alexa Kenyans to feel pinch as State eyes Eurobond three - Daily Nation

Kenyans to feel pinch as State eyes Eurobond three

Wednesday April 3 2019

Eurobond

National Treasury Cabinet Secretary Henry Rotich. The ministry is preparing to raise Sh250 billion in Eurobond three. PHOTO | FILE | NATION MEDIA GROUP 

PAUL WAFULA
By PAUL WAFULA
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National Treasury chiefs are set to go on an international roadshow to raise Sh250 billion in Eurobond three, even as reports of losses of huge sums of money from public coffers dominate the media.

The international tour will target investors in Europe and the United States in what is known in financial circles as a “beauty parade”.

In addition to the Eurobond, the government will be taking another Sh37 billion from a consortium of international banks as a syndicated loan.

Treasury says the new debt will be used to pay a Sh251 billion debt that falls due in June.

Part of this debt will be the first instalment of Sh75 billion for the inaugural Eurobond taken in 2014. Also maturing is a syndicated loan of Sh60 billion taken in June 2012.

BUDGET DEFICIT

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The new issue, which is expected to be completed in the next 60 days, signals a trend where the government is now preferring the Eurobond route to finance its ballooning budget.

Its options to finance a Sh2.5 trillion budget are also fast reducing given the shortfalls in tax revenue collected by the Kenya Revenue Authority (KRA).

Treasury Principal Secretary Kamau Thugge told the Nation in an exclusive interview that the borrowing is in line with the government foreign borrowing plans for the current financial year to meet the budget deficit.

Kenya plans to borrow a total of Sh608 billion this year, according to the budget policy statement.

Besides the Sh287 billion from the Eurobond and syndicated loans, it will also borrow Sh317 billion from the domestic market.

“We want to pay our debts in this financial year and this will reduce our debt service burden for next year,” Mr Thugge said, adding that the next Eurobond instalment will fall due in 2024.

FUNDS MISUSE

Although borrowing is an internationally accepted means to finance government budgets, loans are supposed to be for development expenditure.

It has been difficult to link the loans to projects under the Jubilee government.

To date, the government has not yet released a list of the projects funded by the controversial 2014 Eurobond that raised Sh280 billion.

It has however put up a spirited defence of the process. Treasury released bank documents to show the transactions and dismissed any reports that the money may not have made it to the country.

The only thing it has been unable to do is provide a list of the projects funded by the money.

This means that either the funds were never utilised for the intended purpose or ended up in recurrent expenditure.

Treasury went a step further to hire private auditor PKF Kenya to carry out a special audit of the first Eurobond after Auditor-General Edward Ouko refused to give it a clean bill of health.

AUDIT

PKF has since cleared the Treasury of any wrongdoing, saying the Sh280 billion from the offshore accounts indeed made it home and found its way into the consolidated fund.

The Nation has also learnt that Mr Ouko has finalised a report that sources say will be ‘in the same spirit’, having returned to Nairobi empty-handed.

Mr Ouko sent a team to New York to investigate the Eurobond, and his findings are expected to bring to an end five years of controversy on the loan.

Last year, the government raised another Sh202 billion from a Eurobond. And even before it explains how it used this amount and the projects funded, the country is back in the international market to seek a fresh loan.

With the third issue, Kenya will have borrowed Sh730 billion in the past five years under the Jubilee administration in Eurobonds.

This amount is enough to build two Standard Gauge Railway lines as the one from Mombasa to Nairobi, complete with the locomotives and wagons.

GROWTH

If the loans were to build roads, they would have been enough to put up 22 Thika Roads around the country or an express highway from Mombasa to Nairobi, Nakuru and all the way to Malaba or Busia border, with some spare change.

Treasury has defended its appetite for debt, saying many people still do not understand the concept of rollovers where government takes a new debt to repay maturing debt.

The most widely used in Kenya are Treasury bonds and bills for the domestic market. The government has also been issuing long-term infrastructure bonds to reduce the need to borrow every now and then.

Data from the Central Bank of Kenya shows Kenya on average borrows about Sh2 billion every day.

This has seen its total debt rise to Sh5.4 trillion. Between January and February this year, for instance, Kenya borrowed a total of Sh126.4 billion.

The total domestic debt now stands at Sh2.6 trillion while external debt is at Sh2.7 trillion. When the new debt is factored in, this figure could hit Sh3 trillion by the end of this financial year.