Treasury orders parastatals to surrender all cash

The Treasury has ordered all State corporations to surrender cash balances in their bank accounts in a move intended to cut the government’s cost of borrowing.

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.

The Treasury invited parastatal heads since Monday last week to negotiate how much they would surrender to the government out of the surpluses held in bank accounts and near-liquid assets.

Treasury principal secretary Julius Muia in an interview said the directive is in line with the law and a prudent way for the government to cut its cost of borrowing.

“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,” said Dr Muia.

“If they got surplus money they pay back and that would be taken back in accounting what is called the retained earnings and that is quite in order,” he said.

Significant amounts

More than 10 State corporations whose balance sheets the Business Daily checked are holding more than Sh100 million, indicating that the Treasury could collect a significant amount from the directive.

The parastatal heads, however, argue that the loose cash is used for financing day-today operations and contingencies, as well as boosting their balance sheets as they transact and borrow from banks.

Commercial banks have raised concerns over the order, which they say risks taking away the confidence money they rely on to offer loans to State corporations. They fear the directive will also lead to a flight of liquidity.

The lenders have been calling State corporations for clarification on the order, with reports indicating the matter is still to be acted on as it remains in discussions between the Treasury and top parastatal officials.

Dr Muia said the money will not be drawn arbitrarily, but will be discussed with each State corporation depending on their balance sheets.

Projected requirements

"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," said Dr Muia.

"So far we started (by) meeting them, the process has been going on smoothly," he said.

He added that Banks will just have to cope without State deposits but the money will not systemically affect the industry as it is well buffered.

"Certainly when we ask State corporations to pay surplus money to the Treasury there will be a withdrawal of money from the commercial banking sector because Treasury banks with Central Bank.

"But the amounts are not big, and if you look at the liquidity of the banking sector they are awash with money with liquidity ratios higher than that required by the CBK," said Dr Muia.

Former Treasury Secretary Henry Rotich last year went for regulators’ purses, including CBK, the Kenya Bureau of Standards, Communications Authority of Kenya, the National Environmental Management Authority, Capital Markets Authority, and Insurance Regulatory Authority, accusing them of failing to remit surpluses owed to the Exchequer.

Mr Rotich had exempted the authorities from paying corporate taxes in 2015 but ordered them to remit 90 per cent of their surpluses to the Consolidated Fund instead.

Not consistent

However, according to the Treasury the authorities have not been consistent in remitting their surpluses, taking advantage of bureaucratic gaps and lack of an enforcement arm.

"In this regard, I propose to amend the Kenya Revenue Authority (KRA) Act and the Public Finance Management Regulations to allow KRA to collect the surplus from the regulatory authorities and remit to the Consolidated Fund," said Mr Rotich.