article 223 of the Constitution, which allows emergency spending of unbudgeted funds. While intended for urgent needs such as droughts or security emergencies, concerns were raised that it is increasingly being used to finance expenditures that could have been planned within the normal budget process. Although Article 223 spending is capped at 10% of the approved budget, its interpretation and application remain a subject of debate.

Once completed, the audits are expected to identify gaps in Kenya’s legal and institutional frameworks, highlight emerging fiscal risks, and recommend measures to strengthen fiscal discipline, transparency, and accountability in public finance management.