Debt audit-kenya-draft#3
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KENYA’S DEBT AUDIT TABLE OF CONTENTS 1 EXECUTIVE SUMMARY 5 2 ANALYSIS OF KENYA’S DEBT POSITION 6 3 MAJOR BILATERAL AND MULTILATERAL CREDITORS 8 4 UNILATERAL ALTERATIONS OF THE CONTRACT CLAUSES 21 5 CONDITIONS UNFORESEEN BY CONTRACTS 23 6 LEGAL AND INSTITUTIONAL FRAMEWORK 24 7 CURRENT IMF AND WB AGREEMENTS WITH KENYA 31 8 CONCLUSION 35 2 ABBREVIATIONS & ACRONYMS ADB: AFRICA DEVELOPMENT BANK ADF: AFRICA DEVELOPMENT FUND CAG: CONTROLLER AND AUDITOR GENERAL CCS: COMMITMENT CONTROL SYSTEMS CDF: CONSTITUENCY DEVELOPMENT FUND DMD: DEBT MANAGEMENT DEPARTMENT DSA: DEBT SUSTAINABILITY ANALYSIS EAC: EAST AFRICA COMMUNITY EEC: EUROPEAN ECONOMIC COMMUNITY ERSWEC: ECONOMIC REVIEW STRATEGY FOR WEALTH AND EMPLOYMENT CREATRION ESAF: ENHANCED STRUCTURAL ADJUSTMENT FACILITY GDP: GROSS DOMESTIC PRODUCT GEF: GROWTH EXPENDITURE FACILITY GVT: GOVERNMENT HIPC: HIGHLY IMPOVERISHED POOR COUNTRIES HIV/AIDS: HUMAN IMMUNODEFICIENCY VIRUS/ACQUIRED IMMUME DEFICIENCY SYNDROME. IBRD: INTERNATIONAL BANK OF RECONSTRUCTION AND DEVELOPMENT IDA: INTERNATIONAL DEVELOPMENT ASSISTANCE IDA: INTERNATIONAL DEVELOPMENT AID IFAD: INTERNATIONAL FUND FOR AGRICULTURE DEVELOPMENT IFC: INTERNATIONAL FINANCE CORPORATION IFIS: INTERNATIONAL FINANCIAL INSTITUTIONS IMF: INTERNATIONAL MONETARY FUND KPA: KENYA PIPELINE AUTHORITY KPLC: KENYA POWER AND LIGHTING COMPANY ...
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KENYA’S DEBT AUDIT
TABLE OF CONTENTS
1 EXECUTIVE SUMMARY
2 OPISBE TS’D NEAY TIONS SI KOFALYNA
3 MAJOR BILATAEL RAND MULTILATERCARLE DITOR S
4 UNILATERALT EALRATIONS OF THE CTROANCT CLAUS ES
5 SEROFNU C YB NEECONSIOITNDACTSONTR
6 LEGAL AND TIINTSUTIONAL FRAMEW ORK
7 CURRENT IMFD AWNB AGREEMENTS WKIETNHY A
8 CNOC ONSILU
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6
8
21
23
24
31
35
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ABBREVIATIONS & ACRONYMS ADB: AFRICA DEVELOPMENT BANK ADF: AFRICA DEVELOPMENT FUND CAG: CONTROLLER AND AUDITOR GENERAL CCS: COMMITMENT CONTROL SYSTEMS CDF: CONSTITUENCY DEVELOPMENT FUND DMD: DEBT MANAGEMENT DEPARTMENT DSA: DEBT SUSTAINABILITY ANALYSIS EAC: EAST AFRICA COMMUNITY EEC: EUROPEAN ECONOMIC COMMUNITY ERSWEC : ECONOMIC REVIEW STRATEGY FOR WEALTMHP LAONYDM ENT CREATRION ESAF: ENHANCED STRUCTURAL ADJUSTMENT FACILITY GDP: GROSS DOMESTIC PRODUCT GEF: GROWTH EXPENDITURE FACILITY GVT: GOVERNMENT HIPC: HIGHLY IMPOVERISHED POOR COUNTRIES HIV/AIDS : HUMAN IMMUNODEFICIENCY VIRUS/ACQUIRED IMMUMEEN CY DEFICI SYNDROM E. IBRD: INTERNATIONAL BANK OF RECONSTRUCTION AND DEVELOPMENT IDA: INTERNATIONAL DEVELOPMENT ASSISTANCE IDA: INTERNATIONAL DEVELOPMENT AID IFAD: INTERNATIONAL FUND FOR AGRICULTURE DEVELOPMENT IFC: INTERNATIONAL FINANCE CORPORATION IFIS: FINANCIAL INSTITUTIONS INTERNATIONAL IMF: INTERNATIONAL MONETARY FUND KPA: KENYA PIPELINE AUTHORITY KPLC: KENYA POWER AND LIGHTING COMPANY KPTC: KENYA POST AND TELECOMMUNICATIONS CORPORATION KVDA: KERIO VALLEY DEVELOPMENT AUTHORITY KSHS: KENYAN SHILLING LATF: LOCAL AUTHORITY TRANSFER FUND MDGS: MILLENNIUM DEVELOPMENT GOALS MOF: MINISTRY OF FINANCE MTEF: MID-TERM EXPENDITURE FRMEWORK NBK: NATIONAL BANK OF KENYA NPEP: NATIONAL POVERTY ERADICATION PLAN NGOS: NON-GOVERNMENTAL ORGZANTIONS OPEC: OIL PRODUCING AND EXPORTING COUNTRIES PEM: PUBLIC EXPENDITURE MONITORING PRGF: POVERTY REDUCTION GROWTH FACILITY PRSP: POVERTY REDUCTION STRATEGY PAPER PPOA: PUBLIC PROCUREMENT OVERSIGHT AUTHORITY SAF: STRUCTURAL ADJUSTMENT FAYCILIT SAP: ADJUSTMENT PROGRAMME STRUCTURAL SOEs: STATE-OWNED ENTREPRISES UK: UNITED KINGDOM UN: UNITED NATIONS USA: UNITED STATES OF AMERICA US$: UNITED STATES OF AMERICA DOLLAR
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WB: WMS:
WORLD BANK WELFARE MONITORING
SURVEY
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1.0 Executive Summary Kenya gained it independenthsro y aefiytnaf Britive fectf ef91 rebmeceD 21the or merft a63eco nsi colonialism. Like many other Africa countries before and after it, the country faced tremendous its economic and social development. In theabsence of an indigenous private sector, the new State had to step in and play a big r country’s economic and social development. Inextricably, this resulted in the creation of a larg and a burgeoning civil service. Internal fidcifulties and a combination of severe external shocks led to the debt crises of the 197 wake, these left a collapse and tearing of the economic and social fabric of the nascent state that all too unfortunately and as cao rmesbiunlta toifo na of factors, the State has not managed through t date. Like its sister Africa nations, Kenya turned to the IMF and World Bank plus a myriad of other in both technical and financial assistance. Beginning the ear lyo f 1t9r8a0dse, liberal zitaoi,n wenare a deregulation and privatization of public enterprises, concretized by the Sessional Paper Numb Economic Management for Renewed Growth worsened bo-tehc tohneo mdiecb tc rai nsed ss.ocio The forced adjustments byr ntahtei oInnatl eFinancial Institutions masked as Structural Adjustmen Programmes not only dismantled but also reversed the gains that the state had made in th economic infrastructure. Notably, they also saddled Kenya with a ds etbot n rcpieidrublp et cathenution s ability to meet its developmental needs. Suffice it to say that the policies, conditionalities and cross conditionalities meted by the Financial Institutions (IFIs) have had a devastating effect on thea ibilyt of Kenya ti ted solevnempt o me agenda, the culpability on the part of the Kenyan leadership notwithstanding. At the domestic level, culpability largely stems from the misuse of borrowed money to outri corruption, which too have aggravated .t hPeo odre bmt a-cerissed unsound anomic management ocno project investment as evidenced to by numerous stalled projects that dot the nation further a Plainly some are outright ‘white elephants’ both in articulation and implementation and conceptualization were for purposes of siphoning and looting public coffers. Resultantly, it becomes critical to carry out comprehensive audits on the usage of borrowed reasons of firming uarpt itchuela tion owf tho ounravel and resolve tchries edse ibf t only to ensure that Kenya attains the capability of achieving the Millennium Development Goals that are derive Millennium Declaration of which the country is signatory. 5
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2.0 Analysis of Kenya’s debt position Backgrou nd “Kenya’s beuornging debt remains a defining feature of public finance management, often a testimony of prolonged plunder and senseless mismanagemeo tnht fan eosruec svoret eht ion’s eagre re last four decades. Africa Forum and Network on Debt and (ADFeRveOlDopA mD)e.nt The Challenges of Maintai-nTinerg mL oDnegbt Sustain ability: The Case of Kenya, 2005. Since independence, Kenya has borrowed about Ksh 1,200 billion from external creditors. Th repaid Ksh 3,570 b ilali ownh opping threefold tnhte inaitmiaoluly ow tehde country still owes Ksh 450 billion. In addition to this external debt, the domestic debt stands at about Ksh 300 billion. Kenya's economy is modestly diversified, though most employment is dependent on agricu contribu t1e6s(2004 estimates) percent of GDP. Kenya enjoyed strong economic growth from inde until the 1970s. The average GDP growth rate declined from 6.5 percent between the 1960s a to about 2 percent i-n1 919990ol w ,ebaverthe popuage italg notworar h ote2.f pe5 enrc.tP iravet investments fell by 7 percent in real terms between the late 1980's and the first half of the domestic savings rates fell correspondingly from over 20 percent to 16 percent during the sam After grongw islowly until the late 1970s, Kenya’s external debt more than doubled in the 1980s, US$3.4 billion in 1980 to US$7.1 billion in 1990. Total foreign debt peaked at US$7.5 billion in since been reduced modestly, to USn$ 16.99H .6 biillonwiever, within the total debt stock the share of public and publicly guaranteed debt has grown more rapidly, from US$2.1 billion in 1980 to US 1990 and to US$5.9 billion in 1995, before dropping to US$5.6 billio6.99d e1bitnn ft ih s h iWwasels moe contracted on commercial terms, especially in the late 197-r0esl,a tmedo.s tA os f ai- itl nocwwoasm ea id country Kenya qualified for conversion of a substantial part of bilateral aid to a grant basis, w in the 1980s as omne dvobaitn 1en6 98 Be.weetb litarena d9129s also pal donord deviroor fbtdeig of prior ODA debt of US$700 million. The major sources of ODA debt relief were the US (US$11 while an additional US$ 38.7 million was revoked ihne c1o9n9n1e catith it wzeerf dmreG ,)e(DM any 600 no million), Canada (US$ 90 million), Netherlands and the UK. The Japanese government has no debt forgiveness, but has offset debt repayments with supplemental grant aid. Until the decade of the 1990s nt hGeo vKernah dne tsys laawyamfo s’yrte laicifd cevieruncoe thtxren debts, including those on commercial terms. The country had avoided arrears and had never b seek debt relief from the Paris Club, London Club, or from indievri,d uasa l tchrece tidoHo. vwemonefs ry ll into recession in the early 1990s, with accompanying severe balance of payments const shortages of foreign exchange, and with the curtailment of donor balance of payments suppor the government began tuol aatce caurrmears on official debt, both to ODA donors and to Paris and Lon Club creditors. By m-i1d993 arrears on external debt peaked at approximately US$750 million, close to 15 outstanding stock of official debt. Howe-ver,sliabtsw tiha f ontmerp mrofer gnortse d thm anogra eer ht resumption of balance of payments support in 1993 the foreign exchange crisis was alleviate debt repayments were resumed. In January 1994 Kenya was able to negotiate with the Paris C favourae blrefinancing (of arrears only) ov-eyre a nr remilarly favourabne tepirdo . Aismyapthgi el refinancing of arrears was subsequently negotiated with the London Club. 6
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