Cash-rich parastatals are bracing for tough times after the state moved to raid their coffers in a move that will also see them hand over their surplus cash to the Treasury rather than investing in government paper.
President William Ruto's administration is eyeing at least Sh708.43 billion held by parastatals and regulators in a cash purge that will impact entities such as the Central Bank of Kenya (CBK), Kenya Pipeline Corporation (KPC) and Kenya Pipeline Corporation (KPC). ). Kenya Ports Authority (KPA).
Other public entities to which cash earned from imposing fees or charges flow are the National Health Insurance Fund (NHIF), the National Social Security Fund (NSSF), the Public Service Pension Scheme (PSSS) and the Kenya Roads Board (KRB).
Treasury Minister Njuguna Ndongo in his budget speech last Thursday revealed that a significant portion of Sh708.43 billion, about Sh431.7 billion, is locked up in various financial institutions. The rest was invested in government securities.
By Friday last week, parastatals accounted for 5.15 percent of the government's domestic debt, reaching Sh276.73 billion, data from the Central Bank of Kuwait showed.
Professor Ndongo noted that the funds held by public entities in various financial institutions by the end of July last year would have been useful when the government was in dire financial straits, with public servants experiencing delays in salary payments as the state prioritized debts. service.
“National Treasury has inventoried bank accounts and balances held by public entities at various financial institutions and established that as of June 30, 2023, these entities held Sh431.7 billion with various financial institutions,” he said.
“It was not possible to access these large cash balances immediately at a time when the government was financially strapped.”
Professor Ndongo said that starting next month, all funds collected by public bodies will be consolidated into one treasury account (TSA) at the Central Bank of Kuwait and another account at commercial banks.
“National Treasury will in this regard establish a treasury function to manage the structure of TSA accounts and TSA sub-accounts so that the day-to-day financial position of the government can be known and ascertained. The transition to the TSA system will begin on July 1, 2024,” Njuguna said.
Cash-rich parastatals were used as centers of political patronage, with executive positions filled by well-connected individuals while Cabinet ministers used corporations to exert their influence.
But with cash consolidated into a single account and the surplus handed over to the Treasury, the incentive for political patronage is likely to weaken.
The law requires semi-governmental institutions to hand over surplus cash to the treasury at the end of the fiscal year. However, most of them choose to invest money.
Questions have been raised about the logic of parastatals obtaining funds from the Treasury, or raising funds on behalf of the state, only to lend them by purchasing Treasuries and Treasury bonds.
As part of Kenya's financing deal with the International Monetary Fund (IMF), President Ruto's government has consolidated funds by increasing revenues flowing into the treasury, both from taxes collected by the Kenya Revenue Authority (KRA) and fees, fines and taxes. Committees charged by various public bodies.
High debt servicing costs, which have left the Treasury with little money for other public services, have prompted the government to go after money held by public entities even as it hits taxpayers with new tax measures.
Not only are government companies expected to eliminate their dependence on the public treasury by improving their revenues, but they are now also expected to transfer most of this money to a single account at the Central Bank of Kuwait.
In his budget speech last week, Professor Ndongo also announced the suspension of the policy allowing semi-autonomous government agencies (SAGAs) to invest their surplus funds, a directive that mirrors an earlier directive issued by his predecessor, Okur Yatani.
Mr. Yatani also directed all parastatals to liquidate their investments in treasury bonds and transfer the cash to the treasury. However, the directive does not appear to have been successful as the proportion of domestic debt held by parastatals has barely decreased. Based on the requirements of the Public Finance Management Act 2012 and the Public Finance Management Regulations 2015, Professor Njuguna directed the SAGAs to hand over these surplus funds to the Treasury.
By the end of June last year, the surplus funds of 510 public entities, including SAGAs, government corporations and public funds, stood at Sh196.4 billion, an increase of 27 per cent from Sh143.66 billion in the previous period.
The Central Bank of Kuwait, PSSS and NSSF had the highest surplus funds at Sh145.49 billion, Sh44.6 billion and Sh25.5 billion respectively.
Other companies with significant surplus funds are National Government Departments Development Fund (Shs20.17 billion), KPA (Shs11.99 billion), Kenya Civil Aviation Authority (Shs5.08 billion), KenGen (Shs5.19 billion), and Kenya Pipeline Corporation (Shs5.08 billion). 4.1 billion shillings).
Also as part of the consolidation of funds, all public entities have been ordered to receive payment for their services through a single digital payment invoice for payment platform No. 222222.
All other payment platforms will be closed, with all government companies required to move their services to eCitizen by the end of this year.
State bodies are expected to collect nearly Sh400 billion through these fees and fines, known as ministerial appropriations in aid, in the financial year starting in July. Since then, most state companies have increased fees and fines on various services, with the state moving to supplement tax collection.
State agencies that have increased non-tax revenues include the Immigration Department, which wants to increase passport and visa application fees.
Other government services that have been raised are land transaction fees as well as service fees by the National Transport and Safety Authority.
