Folks,
Following the unfolding Eurobond fiasco that the Jubilee government has strenuously denied money was lost just took yet another bizarre turn with Treasury's attempt to explain away the concerns of the public channeled through former Prime Minister Raila Odinga. First of all, let me say that how the money was procured and ultimately wound its way to the Consolidated Fund in Nairobi is really the least of my concerns. My concern and that of Millions of other Kenyans is how it was utilized. But given that the Prime Minister focused on the receipts, Finance Cabinet Secretary Henry Rotich, the country Chief Financial Officer (CFO), released a truly bizarre press statement posted on Treasury's website explaining the now infamous Ksh140 Billions that Mr. Odinga says is missing. I hope those of you who care about this issue have reviewed it at and if not, please do at http://treasury.go.ke/downloads/category/24-press-releases , I have had a chance to review and analyze it and the attendant data as well and I am mystified beyond belief as to how the Jubilee regime accounts for and reports the Eurobond receipts. We are not talking of expenditures, yet, just receipts for now and I shudder to imagine what they will report on that if they can't seem to get the receipts right. If not handled carefully the Eurobond would easily be to Odinga what the ICC was to Kenyatta.
Cooking the Books:
Cabinet Secretary Henry Rotich, issued a press release that I believe raised more questions than it answered. His statement is esoteric and deceptive to say the least. I have never seen a more convoluted accounting of what appears to be an attempt to mislead the public as what Secretary Rotich posted on the Treasury website. I think it makes the Jubilee regime looks really bad and lends credence to the now unsavory narrative that the Jubilee regime is either too corrupt or too incompetent to govern, or worse- both. Rotich's attempt to "UNPACK" its accounting for the Eurobond proceeds falls flat and made a bad scenario even worse and that is putting it mildly.
Domestic borrowing vs. Eurobond
In his press release, Secretary Henry Rotich classifies the Eurobond as both Domestic Borrowing and "Sovereign Bond"- folks that is blatantly fallacious- they cannot have it both ways. Even though all government borrowing is "sovereign", for our purposes "sovereign" denotes externally acquired debt. Accordingly, Domestic Borrowing is NOT the same as sovereign debt a.k.a. "the Eurobond", these are two different sources of debt; the Eurobond is International and can ONLY be classified as Sovereign debt or bond while Domestic borrowing such as Treasury Bills and Treasury Bonds is exactly that, domestic. It is imperative to make this distinction because as Prime Minister Raila alleged, it appears that the Jubilee regime is indeed understating its domestic borrowing and substituting it with the Eurobond proceeds instead, this is fudging the number a.k.a. cooking the books"- and therein lies the problem folks.
Under-reporting and Understating the Eurobond Proceeds
Secretary Rotich did indeed under-report the Eurobond proceeds in the press release just as Mr. Odinga alluded to. We hold the government to a higher standard and at the very minimum, we expect it to be representationally accurate. Specifically, in his release, as you can see in the attached, Rotich declared ONLY KSH140.5 Billion as Eurobond proceeds in both Fiscal 2014 and ZERO ("0") 2015, I mean it is there in black and white, numbers don't lie. However, the truth is that Kenya acquired a total of KSH251 Billion in Eurobond loans, KSH176 Billion in Fiscal year 2014 and a subsequent amount (tap sales) of about SKH75 Billion in Fiscal 2015. Kenya's fiscal year runs through June, 30. Jubilee acquired the first Eurobond loan in the month of June, 2014, practically weeks before the year closed. So from an Accounting standpoint, Rotich should have disclosed the full amount in his press release and then state that part of the proceeds were used to pay the syndicated loan if he chooses and he should have denoted the line item as "Net Sovereign proceeds" of KSH 140.5 Billion, he didn't. Similarly, in the Fiscal 2015 Column, Secretary Rotich should have included the KSH 75 Billion Eurobond Proceeds collected on Dec, 3 2014, NOT the "0" as he did. So just on its face, it is clear the government is not forthcoming about the Eurobond, and this is just the proceeds, not the uses. So Odinga is right, Jubilee cannot not account for KHS110 Billion of the Eurobond cash proceeds.
Moreover, Rotich's argument that the remaining Eurobond proceeds of KSH110 Billion was in fact Domestic borrowing is flat out wrong. His attempt to justify his explanation is willful accounting/finance malpractice; here is what he says, "What the National Treasury has done in moving from Column A to Column B is to disaggregate the figure of KSh 251.1 billion into Ksh. 140.5 billion for the Eurobond (as these were now Government deposits in the Consolidated Fund) and Ksh. 110.6 billion of actual domestic borrowing mainly Treasury bills and bonds for that financial year. The disaggregation was for purposes of transparency in order to show separately the use of the Eurobond proceeds. This treatment is also in the earlier Budget Policy Statement 2015 that was submitted to Parliament in February 2015 and was therefore not a new way of presenting the Eurobond proceeds. Indeed the IMF's most recent report treats the Eurobond deposits are part of domestic financing, exactly how it is treated in the BROP (see page 27 of the IMF report on Kenya September 2015—www.imf.org)." Folks, this is gibberish and a blatant fib by Secretary Rotich because, again, Eurobond finances are NOT domestic borrowing, they just aren't and at no time can he arbitrarily decide that part of it is domestic and another part is not- NO. Also, I ask Rotich why he would classify some Eurobond proceeds as domestic and others as Sovereign. Why the inconsistence? So to secretary Rotich I say, try again.
Deficits misrepresented
Table 1 of secretary Rotich press release states that Jubilee's Net Foreign Financing was KSH 216.40 Billion as a separate line item and KSH 140 Billion in Eurobond proceeds which makes it a total of KSH356.90 Billion of foreign borrowing to finance a KSH470 Billion deficit for Fiscal Year 201. However, in Table 2 of the same press release, Rotich "UNPACKS" his figures but shows ONLY KSH140.5 Billion as Sovereign debt while the remainder, KSH960.1 Billion is domestic borrowing. This is a major discrepancy by the Secretary, which is which Secretary Rotich? What are the true deficit figures for fiscal 2014? The KSH470 Billion in Table 1 or KSH960Billion in Table 2? What is the true foreign borrowing, the KSH 356.90 Billion in Table 1 or the KSH140 Billion in Table 2? What does "Government Deposits" mean? Are they revenues or expenditures? Why are they included in this table and why did you not denote them as a negative? , I was under the impression that such deposits should be government receipts or if not donated as outlays, why the inconsistency? So for these reasons, I think Rotich's numbers are misleading at best and outright mendacities at worst.
False Inter-period and Intra-period Accounting
In my analysis, I also noted that Rotich reported a total of only KSH140.50 Billion as Sovereign Bond for both fiscal years, 2014 and 2015 and NOT the KSH251 Billion Jubilee actually received, that alone, lends a lot of credence to Raila Odinga's statement that the Jubilee regime understated borrowing. The subsequent second Eurobond "Tap Sales" loan of about KSH76 Billion were obtained and received on Dec 3, 2014 which was in Fiscal Year 2015 and yet Rotich's press release has ZERO ("0") in that line for 2015; this is an outright understatement and is problematic and feeds into the narrative that the Jubilee regime is less than forthcoming in accounting for the Eurobond. I wonder how they are accounting for the rest of the money they receive. An objective person would make a reasonable inference that the Jubilee government is trying to pull a fast one on us regarding the Eurobond by playing a semantics game and voodoo accounting, perhaps hoping that we will get lost in the maze, especially the public who are not as well versed in Accounting and Finance.
Folks, these are just concerns regarding what Jubilee reports it received from the Eurobond, clearly the numbers don't add up. The real concern of most Kenyans is not so much what was received or how it ended up in the government's Bank Account but what it was used for/how it was spent. There is plenty lurking beneath the surface that we need to unearth regarding the Eurobond and the entire government financial accounting and reporting for that matter. That's the real risk because it is profoundly clear even by the government's own admission that corruption eats too much into taxpayer money, so it is perfectly reasonable to make a reasonable inference that the Eurobond cash also fell prey to corruption, after all Secretary Rotich is on record telling parliament that he couldn't account for the Eurobond but only by PROBABILITY! Things just don't look good even going by Jubilee's own standards.
0 Comments