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Opinion & Analysis

What is at stake for Kenya in Eurobond cash spend mystery

In June last year Kenyans were given the impression that the issuance of the $2.75 billion (Sh279.3 billion) Eurobond would be of great use to the country and economy.

Not only did government state that the cash raised would fund infrastructure, but also allow it to pay off onerous debt. It linked the bond to lower domestic interest rates stating they would not borrow locally because of liquidity offered by the bond.

Then last month the government announced intention to borrow heavily in the domestic market and acquired a two-year Sh77.43 billion syndicated loan.

Some banks responded by raising their interest rates rubbishing the ‘low interest rate’ Eurobond promise. This is when questions around what happened to Treasury secretary Henry Rotich said Sh196 billion from the bond went into infrastructure and another Sh53 billion deposited in a foreign account intended to pay off external debts. Yet the Controller of Budget told Parliament that an estimated Sh176 billion could not be accounted for and although Sh53 billion had been withdrawn to “pay off loans”, this was done unprocedurally.

We know most of this but what many Kenyans do not know is that the bond cost them Sh16.4 billion in interest payments as of July.
Kenyans are haemorrhaging money to service a debt for which there is no clarity as to how precisely it was used.

How is this acceptable? The mystery of where the Eurobond billions went is important for three reasons. First, if the money is not being used as planned, will the ‘alternative use’ generate sufficient returns to service the bond particularly when it matures?

The bottom line is that if the bond does not generate the economic activity required to raise revenue such that government meets its obligations, then that money is likely to come out of funds intended for other purposes.

Global financial markets are not the patient development financial institutions that entertain ideas of ‘forgiving’ debt. The Eurobond must be paid and will be settled and if government has to raid national budgets to do so, then so be it. This factor alone should cause sufficient concern.

Secondly, given the uncertainty surrounding the Eurobond, how can it be ensured Kenya reaps the economic and development dividend that apparently motivated the bond issuance in the first place?

Kenya needs infrastructure — that was not a hard argument to make and perhaps informed the bond’s oversubscription.

But for a government that seems to believe in the ‘multiplier effect’ of infrastructure and promised as much, this expectation is yet to be met.

Where is the multiplier effect? Gross domestic product growth is insipid. And what precisely is the progress on infrastructure projects? If Kenya does not progress on what was essentially an infrastructure catch up plan, then any potential catalytic effects of the bond will obviously not be felt in the economy.

Finally, this Eurobond debacle is going to inform the government’s reputation globally, already being hammered. It was absolutely crucial that the Eurobond be handled meticulously — particularly given that it was the country’s debut sovereign bond. Meticulous management is not the sense one gets when looking at this issue.

The other concern is that potential fiscal mismanagement may fall out into the rest of the economy and raise questions as to whether Kenya is a credible investment destination. Period.

There is a need for clarity on the Eurobond not only because doing so will make many of us sleep better but also because Kenyans are owed an explanation as to how their money was actually used.

Ms Were is a development economist. Email: anzetsew@gmail.com.

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