More scru­tiny of ex­ter­nal debt reg­is­ter needed to check fraud

Daily Nation (Kenya) - - OPINION - jaindikisero@gmail.com

The de­bate about the moun­tains of ex­ter­nal com­mer­cial debts, which we have ac­cu­mu­lated in our books con­tin­ues to rage. How did we end up where we are to­day? You have to go back to 2014, when the Na­tional Trea­sury sought Par­lia­ment’s ap­proval to in­crease the ceil­ing on the stock of ex­ter­nal debt from $14 bil­lion to $28 bil­lion.

As we all know, the Pub­lic Fi­nance and Man­age­ment (PFM) Act gives Par­lia­ment au­thor­ity to set lim­its or ceil­ings on ex­ter­nal bor­row­ing by the na­tional gov­ern­ment. By rais­ing the ceil­ing, we opened the flood­gates and set the stage for an un­prece­dented spike in com­mer­cial loans in the gov­ern­ment’s books.

A re­cent re­port by The Par­lia­men­tary Bud­get Of­fice makes some valid points on the sub­ject mat­ter. First, the heavy ex­ter­nal com­mer­cial bor­row­ing in the past five years has not been con­ducted in line with the medi­umterm debt man­age­ment strat­egy pa­pers ap­proved by Par­lia­ment. Sec­ond, that we are in a po­si­tion where a third of what we col­lect in taxes is now con­sumed in debt ser­vice.

The big ques­tion we are not ask­ing about the rapid rise in com­mer­cial bor­row­ing is the is­sue of trans­parency. How many of these loans are be­ing dis­closed and how trans­par­ent is our ex­ter­nal debt reg­is­ter? Me­thinks that the big­gest contributor to the in­crease debt is the ris­ing num­ber of what is known as con­trac­tor-ne­go­ti­ated loans. What is a con­trac­torne­go­ti­ated loan? This is where a well-con­nected for­eign con­trac­tor col­ludes with a min­is­ter to sur­rep­ti­tiously sign a com­mer­cial con­tract with a state de­part­ment.

It comes with a promise by the well-con­nected con­trac­tor to or­gan­ise fund­ing from their coun­try and to im­ple­ment a large in­fra­struc­ture project on the gov­ern­ment’s be­half. These con­trac­tors are able to force the gov­ern­ment to com­mit to a project it did not have on its bud­get. Such is their in­flu­ence that they have power to push the coun­try into con­tract­ing ex­pen­sive loans from their coun­tries’ com­mer­cial banks.

Ex­pen­sive

The game is all too- fa­mil­iar. Once a cab­i­net sec­re­tary or prin­ci­pal sec­re­tary has signed the com­mer­cial con­tract, the Na­tional Trea­sury is in­vited to sign a loan con­tract with the for­eign bank from the con­trac­tor’s coun­try. In this way, a new ex­pen­sive com­mer­cial bor­row­ing will have been in­tro­duced into our na­tional ex­ter­nal debt reg­is­ter.

Clearly, these con­trac­torne­go­ti­ated loans have been a ma­jor contributor to the rise in com­mer­cial bor­row­ings. The Chi­nese are, es­pe­cially, very ac­tive in this space. So are the Euro­peans, even the Is­raelis. The prob­lem is that these deals are very dif­fi­cult to track. Un­der the PFM

Act, the cab­i­net sec­re­tary to the Trea­sury is sup­posed to pro­vide to Par­lia­ment a re­port ev­ery four months on all new loans ob­tained from out­side Kenya or de­nom­i­nated in for­eign cur­rency.

It does not hap­pen. In Septem­ber 2015, a ta­ble cov­er­ing a pe­riod of eight months from Novem­ber 1 2014 to June 2014 of all loans con­tracted and re­pay­ment terms and pe­ri­ods was tabled in Par­lia­ment. The law re­quir­ing that dis­clo­sures on ex­ter­nal loans be made ev­ery four months is hon­oured more in breach than in prac­tice. Par­lia­ment must in­sist on reg­u­lar dis­clo­sure. If this does not hap­pen, it will not take long be­fore we start hear­ing about an­other An­glo Leas­ing-type trans­ac­tion. When ser­vic­ing ex­ter­nal debts, you do not need prior ap­proval of Par­lia­ment. This is the loop­hole the scam­mers of An­glo Leas­ing ex­ploited. The shroud around mount­ing bor­row­ing must be lifted.

I still re­mem­ber how, un­der pres­sure from the In­ter­na­tional Mon­e­tary Fund, in 2000, the gov­ern­ment ap­pointed French In­vest­ment Bank Lazard Broth­ers to look at the ex­ter­nal debt ac­count to de­ter­mine the au­then­tic­ity of some of the debts.

The main brief for Lazard was to con­vene a Lon­don

Club meet­ing of all hold­ers of Kenya’s com­mer­cial debt and to get them to agree on a reschedul­ing plan. Kenya had just emerged from a Paris Club debt reschedul­ing and was, there­fore, com­pelled by the so-called rule of com­pa­ra­bil­ity of treat­ment to con­vince its com­mer­cial cred­i­tors to resched­ule their loans.

As it turned out, the

Of­fice of the Pres­i­dent flatly re­fused to re­lease con­tract doc­u­ments to the au­di­tors, cit­ing se­crecy and na­tional se­cu­rity in­ter­ests. As we all know to­day, it was just a game of de­cep­tion.

Tan­za­nia has also had its own ex­pe­ri­ence with ques­tion­able loans. In 2007, then Fi­nance Min­is­ter Zakia Meghji had to or­der a full au­dit of the com­mer­cial ex­ter­nal debt reg­is­ter af­ter in­ves­ti­ga­tions re­vealed that ir­reg­u­lar pay­ments had been made from the ac­count to ser­vice fake loans. We should de­mand more trans­parency of the ex­ter­nal debt reg­is­ter.

JAINDI KISERO The big ques­tion we are not ask­ing about the rapid rise in com­mer­cial bor­row­ing is the is­sue of trans­parency. How many of these loans are be­ing dis­closed...”

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