State firms ordered to give up idle cash held in banks
The Treasury said State corporations and agencies were holding huge sums of surplus cash in short-term bank deposits even as they continued to receive regular budgetary allocations. PHOTO | FILE
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The new order obligates government ministries, and State agencies and corporations to ensure that all their cash-flow requirements are handled through a single account hosted by the Central Bank.
The order is aimed at reducing borrowing costs for government but it could present some banks with liquidity challenges.
The Kenya Bankers Association on Monday sought to play down the impact of the Treasury’s order on the banks’ liquidity, noting that the money “will remain in circulation”.
The National Treasury has ordered all State corporations and agencies to surrender billions of shillings held in commercial banks as surplus cash to the Central Bank of Kenya (CBK) in a move that is likely to present some banks with liquidity challenges.
The new order — part of measures to help curb unnecessary borrowing — obligates government ministries, and State agencies and corporations to ensure that all their cash-flow requirements are handled through a single account hosted by the CBK.
“The idea is to improve cash management so that we don’t have a scenario where we have to look for funds to support projects by one entity when another sits on a lot of idle cash in a bank account elsewhere,” Treasury secretary Henry Rotich told Business Daily.
But the bankers’ lobby on Monday sought to play down the impact of the Treasury’s order on the banks’ liquidity, noting that the money “will remain in circulation”.
“We don’t expect any effects on the overall liquidity in the banking sector because the money will remain in circulation. The only changes could be in terms of the amount of money held by individual players in the banking industry as the government moves its cash around,” Habil Olaka, CEO of the Kenya Bankers Association (KBA), said.
The Treasury said State corporations and agencies were holding huge sums of surplus cash in short-term bank deposits or funds invested in Treasury bills and bonds even as they continued to receive regular budgetary allocations.
This has resulted in the national government incurring huge borrowing costs as a result of failure to synchronise cash-flow requirements to ensure smooth budget execution.
“We want a situation where we are able to track the cash requirement and utilisation by every agency so that we could plan better with what we have,” Mr Rotich said.
The country has a large number of State corporations and funds whose core functions revolve around correction of markets, exploitation of social and political objectives, promotion and provision of education and health services and redistribution of income or develop marginal areas.
The new measures will require State agencies and corporations to provide the details of all bank accounts opened and operated for their day-to-day operations, short-term investments of surplus funds in fixed-deposits and on-call deposits or treasury bonds and bills.
“Please note that in accordance with Public Finance Management Act, 2012, no State Corporation should open and operate bank accounts without prior approval of the National Treasury,” Mr Rotich said in the directive.
The public institutions will also be required to prepare and submit their cash flow and projections on a quarterly basis which shall be strictly derived from approved annual estimates of revenue and expenditure as well as work plans.
Further, they will be required to submit a schedule of investments of surplus funds held in various financial institutions and banks or in treasury bonds and bills on a quarterly basis.
“No State corporation should invest surplus funds in any financial institutions or bank without prior approval of the National Treasury,” the Treasury said.
The government is currently battling with the challenge of curbing borrowing from the domestic market to finance key projects around the country.
Heavy domestic borrowing by the government has been partly blamed for high interest rates as banks factor expensive deposit costs while pricing their lending rates.
Although Mr Rotich did not provide the amount of surplus cash expected from State corporations and agencies, recent data by the Treasury indicate it would be in billions.
Commercial State firms made Sh29.28 billion in net profits in the 2012/13 financial year, setting a new record from which the Treasury earned more than Sh16 billion in dividends.
Non-commercial parastatals posted Sh46.87 billion in surpluses in the year to June 2013, including unspent balances carried forward from the previous financial year (2011/12), the Treasury said in a recent report to the National Assembly.
Last week, the Treasury said it was planning to borrow in the domestic market to plug an expected revenue shortfall of Sh17.8 billion in the current financial year after the Kenya Revenue Authority (KRA) missed its tax collection targets in the six months to December due to slowed economic growth.
Kenya’s economic growth slowed to 5.5 per cent in the three months to September from 5.8 per cent in the previous quarter due to a sharp drop in tourism following terrorism attacks in the country, but benefited from robust construction and agriculture sectors.
Tourism contracted by 14.6 per cent, affected by a string of terror attacks in Lamu, Mombasa and northern Kenya.
The Treasury says tax collection stood at Sh453.68 billion in the period under review, which is Sh23.5 billion short of the half-year target of Sh477.1 billion.
It is projecting a full-year revenue shortfall of Sh17.8 billion as it faces additional expenditures amounting to Sh61.7 billion, noted a budget policy document released Wednesday.
“The impact (revenue shortfall) is additional domestic borrowing of Sh46 billion,” said the policy document.
Mr Rotich, however, said the government had cut its overall domestic borrowing target this fiscal year by close to a quarter to Sh144.8 billion, adding that projected revenue shortfalls and higher expenditure prevented a larger cut.
The Treasury had set a local borrowing target of Sh190.8 billion in the budget last June but the revised budget policy statement issued last Wednesday indicated the State would borrow a lower amount.
President Uhuru Kenyatta in August last year said the government planned to cut domestic borrowing by nearly 50 per cent this financial year to allow lower interest rates that would boost the private sector.
He said the State will be looking to raise more money on the international markets with sukuk and samurai bonds — Islamic and Yen-denominated sovereign debt instruments respectively.
“The extra supply of cash will, therefore, hopefully help to bring down bank lending rates to the productive sectors of the economy,” the President said in a dispatch.
The country has recently been active in the international markets, raising funds to finance key projects. The Treasury late last year reopened the Eurobond, increasing the total proceeds to Sh248 billion ($2.75 billion).
The bond had initially raised Sh180 billion. Parliament in November approved the Treasury’s request for a doubling of international debt ceiling to Sh1.2 trillion.
Besides declaring surplus cash, Treasury said State corporations and agencies will be required to service debts and statutory obligations.
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