The Treasury has raided the central bank’s cash reserves for a fresh Sh5.5-billion injection to boost its drying coffers, even as its attempts to raise additional revenue from various sources continue to hit snags.
The Exchequer was targeting to collect at least Sh21 billion from the minimum tax this financial year, but the plan ran into headwinds last week.
The High Court in Machakos barred the Kenya Revenue Authority (KRA) from implementing the new tax that was to be charged at 1 per cent of business revenue for both profit and loss-making firms.
Still, the Treasury, which plans to borrow Sh661.6 billion from local creditors in the current financial year, has also found the going tough, collecting less than half of its target.
Last week, it raised only Sh10.2 billion from the weekly treasury bills auction against an advertised amount of Sh24 billion, just a week after the previous auction also yielded just Sh13.1 billion from a targeted Sh24 billion.
Thwarted, Treasury has been forced to devise new ways to plug the widening budget financing deficit, which was also part of the International Monetary Fund's (IMF) conditions the lender attached on its latest loan facilities to Kenya.
The fresh cash injection from the CBK is set to boost the cash-strapped Treasury which is being hounded from all sides by creditors, counties, government workers and even pensioners.
On Monday, the CBK said its board gave the nod to the cash transfer following a positive assessment of its financial position, adding that it is still well-resourced to deliver on its mandate despite a challenging business environment caused by Covid-19 pandemic.
As lender of last resort, the CBK is required to have adequate cash reserves to extend to commercial banks at any given time for temporary liquidity through its Discount Window.
“The Central Bank of Kenya (CBK) announces that it has today transferred to the Government Consolidated Fund Sh5.5 billion as distribution from CBK’s General Reserve Fund (GRF). Inclusive of the exceptional distribution of Sh5 billion on February 17, 2021, the total distribution from CBK’s General Reserve Fund for FY2020/21 amounts toSh10.5 billion,” CBK said in a statement.
“This distribution is in accordance with Sections 9 and 51 of the CBK Act, relating to the treatment of CBK’s net annual profits, and followed approval by the CBK Board. The transfer (loosely known as “remitting of dividends”) was executed by crediting the Ministry of Finance’s Deposit Account at CBK,” CBK said.
This is not the first time the Treasury is raiding CBK’s coffers for a cash boost.
Early this year, the lender of last resort wired Sh5 billion to the Treasury, bringing the total monies the exchequer has drawn from the banking sector regulator to Sh10.5 billion for the financial year 2020/21, adding to Sh7.3 billion wired in March last year.
The cash boost comes at a time the Treasury is pacing to meet its revenue targets for this year after a bright start in ordinary revenue collection for the first two months of the current fiscal year.
Treasury data shows KRA, which is targeting to collect Sh1.7 trillion in revenue this year, has enjoyed a fine start to the year by collecting Sh247.2 billion in July and August, a 32 per cent increase from Sh187.25 it collected in the same period last year.