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Sh63bn scandal dims Henry Rotich legacy at Treasury

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Treasury CS Henry Rotich. FILE PHOTO | NMG

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Summary

  • Treasury Secretary becomes the first sitting minister to answer graft charge
  • He borrowed heavily to finance the ever-expanding budget, pushing the public debt level to Sh5.42 trillion

Treasury Secretary Henry Rotich, who was Tuesday released on a Sh15 million cash bail after answering to corruption charges, took over at the Ministry of Finance six years ago when Kenya’s annual budget was Sh1.65 trillion and doubled it to Sh3.01 trillion by June this year.

He borrowed heavily to finance the ever-expanding budget, pushing the public debt level to Sh5.42 trillion, equivalent to 57 percent of the gross domestic product, from Sh1.88 trillion (39.8 percent of GDP) when he took over in 2013.

Such is the mixed legacy of the Harvard University-educated, former economist at the International Monetary Fund (IMF), who now faces a fight of his life to clear his name in the Sh63 billion Arror and Kimwarer dams scandal.

Mr Rotich’s fate as finance minister is now in the balance, with President Uhuru Kenyatta having declared in his State of the Nation address in April that he would "remove from government any individual who will have a case to answer before court."

When he took over as Kenya’s 14th finance chief in 2013, Mr Rotich cut the image of a safe pair of hands, having spent the majority of his career as a technocrat at the Treasury and Central Bank of Kenya.

Soft-spoken man

An affable and soft spoken man, he had managed to avoid overt links with any of the financial scandals that hit the Jubilee administration, until the procurement irregularities in the multi-billion-shilling Kimwarer and Arror dams in his native Kerio Valley came to light.

On Tuesday Mr Rotich, Treasury Principal Secretary Kamau Thugge and 26 other officials were charged with 24 counts among them abuse of office, conspiracy to commit an economic crime, single-sourcing for the insurance of the projects, and approving payments contrary to the law.

The Director of Public Prosecutions said at a Monday press conference that investigations by the Directorate of Criminal Investigations had determined that the two top Treasury officials flouted procurement procedures, aiding the loss of public funds allocated for the dams whose construction is yet to start.

Billions of shillings in cash were released to an Italian contractor, CMC di Ravena, even before designs of the dams had been approved.

They pleaded not guilty to the charges and were released on bail but their lawyers were by Tuedsay evening still frantically trying to pay the cash at the KCB Milimani branch, which is situated at the same court building.

Economic experts give a mixed verdict on Mr Rotich’s performance at the Treasury, faulting his inability to keep a lid on spending amid perennial revenue shortfalls and the rapid growth in public debt.

His annual budget expansion forced him to borrow heavily to keep the books balanced.

As a result, Kenya’s budget deficit has grown from Sh299 billion in 2013 to Sh635 billion this year.

Robert Shaw, a public policy and economic analyst, said that while Mr Rotich has been a fairly steady hand in his tenure, he has not done enough to address structural defects in the country’s economy that have prevented the dividends of growth from spreading to all.

The annual national output as measured by GDP has grown by between five and six percent under Mr Rotich.

"A growth of between eight and nine percent would have a better chance of trickling down. A five to six percent growth for an economy like ours is like an under-performance and corruption takes a great chunk of this redistribution," said Mr Shaw.

The use of debt to finance infrastructure investments such as the standard gauge railway (SGR) has come at a cost, with taxpayers now repaying loans whose returns are only expected to balance out in the long term.

The increased dependence on commercial external loans such as the Eurobond has also not helped, although this is a result of the country’s reclassification as lower middle-income economy which has locked it out of the concessional loans available to poor States.

Revenue collection

Mr Rotich has, during his tenure, become synonymous with the thorny issue of public debt, which has outpaced Treasury’s revenue collection.

Tax collection increased from Sh919 billion at the beginning of his tenure to just over Sh1.6 trillion last financial year.

His borrowing spree in the past six years, which he has always defended as necessary for the country to close an infrastructure deficit, has tended to overshadow the doubling of GDP from Sh4.75 trillion to Sh9 trillion during the period.

"Whether he overplayed his hand and took things too far, whether the debt is building a legacy or birthing a burden, remains sadly too much in the balance," said Deepak Dave, a risk management expert with Nairobi-based Riverside Capital in reference to the debt-fuelled infrastructural expansion espoused by Mr Rotich.

The minister does not, however, carry the debt blame alone, according to Institute of Economic Affairs (IEA-Kenya) chief executive Kwame Owino, with Parliament equally to blame for raising the debt ceiling to accommodate the borrowing.

"Treasury went to Parliament to seek more debt and every year they approved it. At the IEA we think the debt grew too quickly and both of them should not have allowed that to happen," said Mr Owino.

According to Mr Dave, a major positive from the Rotich tenure is in the attempt to enhance and streamline revenue collection, with wide reaching reforms at the Kenya Revenue Authority being implemented.