Banking


BOT Bank of Tanzania

In the last few weeks, the Tanzanian government has come under intense pressure from the public, activists and the media to explain why it was quietly recovering money that was misappropriated under the External Payment Arrears (EPA) account operated by Bank of Tanzania (BOT), the country’s central bank (pictured left).

The public demands the release of names of people involved in the scandal and their immediate prosecution. The EPA scandal consists of fraudulent payment of about TSh133 billion ($116 million) made by the Bank of Tanzania to 22 companies in the financial year 2005/06 involving the repayment of the country’s external debt.

As of last week, according to a government pronouncement, nearly half of the money (Tsh 60 billion) had “mysteriously” found its way back into State coffers. The Attorney General and the Inspector General of Police have refused to disclose the names at this stage, pleading for patience because the investigation is still going on.

Speculation has been rife as to why the government would rather recover the loot than prosecute. While others believe the government may be shielding the culprits, the most plausible reason seem to be that the government has figured out that it has a weak case against the culprits in a court of law. It may well be that the EPA contracts the government signed are so weak and with little teeth to enable the prosecution of abusers of the debt servicing vehicle. The worst case scenario will be that the contracts were intentionally weakened by its framers, while eluding the watchful eye of IMF. Therefore, this may yet be another scandal (similar to the mining contracts that later had to be renegotiated), that will expose weaknesses in contract negotiation and contract drafting skills by the country’s State attorneys, and possible corrupt elements within the government who are short-changing public interests.

The scandal has already claimed the Governor of BOT as its first casualty. Daudi Balali was fired by President Kikwete back in January after he was implicated in the investigative reports carried out by Government’s Controller and Auditor General (CAG) and the accounting and audit firm, Ernest & Young. The President has been on an anti-corruption crusade lately. He dissolved his government last month after another multimillion dollar scandal blew up over emergency electricity power supply contract, engulfing his Prime Minister and two cabinet ministers who were subsequently forced to resign.

What are your thoughts? Do you trust the government when it says it is doing the right thing to recover the swindled money and deal with prosecutions down the road?

Bank of Tanzania

 Bank of Tanzania “Twin Towers” in Dar es Salaam.

President Jakaya Kikwete yesterday fired the Governor of Bank of Tanzania (BOT), Daudi Balali, after an audit investigation uncovered fraudulent transactions involving the repayment of the country’s external debt.

A press release from Ikulu (State House) stated that “the president has been deeply angered and disappointed with what has happened” at the central bank, and acted to “revoke” Balali’s appointment after he received a damning audit report prepared by the global accounting firm, Ernest and Young, that revealed more than $116 million had been improperly paid to 22 firms through BOT’s external payment arrears account (EPA) in one financial year alone.

The EPA account was originally set-up the Government to help service balance of payment, whereby local importers would pay into the account in local currency and foreign service providers would then be paid back by BOT in foreign currency. However, due to poor foreign currency availability in 1980s and 1990s,  the debt within the account ballooned to $677 million by year 1999. Efforts under Debt Buyback Scheme and cancellations negotiated under Paris Club helped to reduce the debt level to $233 million in 2004.

Despite these efforts, unscrupulous officials and businesses were able to take advantage of one of the plans devised to reduce the account debt, whereby a creditor could endorse debt repayment to a third party. The audit report, sanctioned by the Government’s Controller and Auditor General (CAG) covering Bank of Tanzania’s 2005/2006 financial books, revealed that 13 companies used falsified records and claimed third party status and received BOT payments, while 9 companies couldn’t substantiate payments they received. Among these, 2 companies were not even registered by BRELA – Business Registrations and Licencing Agency. These companies are owned and operated by some of the most prominent business people in Tanzania.

Daudi Balali has been Governor since 1998. The President replaced Balali with one of his two deputies, Prof. Beno Ndulu, who before joining BOT was a senior official at World Bank offices in Tanzania and lectured at the University of Dar es Salaam. Recent media reports claimed that Balali, (who has been out of the country for a couple of months now since the investigation started — reportedly in Boston, USA for medical reasons), had written a letter of resignation, but no one in the Government was ready to confirm receipt of the letter, even after some newspapers published its entire contents.

In his most brutal crackdown on corruption ever since he came to office in 2005, President Kikwete also directed the Attorney General, the Inspector General of Police and the Director of anti-corruption bureau to take appropriate legal steps to bring to justice all the individuals and companies implicated in the EPA scandal. He also directed the Board of Directors of the central bank to study the report and take appropriate reprimand actions to all Bank officials involved in the scandal.

The scandal started after Controller and Auditor General (CAG) finished its annual auditing of BOT books in August of 2005. Following a public outcry that was echoed by the Bunge (National Parliament) and the IMF over the findings, the President and CAG ordered an external investigation conducted by Ernest and Young from September to December of last year.  The public had been eagerly waiting for the contents of the audit report to be made public. It is still unclear if there will be investigations of BOT accounts in years prior to 2005/2006. Concurrently, Bank of Tanzania has been dogged by another investigation over the inflated cost of constructing the Bank’s headquarters, the Dar es Salaam’s 20 storey Twin Towers pictured above, which cost $25.48 million according to Group Five construction company).

What are your thoughts on this scandal and the way President Kikwete has reacted to the report? What do you think should be Balali’s fate? Should he be arrested and put to jail? Who else would you like to see taken to task? Please leave your comments.