If Eurobond looks, walks and quacks like a duck, what else can it be? – by David Ndii

by David Ndii

In the aftermath of the infamous “mlolongo” elections of 1988 in which candidates with  shorter queues would be declared winner, Mwai Kibaki famously quipped that even rigging required some intelligence. The joke however was on him. Queue voting was the smartest rigging strategy ever as it left no trail—once the queues were disbanded that was it.

And so it is with this Eurobondgate. The only thing we are certain of is that it happened. The rest is smoke and mirrors.

Lets start with the basics: book keeping. It has been pointed out severally, including in my last column, that the Government has published three different accounts of how the Eurobond flowed into the budget. Two of the accounts do not exhaustively account for the Ksh. 250 billion. The one that does differs from the others in that it adjusts the governments domestic borrowing downwards by Ksh. 140.5 billion. The National Treasury has put out a public statement that is supposed to explain how its accounting.


Government Domestic Financing, National Treasury Public Statement
Jun’14 Jun’15 change in


Government Securities & Other 1,226.3 1,352.5 126.2
Government deposits excl. Sovereign Bond 125.8 141.3 -15.5
Net domestic borrowing excluding Sovereign Bond 1,100.6 1,211.2 110.6
Net domestic borrowing including Sovereign Bond 140.5 0 140.5
Net domestic borrowing excluding Sovereign Bond 960.1 1,211.2 251.1



Government Domestic Financing, Central Bank Data (QEBR Table 11)
Jun ‘14 Sep ‘14 Dec ‘14 Mar 15 Jun ‘15
Central Bank 19.4 -45.1 -90.9 -59.7 119.0
Overdraft 30.2 -2.9 6.3 0.2 -0.7
Other items -0.9 1.3 -0.6 -0.5 -1.6
Less Govt deposits -9.9 -43.6 -84.0 -59.4 121.4
Commercial Banks 73.4 -10.8 21.7 91.8 108.0
Advances 0.9 -0.6 -0.6 -1.1 -1.2
Bills and Bonds 91.0 -14.2 28.6 89.6 105.6
Less Government deposits -18.5 4.1 -6.3 3.2 3.5
Nonbank & non-resident 108.9 -5.2 -1.9 14.8 24.1
Net Credit 201.7 -61.1 -71.1 47.0 251.1



I have summarized below two different domestic financing accounts, both published by Treasury, labelled “Central Bank Government Domestic Financing” as it appears in the Quarterly Economic and Budget Review for the fourth quarter of FY2014/15, and the one in the public statement. What are they telling us?

Let us start with the public statement. This account is telling us that at the close of FY2013/14, the Government owed domestic creditors Ksh. 1,226 billion but it also had deposits of of Ksh. 266.3 billion so that its net domestic debt was Ksh. 960 billion. The deposits comprised of Ksh. 140.5 of Eurobond proceeds and Ksh. 215.8 other deposits. By the end of FY 2014/15, the Government owed Ksh. 1,353.5 billion, but it had deposits of Ksh. 140 which nets out to Ksh. 1211.2 billion. The Treasury attributes the drop in deposits to having fully drawn down the Ksh. 140.5 Eurobond deposit.

The account is problematic. It is a matter of record that the Government received the Eurobond money in June but the first draw down was on the 3rd of July. As at end of June, the amount sitting in the offshore account was US$ 1.999 (Ksh. Ksh. 175 billion). This amount is reflected in the Central Bank’s foreign exchange reserves which shot up from US$ 6.5 billion in May to US$ 8.5 billion in June.

On 3rd July the Government withdrew US$ 1 billion from the account in two transactions, US$ 604.6 million (Ksh. 53 billion) to settle the syndicated loan and the balance of US$

395.4 million (Ksh. 35 billion) it transferred to the Exchequer account, leaving just under US$ 1 billion (Ksh. 88.5 billion) in the offshore account. How then does the Government close the month of June with deposits of Ksh. 140.5 billion Eurobond proceeds?

It couldn’t. How much it had in deposits depends on the accounting treatment of the offshore account. If it counts as a government deposit, then the Government closed the month of June with Ksh. 175 billion of Eurobond deposits. If only monies transferred to the Exchequer count, then it closed the month with zero Eurobond deposits in its accounts.

We have recently seen Treasury figures showing that of the Ksh. 35 billion transferred to the Exchequer on 3rd July, only Ksh. 25 billion is reflected in the FY 2013/14 disbursements to ministries. Even if we were to admit the backdating and we should not, the Eurobond contribution to Government deposits would have been Ksh. 150 billion, that is, the full Ksh. 175 billion less Ksh. 25 billion. Where is Ksh. 10 billion? It too should still have been in the bank, no?

The problem here is that the Treasury is trying to marry fiscal accounts it has fiddled with to the Central Bank’s monetary accounts which are based on dated transactions. The two cannot reconcile.

Let us now turn to the Central Bank account. This shows how much the Government borrowed on a quarter by quarter basis in FY 2014/15. It includes also two Government deposit line items one under the Central Bank and the other under commercial banks. A negative figure is an increase in government deposits which is deducted from the gross borrowing to give the net position. A positive net position shows by how much Government domestic borrowing increased in that period, and a negative position shows by how much the government repaid its creditors.

This account shows that Government borrowed Ksh. 201.7 billion in FY 2013/14, net of Government deposits of Ksh. 28.4 billion, comprising of Ksh. 9.9 billion in the Central Bank and Ksh. 18.4 billion in commercial banks. Notably, the Government’s overdraft at the Central Bank stood at Ksh. 30.2 billion which is partly offset by its deposits of Ksh. 9.9 billion and a few other items for a net borrowing of Ksh. 19.4 billion.

During the first quarter of FY2014/15, the Government’s deposits in the Central Bank rise, more than offsetting the overdraft, translating to a positive cash position of Ksh. 45 billion. The Government also also repays the market to the tune of Ksh. 15 billion translating into a “net lending” of Ksh. 61 billion. Over the second quarter, the Government’s cash position with the Central Bank improves further, but its position with the market reverses to a net borrowing of Ksh. 19.8 billion comprising of Ksh. 21.7 billion net borrowing from the banks and Ksh. 1.9 repayment to the non-bank public.

This account is telling us that the Eurobond proceeds came in during the first half of the year. It shows the Government reverting to heavy domestic borrowing towards the end of the year. It shows that the Government’s borrowing of Ksh. 251 billion is net of Government deposits. The figure corresponds with the net borrowing of Ksh. 201 billion the previous year. We do not see the entire Ksh. 175 billion reflected in Government deposits in June, even though the Central Bank reflects the amount in its foreign exchange reserves.

The Central Bank’s account does not accord with the Treasury’s public statement reflecting Ksh. 140.5 billion Eurobond deposits at the end of June 2014, or net domestic borrowing of Ksh. 110 billion. The Ksh. 140.5 billion is a fiscal figure, not a banking one. Which one are we to believe? Did it borrow Ksh. 251 billion or Ksh. 110 billion?

In FY2013/14, net domestic borrowing increased by 19 percent (from Ksh. 169b to Ksh. 201b) and interest cost by 8 percent, from Ksh. 110 to Ksh. 119 billion. In FY 2014/15 domestic interest costs rose to Ksh. 139 billion, which at 17 percent, is more than double the previous year’s increase in percentage terms. The Government would have us believe that even as interest rates were declining, its interest costs increased that dramatically despite its domestic borrowing declining by 45 percent.

Such a sharp increase in domestic interest cost only makes sense if domestic borrowing also increased. Domestic borrowing of Ksh. 251 billion translates to an increase of 25 percent in which case a 17 percent increase in interest cost is still high but plausible. And if the Government’s net domestic borrowing was Ksh. 251 billion, then the FY2014/15 budget deficit of Ksh. 407 billion is fully financed without the Ksh. 140.5 billion (or Ksh. 150 billion when we include the unexplained Ksh. 10 billion difference)

Several weeks into this melodrama, the Government has yet to provide information on the projects funded with the Eurobond proceeds. We been offered excuses galore as to why this information could not be produced immediately. This is patent nonsense.

In FY2014/15 the National Government budgeted Ksh. 114 billion for its priority development projects. Government only funded projects account for a little under Ksh. 14 billion of the budget, the other Ksh. 100 billion being externally funded projects. Even assuming a high Government contribution to externally funded projects of 20 percent, the Government’s total outlay for the priority projects for the year is in the order of Ksh. 35 billion.

Development lenders and aid donors disbursed Ksh. 98 billion worth of loans and Ksh. 28 billion in grants, a total of Ksh. 126 billion. This exceeds the total budget for the national priority projects.

Even if we were to accept that the Eurobond proceeds “balance” of Ksh. 14o/150 billion as the case may be is included in Ksh. 251 b domestic financing, the Government will still have to explain which other national development projects absorbed the money, given that external financing disbursed exceeded the priority projects’ budget. Is it conceivable that the Treasury broadcasted billions of borrowed money to ministries like confetti to fund non-priority projects of their choice?

In a recent interview, the Treasury CS gave a hint as to where this might be headed, by saying that the Jubilee Government inherited pending road construction bills amounting to Ksh. 120 billion. The man may be talking too much.

Many Kenyans understandably have difficulties contemplating that Ksh. 140 billion or more can vanish in thin air. I do too. Then I think about an anecdote I heard sometime ago about investors who approached the Government proposing a multi-billion dollar private infrastructure project, who were asked for an upfront facilitation fee of US$ 300 million. That is serious appetite by any standards.

The Jubilee administration has two choices, to show the projects or the money. There are no Eurobond financed projects— of that we can be certain. That leaves the money making a mysterious return— like Anglo Leasing, then they’ll have to explain all the lies they’ve told.

If they they still think they can politick, intimidate and bluff their way out this one, the joke this time round is on them.


A version of this article appeared in the Daily Nation Saturday 19 December 2015