State agencies surrender Sh78bn in surplus cash

The Treasury netted Sh78.54 billion in non-tax collections including surplus cash held by State corporations in the first-half of the current fiscal year, new data shows, partly easing the government’s cash flow challenges.

Latest exchequer data by the Treasury shows the amount surrendered by the State firms in the July-December 2019 widow was nearly double what was realised over a similar period a year earlier — also raising hope of lowering the government’s cost of borrowing.

The jump comes in the wake of a November 11, 2019 directive by Treasury Secretary Ukur Yatani to State agencies to surrender surplus cash as the government races to clear a backlog of pending bills. Mr Yatani consequently doubled the full-year non-tax revenue target to Sh138.86 billion from the initial Sh69.33 billion at the beginning of the fiscal year last July.

Reacting to the development, Kwame Owino, the chief executive of the Institute of Economic Affairs (IEA), a think tank, said: "It (surplus cash) just gives the government a one-time boost of those incomes that are available after which it will not be there because no one will be keeping that much money. This constrains the ability of parastatals to do their own investments.

"If parastatals know that the money they keep aside, whether for contingency or other purpose, will be claimed quickly, then they will go into huge undertakings such as buying land so that those (cash) thresholds are within what is required."

The non-tax collections in the first half of the current year ending in June represent 56.56 percent of the revised full-year target set by the Treasury, and Sh20.35 billion more than Sh58.19 billion realised in the year ended June 2019.

The pursuit of cash in parastatals followed miscellaneous amendments to the Kenya Revenue Authority (KRA) Act and Public Finance Management (PFM) Regulations, through the Finance Act 2018, which empowered the taxman to collect 90 percent of surplus funds in regulatory agencies.

The Treasury had targeted Sh78 billion in the first year ended June 2019, but ended up with only Sh10.07 billion.

KRA blamed the underperformance on lack of a specific date that funds are due to be remitted by the State agencies as well as absence of enforcement measures.

Further amendment to the PFM regulations have since set October 31 as the deadline for cash-flushed entities to surrender excess funds for the financial year which ends in June.

"There’s need to legislate specific enforcement measures where these bodies default," KRA said in a report to the National Assembly’s committee on Finance and National Planning last August.

INVESTING SURPLUS

Parastatals are among the biggest buyers of Treasury securities, which means the government ends up borrowing its own money and paying interest charges on it.

Latest Central Bank of Kenya (CBK) data shows the share of parastatals in government papers dropped to Sh187.22 billion on January 17 from Sh202.18 billion on November 29 and Sh208.55 billion on September 27.

"This is not good because if the government doesn’t want to be loaning its own money, then privatise them (parastatals)," Mr Owino said.

"What you have done is that you made them (parastatals) a department of the Treasury in terms of operations. So if you think they should not be holding that much float, then you should bring them in or privatise them."

He added that cash-rich parastatals should have been made to invest the surplus in government papers through a rule, but retain discretion in claiming it back when need arises.

Parastatal heads have argued that the loose cash is used for financing day-to-day operations and contingencies, as well as boosting their balance sheets as they transact and borrow from banks.

Treasury Principal Secretary Julius Muia had earlier defended the recalling of the money, arguing that loose funds in regulatory entities was filling a hole that would otherwise prompt additional borrowing.

"We’re not doing it without consultation, we’re looking at their balance sheets, projected requirements going forward and how much of their surplus funds will be remitted to the Treasury. So it is a very orderly way in which we are doing it," Dr Muia had said in August.

"It has happened in the past but it has not been targeting all State corporations as it is happening now. It’s only that we want to be more formal how we do it this time round in a more orderly way."

The cash has in part also helped fill the void left by below-target tax receipts, which compelled the Treasury to lower its goal for the current fiscal year ending in June by Sh102.70 billion to Sh1.7 trillion last November.

KRA netted Sh779.32 billion in the July-December 2019 period, a 14.51 percent, or Sh98.29 billion, jump over Sh681.04 billion in the same period a year earlier.

Despite posting the highest growth in tax collections over the half-year period since the current Jubilee administration took power, Mr Yatani said the overall revenues into the Exchequer — which grew 15.9 percent year-on-year — underperformed its forecast by Sh138.7 billion.

"The shortfall was in all broad categories of ordinary revenues with income tax recording the highest shortfall on account of depressed performance in Pay as You Earn followed by excise tax and VAT," Mr Yatani says in the draft 2020 Budget Policy Statement which forms the basis for the Budget for the year starting July 2020.