The Central Bank of Kenya Act is set to be amended in changes meant to tighten the use of borrowed funds, the World Bank has revealed, as the country comes to terms with disclosures by the Auditor-General that Kenya does not have audited financial statements on public debt.
In a new report that underpins the multilateral lender’s recent disbursement of a Sh141 billion ($1 billion) loan to Kenya, the World Bank says the amendments to the Act which are being done in collaboration with the International Monetary Fund (IMF) are shortly expected.
“An updated safeguard assessment of the Central Bank of Kenya was completed by the IMF in September 2019. CBK continues to maintain sound external and financial reporting practices, and its board has active oversight operations. In addition, the CBK continues to maintain effective operational controls,” the World Bank stated.
“The CBK has implemented most of the recommendations from the 2019 assessment. Draft amendments to the CBK Act, prepared in consultation with the IMF, largely address safeguards recommendations and await submission to Parliament.”
IMF’s safeguard assessments normally seek to establish assurances that a country’s central bank can manage the funds it receives and provide reliable information.
“This is to ensure that loans to member countries are repaid as they fall due, making those funds available to other members in need. Safeguards include limits on how much can be borrowed, conditions on the loans, measures to deal with misreporting and arrears, and safeguard assessments of central banks,” the IMF notes.
The IMF notes six areas that are assessed to help safeguard disbursements made and minimise the risk of inaccurate reporting of key data to the IMF or misreporting.
The six areas are; governance arrangements, external audit mechanism, legal structure and autonomy, financial reporting, internal audit and internal controls.
The IMF introduced the safeguards in March of 2000 following instances of misreporting and allegations of misuse of IMF resources.
The assessment has become an integral part of the IMF’s lending activities and is reviewed every five years.
In December last year, the multilateral lender completed the periodic review of the safeguards assessment policy.
Following its most recent review, the IMF now covers the governance arrangement at the Central Bank as a separate pillar in the framework.
Central Banks are required to publish their financial statements that have been independently audited by external auditors by internationally accepted auditing standards.
On December 23, the CBK highlighted the successful conclusion of the periodic review which included an independent advisory report by an external panel of experts Chaired by the then-chairman of the apex bank, Mohammed Nyaoga.
“The external panel of experts examined the effectiveness and appropriateness of the safeguards assessment policy in the five years since the last review in 2015. In addition to expressing an opinion on the effectiveness and appropriateness of the IMF’s safeguards assessment policy, the panel also made recommendations to the executive board to improve and optimise the benefits from the safeguards assessment policy,” the CBK noted.
Presently, the CBK Act clears the apex bank to act as a fiscal agent and banker to the government.
The CBK administers public debt, including the issuance and payment of a return on bonds and other securities of the government and their redemption It also maintains and operates special official accounts including those of the exchequer.
The IMF is seeking tighter controls on Kenya’s utilisation of borrowed funds at a time when the country’s public debt situation has come under greater scrutiny.
The office of the Auditor-General has recently raised queries on the lack of financial statements on public debt, non-disclosure of all guaranteed debts, commitment fees and debt service costs.
“The status of public debt is only included as an annexure in the consolidated fund statement of expenditure with no financial statements prepared to show the debt position. Subsequently, it is not possible to ascertain the amount redeemed and current value and therefore the validity of the public debt expenditure,” the Auditor General told the National Assembly Public Debt and Privatisation Committee.
Kenya has increasingly turned to the lender for budget financing support. On Monday next week, the IMF executive board is expected to approve the fifth review under the extended fund and extended credit facilities and a request by Kenya for a 20-month arrangement under the resilience and sustainability facility.
The approval of the review will see the lender disburse a further Sh57.8 billion ($410 million) loan to Kenya.
On May 23, the IMF staff and Kenyan authorities reached a staff-level agreement on economic policies and reforms to conclude the review.
“The planned fiscal consolidation is appropriate while protecting priority social spending. Exchange rate flexibility and proactive monetary policy will remain critical to preserving macroeconomic stability and supporting market confidence against the backdrop of a challenging global economic outlook and continued uncertainty in international financial markets,” the IMF observed.
Cumulatively, the IMF will provide Sh342.6 billion ($2.43 billion) to Kenya under the arrangement which was approved first in February 2021.
