In the last few weeks, the government has been in the spotlight particularly over how it handled proceeds of Eurobond issued last year in the international market. People Daily’s JAMES MOMANYI engaged the Treasury Principal secretary Dr Kamau Thugge on claims by the Opposition, analysts that money has been lost through dubious transactions
Question: Briefly explain the total amount of money received from the Sovereign Bond and how it was disbursed to ministries.
Answer:[ad id="178821"]We received Sh250 billion, including the cash from the Tap Sales, which we got later after the international financial markets responded positively by reflecting strong investor confidence in how the Kenya economy was being managed.
From this amount, we paid Sh53.2 billion for an accrued syndicated loan, Sh104.8 million for commissions deducted at source, Sh13.8 million for account settlement charges and Sh4.2 million for federal interest withheld.
So we remained with a balance of Sh196.9 billion, which was deposited in a Consolidated Fund account at the Central Bank of Kenya on different dates between June 30, 2014 and December 17, 2014.
This amount was confirmed by the Controller of Budget as well as the Auditor General. Both have confirmed even to Parliament that all the net proceeds from the Sovereign Bond and the Tap Sales were received into the Consolidated Fund, and we have SWIFT messages showing the transfer of funds to the Central Bank of Kenya.
The full amount of Sh196. 9 billion was spent over two financial years. For the fiscal year 2013/14 four ministries (Transport, Lands, Energy and Agriculture) were allocated Sh25 billion, while the remaining Sh171.9 billion was disbursed in the 2014/15 financial year to five ministries and nine State departments.
We have a table that shows the approved budget for each ministry and State department, the total amount allocated during the two financial years in question and the total each got from the Sovereign Bond proceeds.
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Treasury Principal secretary Kamau Thugge. He laid bare how Eurobond proceeds were used. Photo/Charles Mathai[/caption]
Q: Cord leader Raila Odinga alleges that the only way the Treasury has managed to accommodate all the Sh250 billion Eurobond cash in its accounts is by understating the domestic borrowing for year 2014/15 by Sh140 billion, from Sh250 billion to Sh110 billion. What’s your response to that?
A: This is not true. We understand that this information may have emanated from analyst Mr David Ndii who made a similar argument in the Saturday Nation on December 5.
Ndii purported to show how the Sh140 billion is missing from the fiscal accounts and proceeded to show the “correct accounting” of the bond. Unfortunately, his “correct account” involves double counting the Sovereign Bond money, which leads to his conclusion that Sh140 billion is missing from the Treasury account since we have captured it only once, which is the correct way to do it.
Q: How could this have happened?
A: For the purposes of your readers, allow me to show this anomaly using a table. I also request that you publish the table for your readers so that they can see what I am talking about.
This is the same information that Ndii published in the Nation newspaper and clearly demonstrates the mistake: The first observation to make is that the individual figures in Ndii-1 first column add up to Sh610 billion (as in the last column), yet he retains the figure of Sh470.5 billion.
Why? Ndii has shown the sovereign bond proceeds separately without adjusting domestic borrowing by an equivalent amount since the Sovereign Bond financing is part of the Sh251.1 billion.
That is why his numbers do not add up to Sh610 billion because of his double counting of the Sovereign Bond. The table shows that indeed the Sovereign Bond money is part of the Sh251.1 billion of domestic borrowing.
This is deliberately misleading since the only way Ndii’s numbers can add up to the correct fiscal deficit is for him to exclude the bond figure or reduce the domestic financing to Sh110.6 billion, the figure in the Treasury column. There is no other way to balance his figures.
Q: The Cord leader also alleged that the Treasury in its report omitted or understated domestic borrowing, otherwise the accounts do not balance. What do you have to say about this?
A: This is another issue borrowed from Ndii’s wrong arithmetic. Look at it this way and ask yourself, given the fiscal deficit of Sh470.5 billion, if you deduct net foreign financing (Sh216.4 billion) and other domestic financing (Sh3 billion), you get a remaining deficit of Sh251.1 billion (or Sh252.7 billion in Ndii’s case).
The remaining deficit must be covered by domestic borrowing and the bond. The Treasury numbers add up (i.e. 140.5 + 110.6 = 251.1) but in the case of Ndii, the numbers do not add (141.1 + 251.1 = 392.2) therefore, one is left with a hanging figure of about Sh140 billion—this is the extra sovereign bond in Ndii’s “correct accounting”.
See table below: Ndii should show how his remaining deficit of Sh252.7 billion can be financed by Sh392.2 billion of the Eurobond and domestic financing. That is the purported missing Sh140 billion which is merely the result of double counting. The long and short of it, there is no missing Sh140 billion.
Q: But Kenyans are asking, if all these money has been spent on infrastructure projects in the last one or two years, why are we not seeing or feeling the effect of these projects? Why have we not had any real discernible positive impact on the economy?
A: The economy grew by 4.9 and 5.5 per cent during the first and second quarter, respectively. Without the sovereign bond to finance our development budget during that time, the growth of the economy would have been much lower.
The proceeds were used for development expenditure in roads, energy, and other infrastructure projects. The total cash released to ministries for development expenditure was Sh270.3 billion.
Of this amount, only Sh36 billion was financed by development partners leaving a sum of Sh234 billion to be financed by Kenyan government. The government released Sh171 billion of the Sovereign Bond and used own resources of Sh63 billion.
This means that the bond financed 73 per cent of our development budget after excluding the donor funding. Without the bond, our development expenditure would have been much less and that would have impacted the economy negatively.
Q: The ministry has explained itself in various forums including Parliamentary committees. Why do you think there is still perception that the information you are giving is not true? Is the ministry ready to be audited by an independent agency?
A: Initially, a wrong impression was created that some of the money was diverted and did not come to CBK. I believe with all the information that we have provided to the public, that perception has changed.
We will continue to provide the public whatever information is requested until the correct perception is established. It is, however, worth noting that we have been audited by two independent offices; the Controller of Budget and the Auditor General and they have both confirmed no money is missing. We further welcome any independent institution to audit our operations.
Q: Why did the Treasury have to issue this Eurobond last year? What are the advantages compared to other traditional forms of raising money?
A: As an emerging market, Kenya wanted to diversify its sources of funding the budget and reduce reliance on foreign countries and multilateral institution like the World Bank and IMF.
Sourcing funds from abroad reduces government demand on local borrowing and, therefore, reduces the pressure on domestic interest rates.
Furthermore, we wanted to strengthen our balance of payments position by building our international reserves and reduce the volatility of foreign exchange market. Finally, a slower depreciation also means imported inflation is reduced.
Q: How else will the Treasury generate the needed revenue, considering that the issuance of a Sovereign Bond is a one-off thing?
A: We are continuing to enhance KRA administrative efforts with a view to increasing revenue collection. We will of course continue to source external funding as we did this year with the issuance of the syndicated loan—which recently played a significant role in reducing interest rates.
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