The National Treasury received Ksh78 billion from state agencies in the first half of the current financial year, a double of what was collected in a similar period last year.
Last year in August, all state corporations were ordered to surrender cash balances in their bank accounts to the treasury.
“It has happened in the past but it has not been targeting all State corporations as it is happening now. It’s only that we want to be more formal how we do it this time round in a more orderly way. If they got surplus money they pay back and that would be taken back in accounting what is called the retained earnings and that is quite in order,” said former Treasury principal secretary Julius Muia in an interview.
In the amended Kenya Revenue Authority (KRA) Act and the Public Finance Management (PFM) Regulations, the government can collect up to 90 percent of surplus funds in regulatory agencies.
Read: Parastatals Ordered To Surrender All Cash In Their Accounts To Treasury
Previously, parastatals have been using the surplus money to purchase Treasury bills, with the interest going to individual pockets.
As a result, the bodies have been having several bad debts, after failing to pay suppliers so that they can use the money to purchase Treasury Bills. This means that government ended up borrowing its own money, and repaying itself on interest.
Treasury bills (T-bills) maturities between July and September 2019 stood at Ksh346.9 billion, with another Ksh222.5 billion having matured between October and December 2019.
However, on the other hand, once the cash is recollected, the parastatals argue that they are left without money for day-to-day activities, and the move puts them in bad books with banks.
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.
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