Treasury advised on Sh108bn Eurobond secured this week

Edward Ouko

The then Auditor General Edward Ouko addressing guests during the launch of a report titled ‘State Capture: Inside Kenya’s Inability to Fight Corruption’ on May 22, 2019 at the Laico Regency Hotel in Nairobi. The report was facilitated by Africa Center for Open Governance (AfriCOG).

Photo credit: File | Nation Media Group

What you need to know:

  • Utilisation of proceeds of 2014 Eurobond could not be traced since funds were fungible.
  • Last week’s virtual Eurobond fundraising campaign was oversubscribed by over four times.

The National Treasury will be required to keep a separate bank account that will be used to account for the proceeds of the new Sh108 billion Eurobond raised this week as it battles the ghosts of the 2014 Eurobond.

As he closed the audit of Kenya’s debut Eurobond, former Auditor General Edward Mr Ouko gave the National Treasury three recommendations to guide future issues.

In the special audit released on April 15, 2019 covering the audit trail of the initial Sh280 billion raised by the Jubilee administration when it first opened the doors to Eurobonds, Mr Ouko confirmed that the country received the Eurobond billions into the country’s National Exchequer Accounts.

But he noted that the utilisation of the proceeds of the Eurobond could not be traced to specific development projects, since the funds were fungible. The auditor also found that the funds were expended outside of the government’s Integrated Financial Management Information System (IFMIS).

He recommended that subsequent issuances of international sovereign bonds be earmarked and identifiable to specific development projects.

As he went on the roadshow last week to raise the new bond, Treasury Secretary Ukur Yatani explained to investors that his office had responded to these conclusions reached by auditor.

He said in the prospectus released to investors, that while the National Treasury agreed with some of the findings of Mr Ouko, it maintained that although funds were fungible, the financial statements of the Exchequer for 2014/15 and 2015/16 financial years clearly outline the inflows of the Eurobond proceeds as well as the disbursements to ministries, departments and agencies.

2014 Eurobond

“Moreover, the National Treasury noted that although the ministries, departments and agencies receiving proceeds were not using IFMIS during the relevant financial years, they were maintaining manual records, including cash books, that present an audit trail for purposes of examining expenditures,” Mr Yatani explained.

He added that the National Treasury has agreed with the other recommendation and has been maintaining separate bank accounts for purposes of accounting for proceeds from the 2014 Eurobond and for funding qualifying infrastructure.

“Some politicians and other commentators have alleged that the government has failed to accurately and completely account for the net proceeds of the Eurobond,” he noted, adding that the matter was referred by the National Treasury to PKF Kenya, an external audit firm, for its review.

PKF Kenya concluded that the Statement of Receipts and Disbursements of the 2014 Eurobond proceeds is a fair representation of the net proceeds from the Eurobond and the disbursement of such proceeds to the National Exchequer was completed in accordance with the cash basis of accounting. 

“The Auditor General's report for the year ended 30 June 2018 and Special Audit report of the Eurobond conducted by PKF concluded that no funds from the proceeds of the previous Eurobond issuance were misappropriated,” Mr Yatani said.

Last week’s virtual Eurobond fundraising campaign was oversubscribed by over four times.


Announcing the results of the offer, the National Treasury said that the successful offer signals robust global investor interest and confidence in the country.

Treasury said it raised $1 billion (Sh107.7 billion) through issuance of a 12-year Eurobond in the international financial markets. This followed a successful three-day virtual Eurobond Roadshow.

Treasury revealed that the bond was over-subscribed after it received offers of upto $5.4 billion (Sh581.5 billion) from investors who wanted to buy into the bond.

Mr Yatani noted that the oversubscription was a sign of strong global investor confidence on Kenya’s economy and medium-term economic prospects. In particular, measures being taken to mitigate the effects of the pandemic to the economy were well received by investors.

“The overwhelming response from global investors reflects the market’s continued confidence in Kenya’s Economic Recovery Programme supported by the IMF and is in line with our Medium-Term Debt Management Strategy approved by Parliament. We want to thank investors for their strong participation in the bond issuance,” he noted.

On his part Dr Harun Sirima, the Director-General of the Public Debt Management Office emphasised the need for a cautious approach in contracting commercial borrowing to ensure the country’s debt profile remains within a sustainable path.

“We went to the market seeking to raise US$ 1 billion and stuck to the discipline of our target amount despite the oversubscription and competitive pricing. Going forward we are optimistic that Kenya will successfully execute liability management operations in the next fiscal year in line with the debt strategy of lowering cost and minimizing risks in the public debt portfolio.”

Budget deficits 

Debt repayment continues to be a big nightmare for the Kenyan government as it struggles to balance between the expenditure needed to finance the huge infrastructure outlay and also cut down on budget deficits. 

By March, Kenya’s debt stood at Sh7.3 trillion, which is well above the 60 per cent mark of the GDP. In the new financial year, it plans to borrow Sh929 billion even as it is faced with a Sh1.16 trillion debt related expenses for the new year.

The Government of Kenya delegation for the three-day Virtual Eurobond Roadshow was led the Treasury CS, who was joined by Central Bank of Kenya Governor, Dr Patrick Njoroge and senior National Treasury officials led by Principal Secretary Dr Julius Muia.

They were assisted by representatives from the Joint Lead Managers, Citi and JP Morgan and Co-Lead Managers, NCBA and I&M banks.

Kenya went for its first Eurobond in June 2014 where a total of Sh280 billion was borrowed in five and 10-year tranches. This is the Eurobond that gave former auditor Edward Ouko grey hair as he unsuccessfully attempted to track its usage down to the projects.

Treasury is expected to table a request to Parliament to increase the current debt ceiling beyond Sh9 trillion to help it borrow the billions it needs to finance the Sh3.6 trillion budget.


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