Parastatals increased lending to the Treasury by nearly three-quarters last year, signalling easing cash flow challenges on recovery from the pandemic which had hit their revenues hardest after an aggressive mop-up of excess money in their accounts by the Treasury.
The cash-rich state-owned entities invested Sh46.49 billion in government securities, a 72.58 percent jump compared with Sh26.94 billion in 2021, data from the Central Bank of Kenya show.
Increased investments in Treasury bonds and bills — the instruments the CBK as the government’s fiscal agent uses to borrow cash to fill gaps in the budget — saw the parastatals race ahead of rich families and businesses in lending to the state.
For two years through 2020, the parastatals had been toppled by ‘other’ investors, who are largely wealthy households and cash-rich businesses, as the fourth largest holder of government domestic debt behind commercial banks, insurers and pensioners.
At the height of the pandemic poundings in 2020, parastatal investment in government debt hit a low of Sh1.97 billion in net terms, the CBK data shows.
The lowly asset allocation in the pandemic year came on the back of aggressive mopping up of surplus cash from the parastatals by the Treasury from the financial year ended June 2019.
The pursuit of cash in parastatals followed miscellaneous amendments to the Kenya Revenue Authority (KRA) Act and Public Finance Management Regulations, through the Finance Act 2018, which empowered the taxman to collect 90 percent of surplus funds in regulatory agencies.
The state entities, however, remain amongst the top buyers of government securities with papers worth Sh271.22 billion at the end of last year, meaning the Treasury borrows public money and pays interest on it.
Investment in government securities gave investors the highest returns out of the main asset classes last year, with bonds offering yields of between 11.76 percent (for the three-year bonds) and 14.2 percent (for 25-year paper).
Returns on benchmark three-month Treasury bills averaged 8.17 percent from 6.95 percent in 2021, while those on one-year securities averaged 9.88 percent compared with 8.52 percent last year.
“Investors in bond markets enjoyed higher yields even as longer-term papers surpassed the 14 percent mark, with medium-term papers pacing through the 13 percent mark,” said Wesley Manambo, a research analyst at Nairobi-based Genghis Capital. “That said, the bond market was not spared from value erosion from a market-to-market perspective as the rising yield curve continued to rise.”
The parastatals posted the fastest growth in lending to the government in 2022 in a year when banks and ‘other investors’ more than halved their cash allocation in search of higher returns.
This was on the back of some parastatals posting improved revenues on the back of a turnaround in business following a recovery in economic activity after authorities eased travel and trade curbs to control the spread of Covid.
For example, Kenya Wildlife Services did spend the Sh2 billion state bailout it had been allocated last financial year ended June, while Kenya Airports Authority did not withdraw Sh1 billion support from the exchequer in the review period.
The two state-owned firms were amongst the hardest hit enterprises after Covid restrictions nearly wiped out their revenue sources, prompting them to rely on taxpayers to fund some of their operations and expenses.
The cash flow pressures, however, eased last fiscal year with Treasury data showing supplemental expenditure for state corporations amounted to Sh17.5 billion, almost half of Sh32.3 billion support that had been budgeted.
The increased buying of government papers came at a time the Treasury’s non-tax revenue, which had peaked at the height of surplus cash mop-ups, dropped.
Latest Treasury data for the first six months of the current fiscal year through last December shows non-tax revenue stood at Sh34.66 billion, nearly half Sh78.54 billion in the same period in 2019 when the Treasury was aggressive in mobilising surplus cash from the parastatals.
