Treasury Secretary Henry Rotich appearing before the National Assembly Committee on finance at Parliament Buildings in Nairobi on October 27, 2015. PHOTO | FILE
What you need to know:
The PFM Act, which was amended last year just before the Eurobond was issued, allows the Treasury to pay, remit and accept for deposit transactions made abroad.
The Constitution bars any withdrawal of public funds without the approval of the Controller of Budget, which happened with the payment of the syndicated loans from the New York account.
Treasury secretary Henry Rotich on Monday revealed the existence of 15 secret offshore accounts from which payments are made directly without the Controller of Budget’s approval.
Mr Rotich told the Public Accounts Committee (PAC) that the CBK and PFM Acts allow the Treasury to pay, remit and accept for deposit transactions made abroad.
The Treasury chiefs have been on the spot for making withdrawals from a New York account that held the Sh173.9 billion Eurobond cash, hosted at JP Morgan, without the approval of the Controller of Budget.
The PFM Act was amended last year, just before the Eurobond was issued, prompting MPs to claim that the change was mischievous and meant to sidestep the budget controller.
Controller of Budget Agnes Odhiambo reckons that the Treasury went ahead and paid the syndicated loan from the offshore accounts despite warnings from her office that the settlement would be in breach of Article 206 of the Constitution, which requires approval from her office.
He quoted section 50(7)(2)(d) of the PFM Act, saying it allowed him to make the payments agreed with Eurobond lead consultants, lawyers and JP Morgan bank.
Mr Rotich said he also relied on section 45 of the CBK Act and Section 28 of the PFM Act to open the offshore account in which the Eurobond proceeds were deposited.
Suna East MP Junet Mohammed disputed the statement saying the PFM Act does not allow the minister to open offshore accounts. Section 50(7)(2)(d) of the PFM Act states: “Cabinet secretary shall ensure that the proceeds of any loan raised under this Act are: In the case of an external loan or external government security, applied, in part, to pay at closing, pre-negotiated expenses associated solely and exhaustively with the borrowing, including but not limited to, the fees, commissions and expenses of lenders.”
The Treasury has been asked to explain expenditure of the Eurobond cash amid concern that the government is not indicating specific projects funded by the cash.
The Constitution bars any withdrawal of public funds without the approval of the Controller of Budget, which happened with the payment of the syndicated loans from the New York account.
The syndicated loan of $600 million (Sh54 billion) was borrowed from 13 international banks including Citi Bank, StanChart and Standard Bank.
Treasury PS Kamau Thugge earlier said the government had to make a choice between paying the loan directly from the New York account and therefore save on foreign exchange losses and importing the money into local exchequer account before being released by the Controller of Budget.
Parliament’s Budget Office also called for an audit on how the Eurobond cash was used, arguing it had very little or no impact on its original intention of stabilising the exchange rate and bring down the high interest rates.
Interest rates on government Treasury bills has risen above 20 per cent, far above what Kenya usually pays for short-term debt, triggering a rise in bank borrowing costs.
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