Sh210bn Eurobond ratchets up queries on borrowing



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Kenya’s new Sh210 billion Eurobond may have been praised by some as a success, but details of its intended use remain as hazy as those of the first one, which was floated in 2014.

Barely a month after the 2014 expenditure of the Sh280 billion bond was swept under the carpet, leaving many questions unanswered, details of the intended use of the latest borrowing remain scanty, with Treasury giving a generalised description of what the loan will be used for.

The use of the first and second Eurobonds remains the subject of lingering doubt in the minds of many after the only explanation offered was that the money was mixed with other funds and disbursed to various departments, making it hard to trace.

“The proceeds from this Eurobond will be used to finance some of the development infrastructure projects, the general budgetary expenditure (in accordance with the applicable legal requirements) and to refinance part or all the obligations outstanding under the $750 million (Sh75.8 billion) Eurobond due in June 24, 2019 and potentially part of the other debt obligations,” Treasury Cabinet Secretary Henry Rotich wrote on Wednesday in a statement that heavily praised the success of the Eurobond.

The mention of ‘some of the development infrastructure projects’ revives memories of the controversial 2014 bond.

In the 2014 one, an information memorandum that the government issued ahead of going to the international debt market to raise the $2.75 billion said the bond was to finance general budgetary spending and infrastructure projects such as expansion of airports, sea ports, roads, pipelines and geothermal plants.

Mr Rotich, who had not responded to our queries on the specific projects being targeted with the latest debt, in 2015 issued a three-week ultimatum to all State departments to publish details of how they spent Eurobond proceeds wired to them in the fiscal year ended June 2015.

This was after the opposition pushed hard on allegations that the funds were mostly stolen.

Two weeks later, Mr Rotich made a sudden about-turn, saying the proceeds from the sovereign bond issue were lumped together with other government revenue and disbursed to ministries, making it difficult to pinpoint specific projects.

According to him, Treasury’s role was simply to disburse funds to the ministries according to their request and in line with the approved budgets.

“The ministries cannot differentiate whether the money they have received from the Exchequer came from VAT, income taxes, customs duties, excise taxes, domestic borrowing or the Eurobond,” Mr Rotich told the Business Daily.

That was the first time the truth about Eurobond started becoming a mystery, giving Kenya a false start in accounting for foreign market debt.

The Auditor-General would later find a similar hurdle and flagged the manner in which the Eurobond proceeds were spent, especially in six ministries where billions of shillings were spent outside the Integrated Financial Management Information System (Ifmis).

Economist David Ndii said Kenya’s maiden move in 2014 to tap debt in the international market means the country has to continually float similar bonds to rollover old ones as a conventional debt management strategy, which would keep the country paying interest without necessarily going into its thin revenues to foot the principal repayment.

He however termed as euphemisms for theft, the explanation that the funds were mixed with other revenue and then given to ministries, some of which spent them outside the government expenditure platform.

“It was simply stolen. You cannot trace it in any development expenditure for the specific years. The spending outside the system is how the tracks were covered and I don’t understand why it is taking too long to just admit that and start holding those responsible accountable,” said Mr Ndii.

Incidentally, the Treasury was listed as among the ministries and government departments that spent money outside Ifmis.

Treasury spent Sh3.4 billion in salaries and allowances while others included public debt (Sh416.2 billion), the Defence ministry (Sh80.1 billion), the National Intelligence Service (Sh19.2 billion), the Teachers Service Commission (S170.9 billion) and Pension (Sh35.2 billion)

At the height of demands for accountability for the Eurobond proceeds by ODM leader Raila Odinga, who claimed Sh140 billion was missing, the public prosecutor even ordered investigations into the handling of the sovereign bond cash.

Mr Odinga had also challenged the government to table the list of grand projects it financed with the Eurobond money.

“We are not convinced the government could have absorbed another Sh197 billion, and even if it were to do so, we would question the wisdom of spending such a huge amount of money on non-priority projects,” he said.

The questioning of the Eurobond expenditures put Auditor-General Edward Ouko under pressure in October 2016 when President Uhuru Kenyatta blasted him for seeking to trace the money from overseas.

The President dismissed Mr Ouko’s plans to investigate activities of the Federal Reserve Bank of New York regarding alleged misuse of the $2 billion Eurobond cash.

Mr Ouko had in May told MPs his office would conduct a forensic audit of the funds outside Kenya after securing appointments with top US and UK financial institutions involved in the Eurobond transactions.

“When you say that the Eurobond money was stolen and stashed in the Federal Reserve Bank of New York, are you telling me that the Kenyan government and US have colluded?” Mr Kenyatta posed at State House where Mr Ouko was attending an anti-corruption conference.

“Who is stupid? And he (Mr Ouko) says he wants to investigate the Federal Reserve Bank of New York.”

In his report, which the auditor reloaded barely one month before the latest Eurobond, the auditor recommended that subsequent issuance of international sovereign bonds be earmarked and be identifiable to specific development projects.

That remains to be seen as the spotlight turns on the Treasury to explain just who will consume the latest borrowing.


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