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 ...
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:ECONOMICREVIEWSTRATEGYFORWEALTMHPLAONYDMENT CREATRION ESAF: ENHANCED STRUCTURAL ADJUSTMENT FACILITY GDP: GROSS DOMESTIC PRODUCT GEF: GROWTH EXPENDITURE FACILITY GVT: GOVERNMENT HIPC: HIGHLY IMPOVERISHED POOR COUNTRIES HIV/AIDS:HUMANIMMUNODEFICIENCYVIRUS/ACQUIREDIMMUMEENCYDEFICI 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: FINANCIAL INSTITUTIONS INTERNATIONAL IMF: INTERNATIONAL MONETARYFUND 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 TRANSFERFUND 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
1.0 Executive Summary Kenya gained it independenthsroyaefiytnafBritivefectfef91rebmeceD21theormerfta63econsi 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 civilservice. Internalfidcifultiesandacombinationofsevereexternalshocksledtothedebtcrisesofthe197 wake, these left a collapse and tearing of the economic and social fabric of the nascent state thatalltoounfortunatelyandascaormesbiunltatoifonaof 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 bothtechnicalandfinancialassistance.Beginningtheearlyof1t9r8a0dse,liberalzitaoi,nwenarea deregulation and privatization of public enterprises, concretized by the Sessional Paper Numb EconomicManagementforRenewedGrowthworsenedbo-tehctohneomdiecbtcrainsedss.ocio TheforcedadjustmentsbyrntahteioInnatleFinancialInstitutionsmaskedasStructuralAdjustmen Programmes not only dismantled but also reversed the gains that the state had made in th economicinfrastructure.Notably,theyalsosaddledKenyawithadsetbotnrcpieidrublpetcathenutions 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 theaibilytofKenyatitedsolevnemptome 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,whichtoohaveaggravated.thPeoodrebmta-cerissedunsoundanomicmanagementocno 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 reasonsoffirminguarptitchuelationowfthoounravelandresolvetchriesedseibftonlytoensurethatKenya attains the capability of achieving the Millennium Development Goals that are derive Millennium Declaration of which the country is signatory. 5
2.0 Analysis of Kenya’s debt position Background “Kenya’sbeuorngingdebtremainsadefiningfeatureofpublicfinancemanagement,oftena testimony of prolonged plunder and senseless mismanagemeotnhtfaneosruecsvoretehtion’seagrere last four decades. AfricaForumandNetworkonDebtand(ADFeRveOlDopAmD)e.ntTheChallengesofMaintai-nTinergmLoDnegbtSustainability: The Case of Kenya,2005. Since independence, Kenya has borrowed about Ksh 1,200 billion from external creditors. Th repaidKsh3,570bilaliownhoppingthreefoldtnhteinaitmiaolulyowtehdecountrystillowesKsh450billion. 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 contribut1e6s(2004estimates)percentofGDP.Kenyaenjoyedstrongeconomicgrowthfrominde until the 1970s. The average GDP growth rate declined from 6.5 percent between the 1960s a toabout2percenti-n1919990olw,ebaverthepopuageitalgnotworarhote2.fpe5enrc.tPiravetinvestments 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 Aftergrongwislowlyuntilthelate1970s,Kenya’sexternaldebtmorethandoubledinthe1980s,US$3.4 billion in 1980 to US$7.1 billion in 1990. Total foreign debt peaked at US$7.5 billion in sincebeenreducedmodestly,toUSn$16.99H.6biillonwiever, 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 billio6.99de1bitnnftihshiWwaselsmoe contractedoncommercialterms,especiallyinthelate197-r0esl,atmedo.stAosfai-itlnocwwoasmeaid country Kenya qualified for conversion of a substantial part of bilateral aid to a grant basis, w inthe1980sasomnedvobaitn1en698Be.weetblitarenad9129salsopaldonorddeviroorfbtdeig of prior ODA debt of US$700 million. The major sources of ODA debt relief were the US (US$11 whileanadditionalUS$38.7millionwasrevokedihnec1o9n9n1ecatithitwzeerfdmreG,)e(DMany600no million), Canada (US$ 90 million), Netherlands and the UK. The Japanese government has no debt forgiveness, but has offset debt repayments with supplemental grant aid. Untilthedecadeofthe1990snthGeovKernahdnetsyslaawyamfos’yrtelaicifdcevieruncoethtxren debts, including those on commercial terms. The country had avoided arrears and had never b seekdebtrelieffromtheParisClub,LondonClub,orfromindievri,duasaltchrecetidoHo.vwemonefsryll 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 thegovernmentbegantuolaatcecaurrmearsonofficialdebt,bothtoODAdonorsandtoParisandLon Club creditors. Bym-i1d993arrearsonexternaldebtpeakedatapproximatelyUS$750million,closeto15 outstandingstockofofficialdebt.Howe-ver,sliabtswtihafontmerpmrofergnortsedthmanograeerht 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 favouraeblrefinancing(ofarrearsonly)ov-eyreanrremilarlyfavourabnetepirdo.Aismyapthgiel refinancing of arrears was subsequently negotiated with the London Club. 6