The mop-up of excess cash in the parastatals is expected to partly ease perennial liquidity woes amidst shortfalls in tax receipts which usually prompt the Treasury to increasingly borrow cash through the sale of Treasury bills and bonds.
Cash-rich parastatals increased lending to the national government by Sh94.31 billion in the first nine months of the current financial year, coinciding with increased collections from affordable housing and fuel levies which are usually invested pending expenditure.
Analysis of the latest Central Bank of Kenya (CBK) data shows State corporations held about a Sh371.87 billion share in total domestic debt stock at the end of March compared with Sh277.55 billion at the end of the last financial year in June 2024.
The 33.98 percent growth in the stock of domestic debt held by the parastatals bucked a trend in the previous year where they cut investment in Treasury bonds and bills by Sh14.11 billion in a similar period a year ago amid aggressive mop-up of surplus cash by President William Ruto’s administration to ease liquidity challenges.
The increased investment in government securities came in a period when collections from the statutory housing development levy at the rate of 1.5 percent of gross salaries and wages, matched by employers, were not interrupted, unlike last year.
Inflows from the housing levy deductions are ring-fenced under the Affordable Housing Act 2024, ensuring they are spent on the construction of State-funded houses and not diverted to other projects.
The Affordable Housing Board said tens of billions of shillings are invested in government debts that mature in three months, technically known as 91-day Treasury bills, instead of idling in accounts awaiting expenditure.
“It is not prudent even as government to have money seated, lying idle in an account. The money is safe, fully invested in government securities and the accounts we are operating are CBK accounts, which have full sight of the government on every expenditure,” Sheila Waweru, the acting CEO of the Affordable Housing Board, told the Business Daily in February.
“So we can put the money in Treasury bills as a manager of the [affordable housing] fund and it brings in additional money, say Sh2 billion, and that enables us to put up more units which we will not do if the cash was staying in an account idly. This is a measure for prudent management of the fund.”
Data provided by AHB, the agency that oversees the development of houses and their off-take, showed that Sh46 billion had been invested in 91-day T-bills as of early February.
That is equivalent to 51.86 percent of the Sh88.7 billion that had been collected from the housing development levy by last December, signifying its impact on the growth of the share of domestic debt held by parastatals this financial year.
The increased investment in government securities also coincided with increased collections from the Road Maintenance Levy Fund (RMLF), funds that are usually ring-fenced for road projects. This is after lawmakers voted to raise RMLF to Sh25 per litre of super petrol and diesel from Sh18 effective July 2024.
Kenya Roads Board, the manager of the Kenya Roads Board Fund (KRBF), has in the past indicated it invests cash in liquidity assets, which include T-bills, to earn interest and grow the value of the Fund.
Parastatals investing in Treasury bonds and bills have been equated to the government borrowing its own cash and paying interest on it.
The increased investment in government securities by State-owned entities is likely being driven by firms that control funds ring-fenced by the law to avoid diversion to other projects.
This is because President William Ruto has been adamant that State-owned entities must surrender idle cash in their accounts to the exchequer to ease cash flow woes amidst gaping shortfalls in tax collections.
Dr Ruto ordered State corporations to wire up to 80 percent of net profit to the Treasury, a directive that has been included as one of the performance indicators for chief executives this financial year ending June 2025.
“The money that some parastatals make does not belong to their boards or management. It belongs to the people of Kenya as returns on investment,” the President told CEOs and board chairs at the State House.
The pursuit of excess funds State-controlled entities had followed miscellaneous amendments to the Kenya Revenue Authority (KRA) Act and Public Finance Management Regulations, through the Finance Act 2018, which empowered the taxman to collect as much as 90 percent of surplus funds in agencies.
The surpluses are comparable to profits by the State-owned entities and represent the balance between their revenues and expenses after tax.
The mop-up of excess cash in the parastatals is expected to partly ease perennial liquidity woes amidst shortfalls in tax receipts which usually prompt the Treasury to increasingly borrow cash through the sale of Treasury bills and bonds.
Treasury Cabinet Secretary John Mbadi warned last December of a trend where some regulatory authorities are setting aside cash for future capital expenditure from surpluses in their accounts, cutting the share they surrender to the government.
“However, it has been noted with concern that some Regulatory Authorities are adjusting operating surplus by providing for capital expenditure to determine the 90 percent to be remitted to the National Exchequer,” Mr Mbadi wrote in a circular to the chiefs of State Corporations.
“No state corporation should provide for capital expenditure from operating surplus without a written National Treasury approval.”
