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Treasury to block parastatals from security bills bids
Treasury says the directive to bar the parastatals from competitive bidding will mitigate the growing risk of domestic interest payment and reduce the tendency of the government to borrow funds held by public entities.
The Treasury will block parastatals, ministries and State departments from placing competitive bids for government securities in a bid to control the cost of domestic borrowing by the State.
The move means that ministries, State departments and parastatals will settle for the average return offered during the auction of bonds without directly influencing the yields as has been the case previously.
The exchequer says the directive to bar the parastatals from competitive bidding will mitigate the growing risk of domestic interest payment and reduce the tendency of the government to borrow funds held by public entities.
“To reduce the cost of borrowing, the National Treasury has instituted measures that idle balances of selected entities domiciled at CBK not immediately required are invested in government securities under non-competitive terms,” the National Treasury said in submissions to Parliament.
“For public entities with bank accounts in commercial banks, a circular will be issued mandating direct investment of surplus balances in government securities, bypassing intermediaries and under non-competitive terms.”
The National Treasury also says it will offset balances due from the Central Bank of Kenya (CBK)- the government overdraft-using positive balances in designated accounts at CBK.
In competitive bidding, participants in the auction are allocated a yield in line with the price/rate indicated while non-competitive bids are allocated a return at the weighted average interest rate determined during the auction.
Parastatals are the fourth largest holders of domestic debt after banking institutions, pension funds, other investors and insurance companies.
The parastatals held Sh367 billion in domestic debt as of April 25, 2025, or a respective 5.95 percent share of locally issued government securities according to CBK data.
The move to freeze parastatals from competitively bidding for Treasury bills and bonds is expected to complement the implementation of the Treasury Single Account (TSA) whose role is to enhance cash management efficiency, transparency, reduced borrowing costs and improved coordination of fiscal and monetary policies.
The TSA is a unified structure of government bank accounts that enables the consolidation of government cash resources into a single account, or a set of linked accounts domiciled at CBK.
President Ruto’s administration has also continued a cash mop-up exercise that commenced with his predecessor with the view to ease the government’s funding constraints.
In March last year, President Ruto directed commercial State corporations to wire up to 80 percent of their net profit to the exchequer. The surpluses are comparable to profits by the State-owned entities and represent the balance between their revenues and expenses after tax.
“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,” Dr. Ruto told parastatal chiefs at State House on March 26, 2024.
The National Treasury is expected to deploy the TSA for all ministries, departments and agencies (MDAs), parastatals and public funds by July 1, 2025.
“The implementation of most of the TSA reforms are targeted for the 2025/26 financial year,” the exchequer added.
