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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
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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.
CURRENCY COMPOSITION OF FOREIGN DEBTS
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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