Why elites shun audits, diclosures

We had all expected that the government would be on top of the queue of debt-distressed African countries lining up for debt relief offered by the G20 through its Debt Suspension Initiative.

While Tanzania and Uganda moved quickly to apply for the offer, we opted out of the deal. Yet in terms of external indebtedness and the cost of debt servicing, we are in a much worse situation than them. By the measure ‘of risk of overall distress’ we are ranked as ‘high’ , Tanzania and Uganda  ‘low’  and Rwanda ‘moderate’.

In terms of the money we would have saved had we taken the offer, ‘potential debt suspension initiative savings’, the World Bank puts it at $802 million compared to a paltry $148 million for Tanzania and $95 million for Uganda.

But why did Kenya opt out? The government has decided to play safe. If we took up the G20 offer, we would expose ourselves to disclosure standards in the external debt register to a level the political elite were willing to countenance. To get the relief, a country must commit to disclose all public sector-financed commitments, including debt and debt-like commitments.

Secondly, it must commit to greater transparency and agree to limit non-concessional borrowing to ceilings dictated in programmes signed with the World Bank and International Monetary Fund (IMF).

Big ‘Black Holes’

External debt servicing is one of the big ‘Black Holes’ where grand corruption is perpetrated in this country. That is why the political elite will go to great lengths to resist a thorough audit and full disclosure of the external debt register. Whenever the register is published, all you get is a spreadsheet of numbers which do not disclose sufficient details about the contracts.

You would be lucky to get to see details.

While going through the May 2019 prospectus of the Eurobond that Kenya issued, I was surprised to see critical disclosures of Chinese debts to the energy sector done in a most perfunctory manner.

This how the disclosure on these very large and expensive external debts were framed on the Eurobond prospectus, at page 100: “During 2017, various ministries, such as Ministry of Energy and Kenya Power, entered into a series of loans with China Exim Bank amounting to a total of $1.2 billion and 3.4 billion Yuan.”

The disclosure was being made in such a superficial and apathetic manner despite the Energy ministry and Kenya Power signing shady commercial contracts worth billions of dollars in just one financial year.

In January this year, special circumstances forced the former Finance Cabinet secretary, Henry Rotich to make disclosures about external debts incurred on the scandal-ridden Kimwarer Dam project. He disclosed the following.

First, officials had contracted a finance facility that committed the country to making a massive Sh23 billion advance payment to some broke Italian contractor. Secondly, at the time he was releasing the statement, we had already paid Sh5 billion to the Italian export credit agency SACE for these loans.

Then, Director of Public Prosecutions Noordin Haji made the sensational disclosure in a public statement that an additional borrowing of Sh40 billion over and above the principal was committed to advance interest payments on the loans for Kimwarer and Arror dam projects.

What is my point? It is that lack of transparency in disclosure of data on external debts is why corruption in some of these deals remain concealed. Secondly, since debt relief comes with demands for a high level of transparency and full disclosures, corrupt elites will opt out.

Resisted audits and disclosures

In 2001, the Moi administration resisted audits and disclosures on the external register in not-too-dissimilar circumstances. Under pressure from the IMF, the government, which had just successfully concluded a rescheduling of concessional bilateral debt under the so-called Paris Club, was forced to proceed to negotiate commercial external loans under the London Club.

The French financial advisory and asset management firm Lazard, which was retained by the government and IMF as consultants to facilitate negotiations with the London Club, could not make progress because the Treasury and the Office of the President refused to provide loan contracts and documents to them.

The OP argued that secrecy laws prohibited issuance of sensitive documents to foreigners. Even when Lazard relaxed the rules and conceded that they did not have to see the original contracts, they were still denied access to the external debt register.

As we were to learn later, during investigations into some the Anglo Leasing contracts, some of the debts were fake. The government forced some contractors to return promissory notes that had been issued to them to pay for fake debts.

Welcome to the politics of debt relief.

[email protected].