Finance Minister Njeru Githae (right) exchanges documents with Standard Chartered Bank CEO Richard Etemesi after signing of a 65 million euros (Sh7.2 billion) loan to the government for BVR kits on October 25, 2012. Looking on is electoral commission Chairman Issack Hassan. Photo/STEPHEN MUDIARI
What you need to know:
From the Statement on the Revenues and Net Exchequer releases published by the Treasury, for the first two months of this financial year, the government had only raised Sh101 billion.
The Treasury should have raised at least Sh200 billion for the two months.
Mr Githae has given the Kenya Revenue Authority a target of Sh1 trillion ahead of the expected steep rise in public expenditure as the country rolls out the devolved government provided for in the Constitution.
The state of the government’s finances came into sharp focus on Thursday after the Treasury announced that it had borrowed Sh7.2 billion (65 million euros) from a commercial bank to finance the acquisition of biometric voter registration (BVR) kits.
Finance minister Njeru Githae announced that the government was borrowing the colossal amount from Standard Chartered Bank and that the money is due for disbursement on November 4. The loan will be repaid over a period of 10 years at the rate of 5.12 per cent.
Mr Githae’s announcement threw a new puzzle in the maze that has become the journey towards next year’s General Election, coming only a day after Prime Minister Raila Odinga told a press conference attended by Mr Githae and Treasury PS Joseph Kinyua that the supplier of the kits would be paid today.
The Treasury’s borrowing to finance the purchase of the kits was the clearest sign that the government’s finances are in dire straits and without any room to manoeuvre for the extra Sh3.5 billion needed to complete the BVR deal.
Besides, it was not clear why the Treasury went for more than double the amount of money that was due to the supplier of the kits.
Mr Githae’s denied suggestions that the government was broke even as the International Monetary Fund (IMF) released a statement indicating that the Treasury had requested for and got a waiver for non-observance of the terms of payment for a past loan.
“In completing the review, the executive board approved the request for a waiver for the non-observance of the performance criterion on the non-accumulation of external arrears for end-June 2012, and the modification of performance criteria for the next 12 months to fit the revised macroeconomic outlook,” the IMF said.
The government’s financial position has more recently been made more difficult by the fact that the Treasury has overshot its overdraft facility limit at the Central Bank of Kenya’s against the backdrop of sluggish revenue collections.
Mr Githae said the StanChart loan deal, which had taken three weeks to negotiate, was more favourable than an earlier $600 million syndicated international loan facility it negotiated early this year at a price of 6.73 per cent. The 5.12 per cent cost for the BVR deal includes all associated fees.
Mr Githae said “emergency” funding became necessary because the supplier of the BVR kits had refused to deliver them unless it was paid the entire amount, causing negotiations to drag on.
The supplier relied on the original contract which specified that if the negotiations were finalised later than October 15, the government was to pay the entire amount before the kits are supplied.
“The negotiation team viewed the supply contract as skewed since it meant the Government of Kenya is to pay in advance for all the BVR kits,” said the minister during a briefing at the Treasury.
The contract, a government-to-government deal with state-owned Canadian Commercial Corporation (CCC) identifies Morpho Canada as the suppliers of the kits with guarantees from its associate, the Export Development Corporation of Canada (ECD). Standard Chartered Bank was to finance the deal. It was, however, not known to the Kenyan public that the Treasury had opened negotiations with a commercial bank to directly finance the purchase of the BVR kits.
The Canadian government through the EDC or CCC had been stated as the financier of the deal.
On Thursday, the Independent Electoral and Boundaries Commission (IEBC) chairman Issack Hassan said that should the suppliers still fail to meet its part of the deal, the commission will start the registration process using the 196 kits already supplied. It will also use the manual registration method.
“We are hoping the supplier will do as expected and deliver on time. In the worst-case scenario we can still use the manual registration and go to the polls as scheduled,” said Mr Hassan.
The deadline for delivery of the BVR kits is November 5, but Mr Hassan said he expected the kits to arrive by the end of the month.
Mr Githae said the apparent delay in finalising the loan facility had partly been caused by a demand by Attorney- General Githu Muigai to see the original loan documents, which arrived in Nairobi from London on Monday. The copies were delivered last Friday.
Observers of the Budget cycle, however, read signals of deep seated problems with government finances especially given the over-reliance on overdrafts – which the CBK had also tried to discourage the Treasury from seeking.
“The central bank has always complained about the Treasury’s overdrafts. When you see the Treasury using the overdraft facility, it means it has run out of the conventional options of raising money,” said Billow Kerrow, a former Manderal Central MP.
The Treasury has in the past three weeks borrowed Sh25.4 billion from the CBK, indicating that it was experiencing some mismatch between spending and inflow of revenues into its coffers.
This came not long after the minister of state for Public Service Dalmas Otieno said the government was running behind schedule in revenue collections by Sh40 billion.
The minister made the revelation as he tried to explain why the recent pay increase awards to teachers, doctors and lecturers could not be paid at a go in September.
The government must pay the new and backdated salaries for teachers, doctors and lecturers at the end of this month.
The teachers’ salaries award is to be backdated to July 1. The new pay awards amounting to Sh25.5 billion has Sh13.5 billion for teachers.
The teachers rejected the government’s proposal for a phased payment of Sh6.0 billion this month, Sh5.0 billion in January 2013, and Sh2.5 billion in June 2013.
This development seems to have left serious strains on government finances, leading to the latest decision to borrow from a commercial bank to finance democracy.
The government has also found it difficult collecting revenues from various sources in the past few months.
From the Statement on the Revenues and Net Exchequer releases published by the Treasury, for the first two months of this financial year, the government had only raised Sh101 billion.
The Treasury should have raised at least Sh200 billion for the two months.
Mr Githae has given the Kenya Revenue Authority a target of Sh1 trillion ahead of the expected steep rise in public expenditure as the country rolls out the devolved government provided for in the Constitution.
Meanwhile the Cabinet yesterday moved to discount speculation that the 2013 General Election would be pushed from March 4 to August, adding that the government had secured supply of the BVR kits.
