Heads of government departments and State corporations have been stopped from signing new project loans without Cabinet approval, in a move aimed at taming the ballooning public debt.
The Head of Public Service, Joseph Kinyua, issued the directive in a March 1, 2018 circular laying down the law about ‘transparency and accountability’ to accounting officers in ministries, departments and agencies.
“All memorandum of understanding and commercial contracts with local and foreign partners must receive the concurrence of the respective Cabinet Secretary and approval of the Cabinet prior to execution,” Mr Kinyua says in the circular, adding that all ministries and State corporations must ensure strict adherence to the requirement.
The circular is copied to the Attorney-General, principal secretaries and accounting officers of State corporations. The accounting officers are also required to submit to the Treasury a compressive implementation plan for all the loans that have been negotiated within their specific sectors by March 30, 2018.
“The National Treasury will communicate all available financing structures for long-term projects as negotiated to target sectors for immediate action,” the circular says.
Multiple loan deals
Last year alone, ministries and State corporations such as the Ministry of Energy and Kenya Power signed multiple loan deals totalling Sh121 billion ($1.2 billion) with Exim Bank of China, according to the recent Eurobond Prospectus.
The amount includes the Sh7 billion loan agreement the Ministry of Mining signed with the Exim Bank of China to fund airborne mapping of Kenya’s mineral resources.
Exim Bank of China lent Kenya another Sh155.5 billion to extend the standard gauge railway line from Nairobi to Naivasha.
Last month, Kenya signed a $240 million (Sh24 billion) loan to electrify the standard gauge railway (SGR) in a move that is expected to upgrade the rail to the standard of the lines under construction in neighbouring Ethiopian and Tanzania.
Money for the upgrade, which was sourced from China Electric Power Equipment and Technology Company Limited, is being funnelled through the Kenya Electricity Transmission Company (Ketraco).
In 2016 Kenya took a seven-year $600 million (Sh60 billion) loan from China Development Bank Corporation and a two-year $200 million (Sh20 billion) credit line from Africa Export-Import (Afrexim) Bank.
Early this month, the country took a five-year $300 million (Sh30 billion) loan and a 10-year $200 million (Sh20 billion) from East and South Africa Trade Development Bank, and a two-year $766 million (Sh77 billion) and a 3-year $234 million (Sh23 billion) loans with a consortium of banks.
In October 2017, Kenya entered into a 10-year $750 million (Sh75 billion) loan deal with East and South Africa Trade Development Bank to refinance the maturing two-year $750 million (Sh75 billion) syndicated loan.
Promise of finance
A senior Treasury bureaucrat who cannot be named because he is not authorised to speak for the ministry said Mr Kinyua’s memo is meant to end a growing trend where foreign contractors working with local allies and agents approach Cabinet Secretaries or parastatal heads with a project proposal with a promise to organise financing.
Once the principal secretary or the Cabinet Secretary signs a commercial agreement with the contractor, the Treasury is invited to sign a loan contract with a foreign financial institution (which will have been brought into the picture by the foreign contractor).
Unknown to the public, a new expensive commercial loan will have been introduced into the national external debt register.
“Henceforth, no commitments are to be made outside the approved budget of ministries and State corporations without the concurrence of the respective Cabinet secretary and approval of the Cabinet,’ says Mr Kinyua.