The Treasury has set in motion plans to have unfettered access to billions in surplus cash held by various departments in the next six months if Parliament approves a proposal to create a single account system.
The National Assembly committee on privatisation has tabled the proposal in Parliament that will see all ministries, departments and agencies (MDAs) have a single Treasury account to ease the collection of surplus cash amid woes facing the Exchequer.
Official Treasury data shows that some 451 State corporations held Sh84.5 billion in surplus cash in the year ended June 2021, offering a glimpse of the financial lift awaiting the Treasury if the proposal is adopted.
Treasury is grappling with mounting debt servicing obligations that have squeezed cash for development projects and other critical services like salary payments, prompting the government to ramp up borrowing.
“To enhance liquidity management and reduce unnecessary short-term borrowing in the domestic market occasioned by the government’s inability to access surplus funds held in MDAs’ bank accounts, the National Treasury should spearhead the integration of MDA banking arrangements, into a single treasury account system,” the committee says.
A single Treasury account system, which is also supported by the International Monetary Fund, is an accounting system that eliminates the need for all agencies to have their individual bank accounts and this enables the Treasury to delink management of cash from control at a transaction level.
The proposal marks the latest boost to the National Treasury which has in recent years been on an aggressive push to mop up surplus cash from the parastatals to ease cash-flow woes.
Kenya is currently facing its biggest debt servicing obligations so far, which has strained the Exchequer and thrown into uncertainty the financing of development projects.
Kenya for example spent Sh150 billion to repay debt in March alone, highlighting the increasing pain on the Exchequer.
The Treasury has in turn failed to disburse cash to counties in a timely manner besides cases of delayed salaries to civil servants.
The National Treasury will spend Sh1.36 trillion ($10.07 billion) to service debt in the financial year ending next month, which is 62 per cent of the tax revenue targeted for collection by the Kenya Revenue Authority.
Treasury Single Accounts (TSA) are seen as a critical avenue for governments to raise cash and reduce debt besides offering the State centralized control over public cash.
Cash-rich parastatals surrendered Sh4.12 billion in surplus cash in the year ended June 2021, a 94 percent drop from Sh70.1 billion a year earlier as the entities increasingly invested more in government securities.
Some of the corporations have in the past argued that the surplus cash is used for financing day-to-day operations and emergencies, besides boosting their balance sheets as they borrow from banks.
Cash-rich parastatals include the Central Bank of Kenya with loose cash amounting to Sh36.9 billion, the National Social Security Fund at Sh35 billion, Kenya Pipeline Company at Sh7.6 billion and Communications Authority, which had Sh3.36 billion as of June 2021.
State entities are amongst the top buyers of government securities with and bought papers worth Sh271.22 billion at the end of last year.
Treasury reckons that the State entities, with billions in loose cash, have over the years taken advantage of a lack of enforcement and bureaucratic gaps to inconsistently remit the surplus cash.
The International Monetary Fund (IMF) says that a TSA is a critical plank for the prudent management of public funds by governments.
“The establishment of a TSA significantly reduces the government debt servicing costs, lowers liquidity reserve needs, and helps maximize the return on investments of surplus cash,” IMF says in a working paper.
The Treasury had in 2018 ordered cash-rich entities to remit 90 per cent of their surpluses to the Consolidated Fund instead.
A TSA will be a step up from the current scenario where the Kenya Revenue Authority (KRA) is mandated by law to collect surplus cash from State entities.
The law was in 2018 amended, empowering the taxman to collect 90 percent of surplus funds in regulatory agencies.
