There is a section of the Kenyan public for whom the term ‘Eurobond’ sits well with such scandal-evoking names such as ‘Goldenberg’ and ‘Anglo Leasing’.
Kamau Thugge, who has been nominated as the Central Bank of Kenya (CBK) Governor — who initiated Kenya into the international bond market and was stained by it in the process — would not be amused.
Kenya’s decision to issue its first Eurobond was part of Kenya's Third President Mwai Kibaki’s shift towards economic self-reliance.
It is a move that would give birth to such taglines as ‘Kulipa ushuru ni kujitegemea’ (paying taxes equals self-reliance).
It was Dr Thugge while working at the Ministry of Finance as the Director of Fiscal and Monetary Affairs between 2005 and 2008, who persuaded the then Finance minister not to factor in donor budgetary support, according to his resume.
This is a policy that has been followed to date and has resulted in reducing Kenya’s dependency on donor support. But there was a price.
Once Kenya had taken this route, it had to go the whole hog.
With the aid tap closed, money to finance Kenya’s budgetary needs had to come from somewhere else.
That included taxes, which were meagre for a country whose economic activities were still muted with the country emerging from years of economic mismanagement by the Daniel Moi regime.
The government also borrowed from domestic investors and relied on the slow and unreliable inflows from development finance institutions (DFIs) like the World Bank to fund its budget.
There was a blip of hope on the economic front, especially after Dr Thugge and other Treasury officials during this period carried out structural reforms that resulted in the sharp reduction of licences from more than 1,400 to less than 600.
With the improvement in the ease of doing business, Kenya was poised for increased trade and investment.
Given the ensuing good economic performance, Dr Thugge says in his resume, he persuaded the then Finance minister to agree to get Kenya rated by global credit rating firms Standard & Poor's and Fitch.
“My main intention was to bring international discipline in formulating and implementing our economic policies (especially macro-economic policies) as these ratings would provide an independent assessment of our economic performance,” says Dr Thugge.
“And, secondly, to start the process of issuing a sovereign bond so as to diversify the sources of funding the budget and further reduce Kenya’s reliance on donor support.”
Kenya, says Thugge, was poised to issue the first sovereign bond in the region in late 2007. Then the post-election violence happened. It was not until 2014 that the bond was issued.
In the brouhaha that surrounded the country’s debut Eurobond in 2014 when the Opposition leader Raila Odinga claimed that some of the proceeds of the $2.75 billion Eurobond had been stolen, Dr Thugge remained calm.
Dr Thugge, who had spent more than 12 years at the National Treasury, knew more about the Eurobond than many other Treasury officials who had little experience outside of the Kenyan border.
Dr Thugge, who did his Bachelor’s, master's and PhD in the US, had interacted with all kinds of securities, including Sovereign bonds, in his 20 years of work at the International Monetary Fund (IMF).
Although to critics such as the former Managing Editor for The EastAfrican, Jaindi Kisero, also a columnist for this paper, Kenya’s entry into the Eurobond market has culminated in ‘Eurobondage,’ others think it was the right thing to do.
If anything, the Eurobond (and Chinese loans), according to the Zambian-born economist Dambisa Moyo in her book, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, is just one of the ways through which African countries can escape the dependency cycle perpetuated by donor funds.
To Moyo, aid is not just free donor funds, it also includes cheap loans from DFIs like the World Bank. Aid, according to Moyo, who spent eight years at Goldman Sachs as the head of economic research and strategy for sub-Sahara, only breeds corruption and ineptitude.
Cheap—or free—is expensive. With aid, the likes of Moyo have argued, there is no efficient allocation of resources. Donated mosquito nets, for example, are converted into fishing nets.
True, thumbing through Dr Thugge’s long and rich resume, one does not see a rigid market fundamentalist but a pragmatist who understands that markets fail.
And when they fail, they need to be corrected through, as he must have learned in his long stint at the IMF, a bastion of liberalism, and well-targeted government interventions.
Is he a fiscal hawk like his former boss? Personal ideologies of individuals in such offices as Principal Secretary, where Dr Thugge served from 2013 to 2018, are sometimes clouded by the priorities of the government of the day.
Although he believed in self-dependency—by the government living within means, which means cutting spending and increasing revenues—that did not look like the government’s position for the better part that he was Treasury PS.
Earlier, he says in his resume, he re-oriented the budgets for FY2004/5- FY 2007/08 to provide for more development spend and less recurrent expenditure.
He adds that he was instrumental in the significant shift in the composition of the budget towards more spending on infrastructure, health and education.
“Advised on maintaining a sustainable debt position throughout which helped lower interest rates and spur economic growth,” he says.
If, indeed, he advised for a sustainable debt position in Kibaki’s government, his skills will be more than critical as he moves into the corner office at the CBK.
The country’s risk-to-debt distress is high and several credit rating firms have been downgrading. From the face of it, that might not be too hard for him to walk out of its debt quagmire.
While working at the IMF, he was responsible for designing the Highly Indebted Poor Countries Initiative (HIPC) to deal with poor countries’ unsustainable debt positions.
“In the process, I gained a lot of knowledge on a wide spectrum of debt issues,” he says.
Some of the things he learned included the whole process of Paris Club debt rescheduling and its relation to a sustainable fiscal and macroeconomic framework.
But all this is easier said than done. Politics, which will influence his actions more than economics, might just embarrass him once again.
