Kenya’s reputation as East Africa’s economic powerhouse is coming under increasing pressure, reports East Africa Politics & Security, with mounting allegations of mismanagement of last year’s highly successful Eurobond.

Rising interest rates and a government cash crunch have led to questions about the use of the proceeds from last year’s Eurobond. The government had sought US$1.5 billion but raised US$2.75 billion in a greatly oversubscribed launch with funds billed as being directed towards infrastructure development and a promise that a reduction in government local borrowing would lead to a reduction in interest rates.

Over a year later, interest rates are their highest in recent years at 11.5% for the Central Bank of Kenya’s benchmark rate. The falling Kenyan Shilling has dropped 11.29% against the dollar in the past year, which when combined with revenue being lower than expected, has led to a cash crunch. Government has had to use some of the funds raised to cover day to day expenditure.

More worryingly, the country’s government is under pressure to explain exactly how the Eurobond is being managed, and where the funds have actually been banked. This became an issue when it came to light that the proceeds were lodged in an offshore account rather than the central government’s Consolidated Fund. Investigative reporters have been unable to establish the identities of the signatories to this account. The auditor general, Edward Ouko, has expressed concern about its management.

Following his report on government accounts for 2013-14 and investigations by the Public Accounts Committee, it has become clear that the proceeds of the Eurobond were banked overseas, though it is not known exactly where, or who the account signatories were. The purpose, according to the Treasury’s Principal Secretary, was to avoid extra costs in using some of the proceeds to pay off a consolidated loan of over US$600 million. According to Ouko, this breached both Public Finance Management Act 2012 as well as the constitution.