The Office of the Auditor General has opened a can of worms on possible diversion of loans and plunder of funds disbursed to Kenya for development over the past 10 years.
A Special Audit by Auditor General Nancy Gathungu, on loans Kenya took between 2010 & 2021 shows that the country received Sh1.13 trillion in the consolidated funds accounts however, the accountability of the funds is in question.
The revelations come at a time that President William Ruto has already gazetted the Presidential Taskforce on Forensic Audit of Public Debt to conduct a fresh analysis of the Kenyas obligations.
The special audit shows that Although proceeds from 13 syndicated loans & sovereign bonds totaling Sh1.13trillion had been received in the Consolidated Fund, there was no evidence that funding had been applied exclusively to finance development expenditure.
“Although proceeds from syndicated loans and sovereign borrowings were being deposited into the Consolidated Fund in accordance with the provisions of Section 50 of the Public Finance Management Act, 2012, there is no proper accountability on the extent of application of the loans to development expenditure,” said Gathungu in the report.
In one instance, the OAG was raised issue with the that drawdowns for three loans from BELFIUS Bank and Unicredit totaling €29,510,462 (Sh4.1billion) that were missing.
Loans with no drawdown typically refer to loan agreements where the borrower has not yet accessed or withdrawn any of the funds available under the loan.
The audit examined how 39 commercial loans valued Sh1.36 trillion during the time were used, and whether they were borrowed legally.
The top lenders in the review period included the Eastern and Southern Trade and Development Bank and Standard Bank of South Africa Ltd Isle of Man Branch (Sh142.3 billion), and CGMG (Sh107.8 billion).
And others were the China Development Bank that issued Sh60.5 billion and the Eastern and Southern Trade and Development Bank with Sh51.6 billion,
“Once the loan proceeds have been received in the Consolidated Fund, the monies are utilised for normal Government expenditure that are falling due at the time of receipt of the said funds. No schedule is maintained on the expending of the loan proceeds,” said Gathungu.
Euros dominated Kenyas borrowing in the commercial market in the period.
The records show that Treasury borrowed 16 dollar-denominated loans valued at Sh1 trillion at the then-prevailing exchange rates, 22 euro-denominated loans valued at Sh288 billion, and a South Korean Won-denominated loan valued at Sh102 million, all from commercial markets.
To further rub salt in the wound of Kenyans the AG has revealed that the National Treasury does not carry out periodic reconciliations of the its records against those of the creditors.
Further Gathungu, said that the due borrowing process is not always being adhered consistently. For instance, some loans were being contracted before the legal opinion of the Attorney General was rendered.
The special audit established that 26 loans were contracted before the respective legal opinions of the AG were received.
Of these loans, legal opinions for 25 loans were signed later while the remaining loan was outstanding as at the time of the audit.
In absence of the legal opinion ahead of contracting of the loans, the country is at risk of entering into agreements whose terms may be unfavourable,
“The special audit circularized the creditors for the 36 of the 39 loans to obtain an independent confirmation of the outstanding balances, principal, interest and any other charges paid as at 31 December 2021.”
“Responses were received from 21 creditors of the 36 circularized. There were unexplained discrepancies between the loan balances as per the National Treasury records and the individual creditor confined balances as at 31 December 2021,” said Gathungu.
Going forward the Auditor is recommending that the National Treasury to carry out periodic reconciliations of the loan balances in the system with those of the creditors, with a view of tracing and fully reconciling any differences.
Further it should also establish an accountability framework for borrowed funds that specifically identifies the projects or programmes the loans are applied to.