STANDARDTHEKenyas Bold NewspaperWednesday, May 21, 2014

No. 29593 www.standardmedia.co.ke KSh 60/00 TSh1,500/00 USh2,700/00

MPs collect over 100 signatures to support bid to censure Anne Waiguru - P.4

Varsity students battle police

continued on PAGe 4

By GEOFFREY MOSOKU

Attorney General Githu Muigai strove to de-flect criticism aimed at him over the way Kenya mishandled appeals against rulings to pay An-glo Leasing merchants by blaming the court-room debacles on his predecessor.

But yesterday, a day after the gruelling news

By STANDARD TEAM

Battles between public university students and police rocked towns countrywide yesterday and brought learning to a halt.

Motorists and traders bore the brunt of the protests, with some being violently robbed.

The students were protesting an alleged in-crease in fees and cuts in the maximum loan giv-en them by the Higher Education Loans Board.

However, Education Cabinet Secretary Jacob Kaimenyi said tuition fees had not been raised.

Wako blames collapse of Anglo Leasing cases on Githus handling

2014 BUDGET ShOcKcontinued on PAGe 2

see story on PAGe 6

By MOSES MIchIRA

For the first time, the Government is facing uncer-tainty over how it will fill the deep hole in its wallet as it counts down the two weeks to Budget Day.

As evidence of the Governments desperation, The Standard has learnt that the National Treasury is preparing two different supplementary budgets as

A policeman puts out a fire lit by University of Nairobi students on Moi Avenue, Nairobi, yesterday. They were protesting an alleged fees increase. [PHOTO: mbugua kibera/sTandard]

President Uhuru Kenyatta Cabinet Secretary Henry Rotich

Since he has referred to me as a surgeon I want to say that I handed over as Attorney General to a person I believed was a competent surgeon and not to a mortician. Amos Wako

Two weeks to Jubilees second budget, Treasury technocrats worry about a Sh342 billion hole and if a Sovereign Bond floated by Kenya flops, the future of the economy can only get worse

13th June, 2014

The patient died on the operating table long time ago. Githu Muigai is the mortician. If you think the patient should have lived, ask the surgeon. Githu Muigai

Page 2 / NATIONAL NEWS Wednesday, May 21, 2014 / The Standard

options for raising the extra cash needed to fund the record Sh1.6 tril-lion Budget.

The Budget is Sh342.6 billion shy of its target, and the Government has already paid Sh1.4 billion to two An-glo Leasing companies without the approval of Parliament.

It hopes the payment will secure its plans to raise Sh174 billion ($2 bil-lion) from foreign creditors next month through a sovereign bond. Be-cause it has already factored the mon-ey into this years budget, Treasury is preparing for the worst if things fail to go according to plan.

The bond would partly finance one of the supplementary budgets, while the other would rely on a less at-tractive programme of local borrow-ing and heavy cuts on Government spending to pay MPs, State officers and other public servants.

If the bond flops or delays, the im-pact on the economy would be severe, with higher bank interest rates caused by the Governments local borrowing choking investment and stalling de-velopment projects.

It would also increase the level of domestic debt currently at Sh1.21 tril-lion to well over 50 per cent of the val-ue of the economy measured as the Gross Domestic Product (GDP).

The international bonds issuance was delayed due to uncertainty in the international markets, and a dispute with Parliament over the Sh1.4 billion Anglo Leasing payments.

Cabinet Secretary Henry Rotich confirmed that the huge revenue hole faced by Treasury gives him limited options. Borrowers would be hit by higher interest rates and the shilling would weaken.

Among the countrys most press-

Major dilemma over Sh174bn

budget shortfalling needs is repayment of a Sh52 bil-lion loan ($600 million) that was due last week, but the State got a three-month temporary reprieve, albeit at a very huge cost (see separate story).

The latest financial crisis explains the panic that has hit the Govern-ment, as indicated by the executive order to pay the controversial Sh1.4 billion to two European companies in contracts related to Anglo Leasing.

Treasury insiders said plans had already been put in motion to cut na-tional spending to accommodate the Sh174 billion gap just in case floating of the sovereign bond is delayed or flops.

spending plansWe have been revising the budget

in the context of Supplementary I and II, explained the source.

He, however, did not disclose the programmes that would be affected by the revised spending plans.

Rotich had earlier informed the media that the bond would be floated before June 30, when the current fi-nancial year ends, echoing President Uhuru Kenyattas optimism in having a successful issue.

The State has a cumulative budget shortfall of Sh329 billion in the cur-rent financial year. Rotich told Parlia-ment when presenting the budget last year that Sh223 billion would be raised through borrowing from the other countries, including the Euro Bond.

The funding crisis has been wors-ened by weaknesses in the countrys key economic sectors of tourism and agriculture, which account for the bulk of the countrys foreign exchange revenue inflows.

Repeated terror attacks in the midst of further threats from the Al-Shabaab militia group have caused panic among tourists, leading to mas-

sive booking cancellations this month, prompting thousands already on hol-iday to cut short their stay.

Last year, tourist arrivals were down 300,000 to 1.4 million on rising terror threats. Poor rains and low pric-es for its key exports of tea and coffee in the international markets have hit agriculture, which contributes to about a quarter of Kenyas economy.

Robert Bunyi, an investment bank-er, says it is absolutely critical for Ke-nya to raise the funds through the sov-

ereign bond. Kenya must just float that bond,

said Bunyi, noting that tourism and agriculture sectors were both heading south.

The other options of borrowing locally or cutting back on services could be too painful on the citizens.

He explains that the Government could crowd out the private sector if it opts to raise the funds locally through bonds, a scenario that could push up the current interest rate that

averages at 20 per cent to new highs. In his estimate, the sovereign bond

could be raised at about 12 per cent interest, going by rates in comparable economies and Kenyas credit rating of B+.

President Kenyatta had explained that issuance of the bond was critical to service delivery, when defending his directive to pay the Sh1.4 billion owed to Anglo Leasing firms, last week.

There was no way we could go for this particular bond without first hav-ing cleared our international obliga-tions. So I gave that directive, said Uhuru.

Sources at the National Treasury said the payments to two claimants, First Mercantile Securities Corpora-tion and Spacenet Inc, were made on Thursday.

Rotich had factored settlement of the Sh1.4 billion debt in his budget last year but the item had been dis-guised as an allocation for guaran-teed debt payments and other non-discretionally expenditures.

Non-settlement of the debts has been the biggest barrier to Kenyas in-tention to issue the bond.

There have been fears that the out-standing claims by the two firms owned by Mr Anura Perera, a Kenyan with Sri Lankan roots, would impact on the success of the bond, especially after the ruling by international courts. State House spokesman Mano-ah Esipisu had earlier announced that Uhuru wanted the bond issued to protect countrys economy from in-terest rate shocks that would follow any domestic borrowing by Govern-ment.

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KENYAS EXTERNAL DEBT STOCK IN BILLIONS

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Wednesday, May 21, 2014 / The Standard NATIONAL NEWS / Page 3

State loses Sh500m as fines for postponing payments to banks

By JAMES ANyANZWA

The decision to defer a Sh52.2 bil-lion ($600 million) loan repayment signals that the financial crisis facing the Government may be bigger than previously thought.

Taxpayers will now have to pay Sh574.2 million as an additional cost to save the Government from eminent embarrassment of defaulting on its debt obligations to three internation-al banks. The amount is owed to Cit-ibank, Standard Chartered Bank (UK) and Standard Bank of South Africa.

This has become even more ur-gent because defaulting would fur-ther sabotage the desperate effort to float a Euro denominated sovereign bond worth Sh174 billion ($2billion) that the Government has factored in-to the budget (see separate story in Pg 2).

Part of the process of effectively floating the bond includes the Sh1.4 billion payments last Thursday to two European companies in the infamous Anglo Leasing contracts once con-demned by President Uhuru Kenyat-ta.

The President has had to make a painful decision on what is the great-er evil: either (pay) the money or put the countrys economy at risk. By making this payment, the President is not legitimising what he and many Kenyans believe to have been a series of fraudulent transactions, read in part a statement from State House Spokesman Manoah Esipisu.

National Treasury Principal Secre-tary Kamau Thugge (pictured) con-firmed to The Standard that the Gov-ernment would pay an extra fee of 1.1 per cent to a consortium of three for-eign banks, which agreed to defer the loan of Sh52.2 billion for three months.

Dr Thugge said the Government has other options of paying off the loan but had opted for a cheaper al-ternative in the shape of the sovereign bond issue.

SovErEigN BoNdWe are ready to repay the loan,

but we had discussions with our lead arrangers to give us time to access the sovereign bond. By August, we shall clear this debt. Our interest is to issue a bond, Thugge said in a telephone interview.

The Government has set out an ambitious Sh1.8 trillion budget even as it struggles to contain the runaway wage bill that stands at 55 per cent of the countrys revenue collection of Sh900 billion. The public service has up to 700,000 employees and its wage bill has shot up from Sh200 billion in 2008/2009 to Sh461 billion in 2012/2013.

The two-year loan that has been deferred for three months was to fund the Governments ambitious develop-ment plan. Thugge confirmed to The Standard that the Government would pay the Sh574.2 million as commis-sion for the extension.

We had the money but realised it was cheaper for that extension than

to settle the amount, said Thugge, while downplaying the risks of the de-ferral that has the potential to send wrong signals to local and interna-tional lenders.

He denied that there were fresh conditions attached to the extension granted by the banks. There was an extension by three months. We ex-tended on the same terms and condi-tions like before. There were no new conditions. There was nothing, he explained.

However, a cross-section of re-nowned economists said the request for the extension of the repayment period points to a Government facing severe financial stress.

This means the Government has overstretched itself in terms of expen-diture. We are running a shortfall in revenue collections and there is no money in circulation. All these are sig-nals that our economy is in bad shape, said Samuel Nyandemo, a se-nior lecturer at the University of Nai-robis School of Economics.

ExpENSivE loANAccording to Dr Nyandemo, re-

scheduling the loan repayments comes with penalties that make the loan even more expensive, coupled with the weakening of the Kenya shil-ling against international currencies.

There are penalties on the exten-sion of the repayment period, which depends on the terms and conditions of this loan, he said.

According to Thomas Kibua, a for-mer long-serving deputy governor of Central Bank, the Governments fi-nancial health is not good.

I think the crude term is you (Government) are running broke. Your programming is not right and some-thing is not right, said Dr Kibua who is currently a senior economist with African Development and Economic Consultants.

Our national debt has become an issue. They want to buy more time to repay this loan, which is not a good thing becau2se the shilling is slightly depreciating against the international currencies, he added.

Part of the money from the planned sovereign bond issue will be used to retire the loan. The syndicated loan was mainly designed to substitute part of what Government had planned to borrow from the domestic market during the period under review.

During the 2011/2012 financial year, the National Treasury planned to borrow Sh119.5 billion from the Ke-nyan market, but high interest and ex-change rates volatility made investors jittery, causing them to demand high-er yields in order to compensate for risk.

Treasury auctions experienced lower subscription rates mainly due to tighter liquidity, more attractive commercial bank rates and increased uncertainty over the direction of in-terest rates. Higher yields led to lower bond valuations with listed Treasury bonds losing approximately 20 per cent of their value in 2011.

By December 2011, the Govern-ment had raised only Sh14 billion from the domestic market, implying that a further Sh105.5 billion was to be borrowed before the closure of the 2011/12 fiscal year.

tracing the burden The Government lost cases in Euro-pean courts last year against two companies involved in the Anglo Leasing security contracts, hence the payment of Sh1.4 billion The scandal hinged on 18 con-tracts, including a secure passport equipment system and a forensic science laboratory that were never suppliedThe Government opted for a com-mercial loan from the international financial institution to finance part of the revenue shortfall during the 2011/2012 financial year

By CyrUS oMBATi and JoSEph MUChiri

Mystery surrounds the Monday

evening disappearance of Embu County Assembly Speaker Justus Mate from a Nairobi hotel.

A section of Members of the Embu County Assembly now want the police to investigate how Mr Mate went missing from a city hotel where they were meeting.

Embu Deputy Speaker Ibrahim Swaleh yesterday confirmed that Mate went missing on Monday and they are yet to trace him.

Mr Swaleh said before his disap-pearance, the Speaker had allegedly received a phone call at around 4:30pm from an officer attached to the Criminal Investigation Depart-ment (CID) in Pangani and identified as Nicholas Kangangi, whom he was scheduled to meet later.

He said they became alarmed when Mate failed to report for dinner at around 8.30pm, prompting them to report the matter at Muthaiga Police Station.

We were referred to the Pangani DCIO whose personal assistant, Elias Kathiga, Mates driver and County As-sembly Majority Leader Andrew Mu-sakwa recorded a statement. Mate was an integral part of the meeting, as he was leading the committees and would have finalised the sittings to-morrow, said Swaleh.

pArkEd CArMate is said to have left his mobile

phone on the table before walking out. Mr Kathiga said guards at the ho-tel said the Speaker was seen leaving in a vehicle that was parked outside the gate, but it is unclear why he en-tered it.

Kathiga was further quoted as say-ing the Speaker asked where a vehicle, registration plate KBK, was parked and on learning it had not been seen, he started walking towards the gate, where he supposedly boarded the waiting car.

The MCAs were meeting to discuss the county budget. Swaleh asked the MCAs and the public not to speculate over the matter and asked the police to hasten the search for the missing Speaker.

He said the speaker had been ask-ing for police security, as he feared for his life.

Our Speaker has been writing to the Embu county commandant ask-ing for bodyguards but has never re-ceived a response, said Swaleh.

Nairobi police boss Benson Kibue said CID had taken up the matter and launched a search for the Speaker.

Mystery hangs over missing

Embu Speaker

Chart 4: External Debt by Creditor

Page 4 of 14

Source: The National

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