Treasury secretary Henry Rotich on Thursday denied that the country’s debt levels had become unbearable and the State was facing a liquidity crisis.
He said that this year's difficulties have been exacerbated by the tightening of monetary policy, which resulted in interest rates that were were higher than Treasury bills and bonds rates.
The minister said the overall economic performance remains resilient despite the recent shocks including the continued global market volatility that has seen the shilling weaken against the dollar.
Treasury secretary Henry Rotich on Thursday told Parliament that he expects the current cash crisis in government to be over in the coming months as special measures, including the hiring of consultants to boost tax collection, come into force.
Mr Rotich said the government was also evaluating its expenditure in the current financial year to weed out non-critical spending to ease pressure on the Exchequer.
The minister said a recent tightening of monetary policy, appreciation of the US dollar against the shilling and depressed tourism earnings are to blame for the difficulties the government is facing financing its programmes even as he denied that the country’s debt levels had become unbearable and the State was facing a liquidity crisis.
“There is no liquidity crisis as the mismatch between available resources and the demand for the same resources is something that occurs throughout the year,” he said, adding that this year’s difficulties have been exacerbated by the tightening of monetary policy, which resulted in interest rates that were were higher than Treasury bills and bonds rates.
Yields on Treasury bills have jumped to more than 20 per cent in recent weeks after the central bank embarked on a tightening cycle in June following extreme volatility in the exchange rate.
“This meant that we were not able to fully meet our borrowing requirements. However, the financial situation has turned around in the last two weeks and we are now able to execute our borrowing plans.”
The minister said that the government intended to borrow more money from external markets as the borrowing rates on domestic debt market have been too high this year.
Mr Rotich told Parliament that recent developments in the macro-economic environment had forced the government to revise its 2015 growth forecast to six per cent from 6.5 per cent.
Treasury principal secretary Kamau Thugge told parliament’s Budget Committee that the two-year $750 million (Sh77.2 billion) syndicated loan that the Treasury recently took was priced at below six per cent making it favourable to the tax payers.
Dr Thugge said the loan was part of efforts to reduce local borrowing and curb surging interest rates.
Mr Rotich said that since revenue is collected on a daily basis, there is never a time it can be sufficient to meet existing demand for resources making it critical to prioritise.
The mismatch, he said, frequently occurs during the first quarter of the year due to a tendency for revenue shortfall in the first few months of the year and large commitments by the ministries and agencies of government at the end of the previous financial year that become immediately payable .
The minister said the overall economic performance remains resilient despite the recent shocks including the continued global market volatility that has seen the shilling weaken against the dollar, the slowdown in growth in emerging markets such as China and the continued lacklustre performance in the Eurozone.
“Lower commodity prices and depressed tourism sector due to security related concerns contributed to reduced capital inflows, lower export earnings and widening of current account which, together with the strong US dollar, resulted in upward pressure on the exchange rate,” the minister said.
Mr Rotich was in parliament to explain the prevailing economic situation that has seen ministries and critical institutions like Parliament face a cash crunch.
The minister said that out of the resources raised, the first priority goes to meet obligations under the Consolidated Fund Services, salaries and other recurrent and development expenditures.
Mr Rotich said a raft of administrative measures had been taken to in order to catch up on the revenue shortfall experienced during the first quarter. “The measures are expected to yield an additional revenue amounting to Sh12 billion” he said.
One of the measures is the reorganisation of the Kenya Revenue Authority’s debt management process and implementation of an account management and debt enforcement.
In real estate the KRA is expected to scale up the number of landlords who pay tax from the current 20,000 to 150,000 potential landlords the authority has identified.
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