Sunday, 13 December 2015

Facts, Fallacies and Fantasies of The Eurobond

Was the Eurobond properly used? This is the question that currently lingers in the mind of concerned Kenyans. Since the time that the Controller of Budget Agnes Odhiambo raised questions on its spending and the apparent stashing of the cash in accounts located in foreign countries, we have been treated to a game of circus as the government has not tabled the specifics about the expenditure of the Eurobond.

After the issuance of the $2 billion sovereign bond, the chiefs at the national exchequer committed a pecuniary error by breaching the Article 206, Section 17(2) of the Public Finance and Management Act of our constitution by making the payments to an overseas account. The aforementioned act states that the sovereign bond has to be paid directly into the Consolidated Fund through the Exchequer Account. This is one factual act that the practicing economists at the National Treasury wrongly committed. It was this constitutional contravention that apparently led the Controller of Budget to raise questions on the accountability of the funds but later on made a u-turn and declared that the proceeds from the bond were properly utilized. The circumventing by the Controller of Budget was a suspicious act because she seemed to have been threatened by the ‘tyranny of numbers’ brigade of being smoked out of the office.

Fast forward, the three main objectives of the proceeds from the Eurobond were as follows: first, to reduce on the amount of money that the government borrows domestically. Secondly, to stabilize the exchange rate and thirdly to ease pressure on the foreign exchange reserves. So have the objectives been achieved? The answer is a plain NO. The Jubilee administration seems to be reeling from the effects of instituting and choreographing a weak and poor macroeconomic management strategy. If indeed the finances raised from the Eurobond were to reduce the rate and level of domestic borrowing by the government, why are we witnessing escalating levels of domestic borrowing? 

In August this year, the total domestic debt was shs.1.38 trillion and by the end of the month of November 2015, it had risen to a tune of shs.1.47 trillion. This certainly contravenes the spirit of reducing on domestic borrowing. High levels of domestic borrowing by the government have one greatest danger; the crowding-out effect of the private sector. The government can borrow money at any interest rate and so if it decides that it will issue out the bonds and the securities, most commercial banks will prefer buying the securities from the government to lend it money because of the attractive interest rates rather than lending the same money to the private sector. This leaves little amounts of finances to be used by the private sector and in the medium-term and long-term leads to a stagnated rate of economic growth and development. It is therefore a fact that the National Treasury has failed to reduce on the levels of domestic borrowing.

In addition, the proceeds from the Eurobond have done little to be able to maintain a stable exchange rate of the Kenyan shilling against the US dollar. At the time of the issuance of Kenya’s first ever sovereign bond, the exchange rate was approximately shs.87 for $1 but currently the shilling exchanges the dollar at the rate of shs.102 for $1. This is a failure by the Treasury chiefs and it is a fact. However, they may put forth the argument that we have a floating exchange rate system and not a fixed one but now they themselves crafted a mediocre and economically warped thought that the Eurobond would stabilize the exchange rate. This is some bit of hotheaded economics because essentially, we are largely an import-based economy and in any case we export primary products that are not wholly processed. Hence, it’s a fallacy to try and imagine that proceeds from a sovereign bond can stabilize the exchange rate of an economy that thrives on importing most of its locally consumed products and one that survives on exporting primary products.

According to the National Treasury, out of the shs.250 billion raised from the Eurobond, shs.196.9 billion is said to have been channeled towards the financing of infrastructure projects in the country while shs.52.3 billion is believed to have been used in servicing a syndicated loan that the government obtained from three commercial banks in May 2012. These banks were the Citibank, Standard Chartered Bank and the Barclays Bank. The National Treasury has come out strongly to state that the shs.196 billion was allocated to various ministries and state departments as follows:
            Department of Infrastructure               shs.49.3 billion
            Ministry of Planning                            shs.44.5 billion
            Ministry of Energy                               shs.18.1 billion
            Department of Water                            shs.11.1 billion
            Department of Agriculture                    shs.11 billion
            Ministry of Lands and Housing             shs.9.1 billion
            Department of Science and Technology shs.8.9 billion
            Ministry of Education                            shs.6.2 billion
            Ministry of ICT                                      shs.2.9 billion
            Ministry of Industrialization                  shs.2.7 billion
            Department of Tourism                          shs.2.6 billion
            Department of Livestock                        shs.2.4 billion
            Department of Culture                            shs.1.2 billion
            Department of Fisheries                          shs.1.2 billion
The totals add up to shs.196 billion and the balance used up for payment of the syndicated loan, commissions and taxes.

Provision of the breakdown on the amounts allocated to the various ministries and state departments is perhaps a job well done but now what the Treasury top honchos have failed to give is the subsequent itemization of the specific projects that have been financed by the Eurobond. We need to be shown which projects have been established and not being treated to empty rhetoric. If the funds from the Eurobond proceeds were plainly given to ministries and state departments without specifying which projects to establish, the funds may have ended up as part of the normal budgetary allocation to the ministries and departments.

What really irks me is how this issue of not only national concern but also international concern is being politicized. Politicians from both the ruling coalition and the opposition are seeking to gain political mileage with the Eurobond issue. However, politicians who happen to be career sycophants from the Jubilee side put up arguments that makes them to come out as automatons and simpletons who have no goodwill for Kenya at heart. Calling for a press conference by Members of Parliament to defend matters that are to be defended by the Executive jeopardizes and subsequently weakens the oversight role of Parliament. As a matter of fact, MPs led by Aden Duale  and Prof. Kindiki Kithure directed their exasperation in the form of filibusters at the Opposition chief Raila Odinga on the perception that the former premier is unhappy that proceeds raised from the Eurobond were not used to fund projects that were began by him.

This is a skewed way of reasoning. Look, one of the unseen roles that the government of the day needs to execute is the provision of continuity in government. If indeed the Jubilee-led administration was to avoid cases such as the cash crunch it could have made an initiative to complete the projects that were started by the previous government instead of coming up with new projects which need extended funding hence competing intensely for the available scarce resources. These projects regardless of who was their initiator seek to benefit Kenyans and improve the country’s economy but it is something that Duale and his ilk of backslappers seem not to understand but instead they have chosen to fantasize on it with the aim of politically decapitating Raila Odinga.

Whether one belongs to the opposition or the government-side of the political divide, national economic issues are to be devoid of politics and it is because of cheap politicking that Kenya’s Eurobond value has begun to slump at the Irish Stock Exchange. So if those who belong to the opposition raise questions about expenditure, it is the Executive to come out and defend their record by providing substantial proof. But because of pseudo-intellectualism we choose to treat those who are far from the centre of power as mere noisemakers and economic saboteurs. Citizens should forever be raising and asking hard questions on government expenditure because economic hardships know not which side of the political divide you belong to and which political ideology you subscribe to. In any case, the allegations by Odinga need to be taken seriously if past whistle blowing events are to go by. With precise hind thought, he is the one who unearthed the dubious deals of the legendary Anglo-Leasing scam, the flamboyant Artur brothers and more recently the National Youth Service scandal in which he was initially dismissed but later on the truth revealed itself. 

Political sideshows that we are being treated to are pure fantasies with politicians seeking to edge out each other politically. At the end of the day, there would be deviation from what we need to know; the particulars of how the Eurobond proceeds were used. Whether Raila Odinga is arrested to substantiate his allegations or whether Henry Rotich the Cabinet Secretary in charge of the National Treasury resigns, to me is a drop of water in the ocean. My desire is to see proper accountability of funds because I am a taxpayer. The people’s power should reign supreme because we the citizens rejoice under economic prosperity or suffer under economic turbulence.

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