Bank of Tanzania’s 2008 External Payment Arrears Scandal

In 2008, the president of Tanzania, Jakaya Kikwete, announced that Doctor Daudi T.S. Ballali would be removed from his post as governor of the Bank of Tanzania after an international audit uncovered a series of illegal payments from the central bank to various local businesses, with the sum of these improper payments amounting to $120 million, according to the BBC. When Kikwete, member of the Chama Cha Mapinduzi party – which translates to Party of the Revolution in English – became the president in 2005, he publically embarked on a fight against corruption in Tanzania, making an example of former governor Dr Ballali when the Bank of Tanzania’s External Payments Arrears scandal came to light.

Rumours of the scandal brewing

In 2007, many very serious allegations were raised concerning the Bank of Tanzania and its governor Doctor Daudi T.S. Ballali, some of which made claims that illegal payments from $200 million to as much as $800 million from the central bank’s commercial external debt account had been made during Ballali’s term. The account originally acted as an exchange vessel and was established to allow local importers to pay in with Tanzanian shillings and then for foreign companies to subsequently be paid by the central bank in the form of a foreign currency. Once the commercial external debt account was brought into use, special measures were introduced to allow foreign creditors to assign payments to the local companies. Tanzanian Affairs reported that despite the governor virulently denying any involvement with the alleged payments and further dismissing the claims as nothing but rumours, minister of finance Mrs Zakia Maghji saw it as necessary to investigate. To discover the truth behind the allegations, Mrs Maghji sought an international and independent auditor to review the Bank of Tanzania’s transactions. It took the minister five months to identify an audit company qualified of taking on a comprehensive audit of the bank, eventually turning to Ernst & Young.

Ernst & Young uncover the major scandal

Towards the end of 2007, Ernst & Young completed their audit of the Bank of Tanzania and prepared their findings, but prior to the controller and auditor general presenting the results to president Jakaya Kikwete, many unconfirmed revelations started to circulate in the press concerning the whereabouts of Dr Ballali. But on the 7th of January, 2008, the president announced that the governor of the Bank of Tanzania had been sacked, revealing that the Dr Ballali was at fault for the central bank making illegal and undocumented payments to businesses, some of which were fictitious. In the president’s announcement, he also called upon the police, PCCB, and attorney general to take appropriate action against everyone found to be at fault in the scandal.

Writing on African Affairs, as published by Oxford University Press on behalf of the Royal African Society, Hazel S. Gray reported that Ernst & Young identified $131 million in improper payments to 22 local businesses. The auditors found Dr Ballali to be directly implicated in the payments as the authority who authorised the process. But it was also found that the Bank of Tanzania, under the rule of governor Dr Ballali, wasn’t the only bank to be part of the scandal, with a total of five major banks identified as colluding in the laundering of the money. Along with a couple of businesses found to be nonexistent, it was also found that many of the firms that had received some of the illegal payments belonged to people linked to the Chama Cha Mapinduzi party – of which the president was a part of – many of whom were prominent businesspeople. At the time of the audit being completed, finance minister Mrs Zakia Meghji stated that the accumulation of debts dated back over 27 years, per TZ Affairs. She also noted that auditors had difficulty identifying nine of the companies who had been taking payments as there weren’t any authenticating documents and that two were not on the Registrar of Companies.

In the revelations that followed, the president demanded that all of the stolen funds were to be repaid, with the ultimatum reportedly seeing dividends. Later in 2008, media outlets reported that the majority of the stolen money had been repaid, but names of the offending businesses were not disclosed. Despite many businesspeople being dealt prison sentences, the government was perceived by some to have been protecting those with links to the Chama Cha Mapinduzi; this was of a particular focus when examining Kagoda Agriculture Limited, which was a major recipient of corrupt disbursements from External Payments Arrears and was alleged to be associated with a senior member of the political party. During the trials, it was discovered that in spite of the claims that much of the laundered money had been returned, a large proportion of the funds that were taken as External Payments Arrears had been moved away from Tanzania and was being held in foreign bank accounts.

The disappearance of Dr Ballali

A mysterious series of events followed the president, Jakaya Kikwete, sacking Doctor Daudi T.S. Ballali in January 2018. At the time of the announcement, Dr Ballali was nowhere to be found, having reportedly left for the United States of America upon getting wind of the audit’s results. It was then revealed that Dr Ballali had indeed moved to the USA, but to receive treatment for his illness. In May 2018, the Bank of Tanzania announced that its former governor had succumbed to his illness and passed away in Washington, USA. Following this, a group of people raided Dr Billali’s farms on the outskirts of Dar es Salaam, stating that they could claim the plots for themselves as they had been paid for with funds stolen from Tanzania’s central bank.

Despite the announcement of his death, many seeking justice to be brought upon the disgraced former chairman of the Bank of Tanzania sought evidence that Dr Ballali had indeed passed away. Many news reports fuelled the general belief amongst the public that not enough evidence had been given to prove that his death occurred, and in 2011, as reported by the Digital Journal, Masoud Abdallah Salim addressed parliament asking the Ministry of Finance to clarify that Dr Ballali was deceased with tangible proof. In response, the deputy minister of finance, George Teu, stated that they received a report from the Tanzanian embassy in Washington that informed them of his death, and then promptly left the podium.

The rise of Professor Benno Ndulu

Following the sacking of Doctor Daudi T.S. Ballali, the highly respected Professor Benno Ndulu was appointed as the governor of the Bank of Tanzania on the 8th of January, 2008. Prof. Ndulu’s work with the government in the past had led to economic reforms through the 1980s, and his assistance to president Benjamin Mkapa’s reform programme resulted in over a decade of sustained economic growth in Tanzania, so he was a natural choice for the now-tainted role.

As governor, Prof. Ndulu set about establishing policies which would lead to macroeconomic stabilisation, support economic growth, and reduce the rate of annual inflation, as shown by Reuters. He also brought into action policies which he had long-lectured classes on and continues to stand by, which is expanding financial inclusion and utilising the growth of mobile financial services. At the helm of the Bank of Tanzania, he championed a grand era of Tanzanian economy and rectified the central bank’s image in the eyes of the public, allowing the people of Tanzania to trust their chief financial authority once again.

Professor Benno Ndulu led the Bank of Tanzania out of the dark times that had evolved from the External Payments Arrears scandal, which was spearheaded by his predecessor, and into an era of trust and success in Tanzania. Prof. Ndulu’s tenure came to an end at the start of 2018, having fulfilled the maximum of two five-year terms, with Professor Florens Luoga now sitting as the central bank’s governor.

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