Scrutiny of the public debt register urgent

Surprisingly, only 26 out of the 39 creditors responded to the OAG. Which begs the question: Why would you not respond to a creditor circularisation if you are a clean player?

It reminded me of an anecdote I was once upon a time told by a former Treasury permanent secretary about a creditor circularisation and a meeting of all commercial creditors the Treasury called in the early 1990’s.

It opened a Pandora’s box because all manner of questionable characters and dodgy entities crawled out of the woodwork from as far flung destinations as Australia, India, Thailand and Russia to claim that they were our creditors.

Read: Work cut out for ex-IMF official leading Kenya debt audit team

The creditor circulation exercise by the OAG revealed also revealed the following. First, there is significant unexplained discrepancies between loan balances as per the National Treasury Records and the individual creditor confirmed balances.

Secondly, there were cases where loans amounting to Sh4 billion that were contracted as far back as 2013 and 2014 had not been drawn down despite the fact that the government has been servicing them for more than 10 years. The findings and evidence from a report by the OAG reminded me of the expression by the former US Secretary of State, Donald Rumsfeld, ‘known and unknown knowns’.

There are expensive commercial external debts that we know we owe, there are debts that we don’t know we owe and finally, debts we don’t know that we don’t owe. We have borrowed from too many dodgy entities whose names clatter our debt register.

But as a society we must agree that we are at a point where we must now take scrutiny of the public debt register to the next level- beyond both the routine and special audits which the OAG has been conducting in recent years.

Despite the fact that the OAG has only recently conducted several special audits on the public debt register, the needle has not moved at all. Standards of disclosure, transparency, in the reporting and recording of our external debts remain low.

We are vulnerable because as we saw in Tuna bond scandal in Mozambique, corrupt African elites have mastered the art of colluding with unscrupulous and dodgy European creditors to manipulate debt data and to conceal fraudulent deals.

As explained by British politician Lord Peter Haines during deliberations of the State Capture Commission in South Africa, these global banking brands we see around are but vultures who have rushed to the continent to suck blood and cash in on the chaos in domestic debt markets.

The taxpayer in Kenya is especially exposed and vulnerable because our debt register is saddled with too many of the category known as syndicated loans where arrangers have been procured uncompetitive, allowing corrupt elites to cut deals.

A case in Tanzania a few years ago comes to mine. The government had gone to the international market to borrow money.

And the prestigious brand, Stanbic Ltd, were contracted to raise some $600 million through a facility known as a sovereign note private placement.

Initially, the arrangement was that Standard Bank plc and Stanbic Ltd would be paid an arrangement fee of 1.4 percent of the money raised from the loan.

But the arrangers surreptitiously increased the fee to 1.6 percent to accommodate and factor in kickbacks and backhanders to be paid to well-connected and corrupt top government officials.

When the scandal broke out, Satanic quickly ran to the Serious Fraud Office in London snitched on their Tanzanian partners in crime and hurriedly negotiated a deferred prosecution deal, insulating them from court charges. The Tanzanian partners in crime were jailed.

The second reason why I think the taxpayer in Kenya is vulnerable is the fact that it seems to me that the external debt register is increasingly being made to be more opaque and more difficult to read.

It used to include details such as interest rates name of creditor, purpose for borrowing the loan, cumulative amounts paid and outstanding amount .In the latest version, details such as interest rate are left out.

You have large Euro-denominated loans where name of creditor, interest rate and reasons for borrowing is not provided with only information given is -‘various security related contracts.

The case for an independent public audit is strong indeed.