Cash-rich parastatals are set for leaner times after the State moved to raid the coffers in a move that will also see them handing over excess funds to the Treasury instead of investing in government paper.
President William Ruto’s government is seeking at least Sh708.43 billion held by parastatals and regulatory bodies in a cash mop-up that will affect entities such as the Central Bank of Kenya (CBK), the Kenya Pipeline Company (KPC), and the Kenya Ports Authority (KPA).
Other public entities that earn money from charging fees or levies are the National Health Insurance Fund (NHIF), and the National Social Security Fund (NSSF), the Public Service Superannuation Scheme (PSSS) and the Kenya Roads Board (KRB).
Treasury Cabinet Secretary Njuguna Ndung’u revealed in his last budget speech that a large chunk of Sh708.43 billion, about Sh431.7 billion, was held in various financial institutions. Others have invested in government securities.
As of Friday last week, parastatals held 5.15 percent of the government’s domestic debt, amounting to Sh276.73 billion, data from the CBK showed.
Prof Ndung’u noted that the funds held by public entities in various financial institutions at the end of July last year will be useful when the government is experiencing financial difficulties, with civil servants experiencing delays in salary payments due to the country’s debt priority. service.
“The National Treasury conducted an inventory of bank accounts and balances held by public entities in various financial institutions and determined that as at June 30, 2023, these entities held Sh431.7 billion with various financial institutions,” he said.
“These large cash balances cannot be accessed quickly when the government is in a hurry.”
From next month all money collected by public entities must be combined into a single Treasury account (TSA) held at CBK and the rest at commercial banks, said Prof Ndung’u.
“The National Treasury in this regard, will create a Treasury Function to manage the structure of TSA and TSA-Sub Accounts so that the government’s financial position is known and ascertained on a daily basis. The migration to the TSA system begins on July 1, 2024,” said Njuguna.
Cash-rich parastatals have been used as centers of political patronage, with executive positions filled by well-connected individuals while Cabinet Secretaries use these companies to exert their influence.
But with the consolidation of cash into a single account and the handing over of surpluses to the Treasury, incentives for political patronage may weaken.
The law requires parastatals to hand over surplus cash to the Treasury at the end of the financial year. However, many choose to invest their money.
Questions have been raised about the logic of parastatals asking for money from the Exchequer, or raising money for the state, only to lend it back by buying Treasury bills and Treasury bonds.
As part of the financing agreement that Kenya has with the International Monetary Fund (IMF), President Ruto’s government has consolidated funds by increasing revenues flowing to the Exchequer, from taxes collected by the Kenya Revenue Authority (KRA) and fees, fines and commissions, charged by various public entities.
High debt service costs, which leave the Treasury with little money for other public services, have seen the government aggressively go after cash held by public entities despite being taxed with new tax measures.
State companies are not only expected to clear the Exchequer by increasing their profits, they are now also expected to send the money to a single account held at the CBK.
In his budget speech last week, Prof Ndung’u also announced the suspension of the policy that allows semi-autonomous government agencies (SAGA) to invest surplus funds, a directive that mirrors the one issued by his predecessor, Ukur Yatani.
Mr. Yatani has also directed all parastatals to liquidate their investments in Treasury bonds and send cash to the Treasury. However, the directive did not succeed as the fraction of domestic debt held by parastatals hardly decreased. Pursuant to the requirements of the Public Finance Management Act, 2012 and the Public Finance Management Regulations, 2015, Prof Njuguna directed SAGA to surrender the excess funds to the Exchequer.
At the end of June last year, surplus funds for 510 public entities, including SAGA, state-owned enterprises and public funds, stood at Sh196.4 billion, an increase of 27 percent from Sh143.66 billion in the previous period.
CBK, PSSS and NSSF have the highest surplus funds at Sh145.49 billion, Sh44.6 billion and Sh25.5 billion respectively.
Other companies with high fund surpluses are National Government Constituency Development Fund (Sh20.17 billion), KPA (Sh11.99 billion), Kenya Civil Aviation Authority (Sh5.08 billion), KenGen (Sh5.19 billion), and Kenya Pipeline Company (Sh4.1 billion).
Also as part of the pooling of funds, all public entities have been ordered to receive payments for these services through one digital payment platform number paybill 222222.
All other payment platforms must be closed, all State companies must migrate their services to eCitizen by the end of this year.
State agencies are expected to raise up to Sh400 billion through these fees and fines, known as ministerial Appropriation-in-Aid, in the fiscal year from July. Most State companies have started increasing fees and fines for various services, as the State has increased tax collection.
State agencies that increase non-tax revenue include the Department of Immigration, which wants higher passport application and visa fees.
Other government services that have been raised are land transaction fees as well as service fees by the National Transport and Safety Authority.
