Photo/FILE Treasury Building: Details of the huge burden were first revealed during a session between Treasury officials and the Budget Committee of Parliament.
By ALPHONCE SHIUNDU ashiundu@ke.nationmedia.com
Posted Sunday, July 31 2011 at 22:30
Posted Sunday, July 31 2011 at 22:30
The Treasury is secretly paying a debt of more than Sh32 billion, described as ‘dirty money’, to the Central Bank of Kenya.
It has merged that the taxpayer is servicing the massive loan incurred more than 20 years ago when the Kanu government raided the Central Bank of Kenya to print excess currency.
Details of the huge burden were first revealed during a session between Treasury officials and the Budget Committee of Parliament.
The debt is about four times the annual Budget of the National Assembly. It is to be serviced until the year 2039, subjecting future generations to debts they knew nothing about.
This year, the Treasury has earmarked Sh1.11 billion towards the repayment of the debt.
The Controller and Auditor General, Mr Anthony Gatumbu, first raised the red flag in his report, saying Treasury had not made a full disclosure on the matter.
“Although the government continues to make repayments against the loan, a detailed analysis of the advances has not been provided for audit verification, rendering it difficult to ascertain the authenticity of the loan balance of Sh32 billion,” reads the report in part.
Minutes of the Budget Committee meetings with Finance Minister Uhuru Kenyatta and permanent secretary Joseph Kinyua revealed that the debt was “incurred in an irregular manner” in the years before 1997.
Overdrafts of ministries
The minutes say it arose from overdrafts of ministries in the early 1990s following a “weak fiscal framework that led to excessive borrowing by the government from the CBK through the overdraft facility”.
Ministries, it seems, were allowed to get money from Central Bank and then have the ‘advances’ regularised through the Supplementary Budget, presented to Parliament every March.
The debt had accumulated to Sh36.97 billion by the end of 1996, but fell to Sh35.6 billion in 1997 after being ‘rationalised’.
It was converted into a long-term loan to be repaid in 30 years in July 2007.
Mr Kinyua said he was behind the conversion of the debt into a long-term-debt, adding, there was need for Government to pay that debt.
Even as MPs pushed for modalities to have the debt written off, Mr Kinyua held his ground.
“It is money that can be dangerous (if released into the economy at once). It can lead to serious inflation,” he said.
He insisted that the money has to be paid in bits over a long period, because, if it is paid back at once, the sky-rocketing inflation will spiral out of control.
“This is money that was lent to the Kenya Government. The only distinction that we needed to draw is that it is not the kind of money that we consider to be real money; it is fiat money, because it is not backed by goods and services,” Mr Kinyua told Parliament’s Budget Committee when it first raised queries early last month.
But questions still linger as to why then the government is paying what is not a real debt; and why the Central Bank is charging interest on that debt.
“We’re removing what may seem to be dirty money, it is very inflationary; and as much as possible we should try to get it out of the system,” he told MPs.
“But if you do it abruptly, say in one lump chunk it will be quite costly to the government, because it will deny the government in terms of other things it needs to do and hence the reason why it has to be spread over a long period,” Mr Kinyua said.
He dismissed the queries about the payment of interest on the money.
“Even though we’re saying this is not real money, there was still a small cost at the Central Bank in printing that money, and we’re trying to recover a small part of that cost (by charging interest),” he concluded.
Parliament still has a window to stop the payment if the MPs push for amendments to the yet-to-be published Appropriations Bill, and knock off the Sh1.11 billion earmarked in the current fiscal year for the repayment of the debt.
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