The European Commission has deferred a decision on Kenya's request for €125 million (about US $153 million) in budgetary support to allow for further discussions on the issue of governance, amid concerns that high-level corruption had not yet been properly addressed.
"It is true that further consideration of the proposed EC Budget Support programme has been deferred until September/October, pending discussions between the government and the EU on the governance situation and on the ongoing financial management reforms agreed under the programme," the EC delegation in Kenya said in a statement.
Kenya asked for the funds in a bid to bridge a deficit in its 2004/2005 budget, of which US $633 million, or 11.5 percent of the total spending, is expected to come from aid donors.
Britain's high commissioner to Kenya, Edward Clay, sparked a row last week when he unleashed a scathing attack on alleged high-level corruption, saying the country risked losing donor support because of what he claimed was a "looting spree" by government officials.
Kenya's foreign ministry urged Clay to substantiate his claims, even as the British envoy's comments were widely supported by ordinary people, religious leaders and politicians.
The EC statement said that disbursement of the budgetary support programme would depend on "Kenya remaining on track with the IMF, progress on ongoing financial management reforms, as well as progress against targets in the Economic Recovery Strategy in the areas of health and education."
It emphasised, however, that "all programmes financed by the EU are continuing as normal". "It should also be noted that the EU member states last week endorsed a proposal for a new programme in Kenya: the Rural Poverty Reduction and Local Government Support programme for €21 million," it added.
Last month, aid donors expressed concern over alleged malpractices in the award of government contracts, and warned that Kenya risked losing donor support unless authorities intensified the fight against corruption.
"This is a key moment in Kenya's fight against corruption. What is required is intensification of effort and purposeful commitment," said a joint statement issued on 7 June by the embassies of Britain, Canada, Germany, Japan, Norway, Sweden, Switzerland and the United States. The embassies were reacting to reports in the media during the past couple of months that there had been apparent impropriety in the awarding of some contracts to firms to build a forensic laboratory for the police and to print passports that could not be easily forged.
The government later cancelled the contracts awarded to a company of dubious antecedents, known as Anglo Leasing and Finance. Down payments to the company were refunded, and three senior civil servants were sacked for their role in the alleged scandal, which is still under investigation.
But there have been calls by politicians both in government and the opposition that cabinet ministers in charge of departments mentioned in the scam should resign or be sacked.
"Development partners cannot be expected to put their taxpayers' funds at the service of Kenya if Kenya's own treasury and public resources are being tapped for private gain," the embassies' statement added.
President Mwai Kibaki's government came to power at the beginning of 2003, pledging to root out corruption perceived to be endemic in the previous administration of former President Daniel arap Moi.
After cutting off aid or reducing disbursements to Kenya in the 1990s because of corruption, the country's development partners pledged to resume lending last year, saying that the new government had shown commitment to fiscal probity.