Parastatals in Kenya have been banned from holding idle funds in bank accounts under a new public finance reform plan that seeks to promote transparency and efficiency in the use of public resources.
Treasury Minister Njuguna Ndung'u revealed that the Treasury has officially adopted a hybrid single-account model whereby ministries and state departments (MDAs) will operate accounts at the Central Bank of Kenya (CBK) while semi-independent agency accounts will remain at commercial banks on the condition that no cash is kept idle in These accounts.
“National Treasury has adopted the hybrid model of the Treasury Single Account (TSA) where the accounts will be in the Central Bank of Kenya for ministries and state departments while the SAGAs (semi-autonomous government agencies) will be held in commercial banks but will be held by the National Treasury.” “Giving visibility to monitoring balances and ensuring that public entities do not hold idle funds,” Professor Ndongo revealed in the 2023/2024 financial year estimates signed on April 30, 2024.
“Meanwhile, the National Treasury is assessing SAGA’s bank accounts in commercial banks.”
Most government accounts in commercial banks are held by state corporations and SAGA consortia such as Kenya Urban Roads Authority (Kura), Kenya National Highways Authority (KeNHA) and Kenya Rural Roads Authority (KeRRA).
On the other hand, ministries, departments and agencies mostly deal with the Central Bank of Kuwait.
President William Ruto said at the beginning of this year that interest earned on government deposits in commercial banks accrues to taxpayers and “quite a few individuals.”
Removing a large portion of government deposits from commercial banks is likely to reduce funding and liquidity for some lenders.
Treasury data shows KeRRA accounts for 13.89 percent (Shs27.93 billion or $206 million) of idle cash held by state enterprises in commercial banks as of December 2023, making it the most cash-rich parastatal in the country.
In total, the 177 parastatals listed by the Treasury kept Sh201.05 billion ($1.5 billion) in banks during the period, with bank balances in the energy and infrastructure sectors in particular.
The largest banks hold the lion's share of public funds, and they face the biggest hit due to the loss of deposits.
According to the Treasury Department, bankers are already preparing for the imminent withdrawal of government deposits.
“Yes, (banks) cannot be comfortable. Eventually, the government will transfer large balances from them. They have been sensitized to prepare and adapt to… “This is reality in the end.”
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“But it is not true that all accounts in commercial banks will be closed. Public entities will continue to maintain operational accounts in commercial banks, but all dormant funds and deposits will be kept in the Central Bank of Kuwait.
The East African Community (EAC) partner countries agreed in 2018 to close multiple bank accounts operated by their ministries, departments and agencies and keep their revenues in a single account for each as part of efforts to increase transparency and accountability in the use of public funds.
The partner countries agreed on a Treasury Single Account (TSA) to ensure proper oversight of government cash flows and reduce the cost of holding public money in multiple commercial banks.
Kenya is moving faster on this front, with the Public Finance (Administration and Management) Regulations 2013 paving the way for the creation of a single government account.
An initial phase trial involving MDAs is currently underway. The second phase includes provinces and the third phase includes state corporations and SAGAs. Full implementation of TSA is expected to take place within a period of three years.