How State House Order For Parastatals To Surrender Money To Treasury Will Cripple Economy – David Ndii

In August this year, State corporations were ordered to surrender cash balances in their bank accounts to the treasury.

The order was meant to reduce government’s cost of borrowing which has ballooned in the last six years during the reign of President Uhuru Kenyatta.

However, most of the money could have been used to pay loans which matured between July and October, with the Treasury indicating that it used at least Ksh276.17 billion to repay maturing loans, a 41.55 percent jump from Ksh195.11 billion in the previous four months.

Read: Parastatals Ordered To Surrender All Cash In Their Accounts To Treasury

Debt repayments were the second single largest government spend after recurrent expenses such as salaries, allowances and administrative expenses which gobbled up nearly Ksh306.53 billion.

According to economist David Ndii, the act of government drawing monies from parastatals could adversely affect the economy, and service delivery.

“While the memo suggests that some of this money will settle pending bills, far from solving the problem, it has now transferred it to parastatals whose suppliers will now be at the mercy of the exchequer. Expect some parastatals to default on their suppliers in coming days,” says Ndii.

If the money goes to pay foreign debts, Ndii predicts that there will be little circulation of money in the country, which is important for the growth of any economy.

Read: Kenya’s Public Debt Hits Ksh5.8 Trillion As Economy Growth Slumps

“Because the key driver of the government’s financial crisis is foreign debt, part of the money confiscated from parastatals is going to pay the foreign debt. Instead of circulating in the economy it is going to China. Another body blow to an already battered economy,” he adds.

Treasury bills (T-bills) maturities between July and September stood at Ksh346.9 billion, with another Ksh222.5 billion due for payment between October and December.

“The confiscation of t-bills/bonds is for all intents of purposes, a default action. It does not matter that these are state corporations, these debt instruments backed by law, and the government/debtor has suspended law. It’s a case of might is right, impunity,” says Ndii.

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“When it gets more desperate as it will, what will stop it doing the same to other vulnerable investors eg. public pension funds? By resorting to such a draconian action, it has exposed that its more distressed than its been letting on. Expect investors to take note.”

1/6 So State House has ordered parastatals to hand over all their cash reserves, treasury bills/bonds and even A-in-A revenue (i.e what they earn in service fees) to the Treasury. What are the implications? A thread.

— David Ndii (@DavidNdii) November 19, 2019

Kenya’s public debt surged closer to Ksh6 trillion at the end of June after Treasury borrowed an additional Ksh770 billion in 12 months.

Normally, the Treasury banks with the Central Bank of Kenya (CBK) hence the move will see large chunks of money withdrawn from the commercial banks.

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