Andrew England
Financial Times (U.K.)
July 23, 2004

Eighteen months after sweeping to power on a wave of optimism and pledges of reform, the Kenyan government is lurching towards a deepening crisis amid allegations of high-level corruption and donor threats to hold back aid.

Unless the government demonstrates it is serious about fighting graft, donors are unlikely to provide crucial support needed to plug a 36 billion shilling hole ($455.7 million, €372 million, £248 million) in the administration’s recurrent budget for 2004/5, diplomats said. And if the donors fail to fill the gap – about 10 per cent of the recurrent budget – a three-year $252 million International Monetary Fund loan agreement could be jeopardised.

The IMF resumed lending to Kenya last November, after it had been suspended at various points during the 1990s because of systemic corruption under former president Daniel arap Moi.

An IMF team will visit Kenya in August to review the situation before the programme’s second six-monthly instalment of $36 million can be approved. But if the government fails to move forward with its reform agenda, close the budget gap and convince the IMF mission that it is regaining donor support, payment could be delayed, said Jurgen Reitmaier, the IMF’s representative.

“We are concerned about the corruption situation,” Mr Reitmaier told the Financial Times. “We do not want to be associated with a programme subject to poor governance and we need to watch what donors do with their budgetary support because the government needs financing for its programme.”

Last week, the European Union deferred a decision to endorse a three-year €125 million ($153 million, £83 million) budgetary support package because of concerns about corruption.

The US, Kenya’s biggest bilateral donor, is also considering whether to provide money from its Millennium Challenge Account programme. “Like other donors, the US is concerned about corruption and is looking at its aid programme in that context,” a US official said.

The crisis is a far cry from the euphoria that welcomed President Mwai Kibaki into office in a historic election victory in December 2002, ending the turbulent 39-year rule of Mr Moi’s Kenya African National Union party.

Mr Kibaki promised to exercise zero tolerance of corruption and to revitalise eastern Africa’s largest economy. But his shaky coalition has since been marred by disputes. Chief among the donors’ concerns are two flawed deals involving the government and a company called Anglo Leasing and Finance.

The projects, worth 7 billion shillings, were supposed to be for police forensic laboratories and a new passport system. The government paid Anglo Leasing $5.8 million (£4.7m, £3.1 million), but no due diligence was carried out on the company. It was later revealed that the company did not exist at the addresses it gave. The projects have been halted and the money recovered. Four civil servants were suspended in May. But donors are far from satisfied. They want Mr Kibaki to prove his commitment to strike at a higher level, suspecting the graft involves government members.

“Clearly somebody is trying to rip off the public purse for a high amount and to say it has been refunded is pathetic – what kind of message does that send?” said one diplomat.

Last week, Edward Clay, Britain’s high commissioner, said the government had entered into corrupt deals worth 15 billion shillings since taking office, adding that corrupt projects carried over from the previous administration were worth 80 billion shillings.

There are thought to be about a dozen suspect deals. John Githongo, Kenya’s top anti-corruption official, said a “number of inquiries into potentially questionable transactions” were under way. He insisted that Mr Kibaki was committed to defeating corruption.