Kenya in a tight spot as its coffers run dry

The Treasury continues to walk on thin ice as national coffers run dry amid growing expenditure demands that it cannot keep up with.

Although National Treasury Cabinet Secretary Ukur Yatani has refuted claims that the country is broke, delays in disbursing funds to critical sectors of the economy tell a different story.

From delays in disbursing funds to counties, paying health workers to struggling to fund university student loans, now the Treasury has to grapple with finding resources to pacify MPs who have refused to pass the budget until Mr Yatani wires Constituency Development Fund (CDF) into their accounts.

Unending fund requests

The CS says the biggest challenge he faces is unending funding requests from every institution from an already depleted resource envelope.

“When you go to any institution, the first thing they do is ask for money. But the question is what are we sharing?" Mr Yatani posed.

“What we share is determined by what we tax people. On one side, Kenyans don’t want more taxation, but on the other side, we continue wanting more resources,” he added as he explained the tight rope his men are having to walk, especially at this time when the Covid-19 pandemic has disrupted the governments tax inflows.

Latest government books, as published in the Kenya Gazette, show that as at February 26, 2021, just four months to the end of the financial year, the government had collected a total of Sh1.6 trillion against a target of Sh1.8 trillion, which is Sh200 billion less.

For the full year, the government had initially budgeted to raise Sh2.8 trillion. Increasing costs have seen Treasury revise this upwards to Sh3 trillion, which has put more pressure on the taxman.

For most of the year, the Kenya Revenue Authority has been trailing expenditure needs, forcing Treasury to maintain an overdraft facility at Central Bank.

Mr Yatani said that, due to the unending requests, the Treasury has to strike a balance between what it has to share and the most pressing needs.

“Unfortunately, we’re in that position of displeasing everybody.”

Stalled a special session

One of the major stand-offs played out last week in Parliament after MPs disrupted National Assembly proceedings for the third time, protesting a delay in the disbursement of Sh27 billion meant for the CDF.

Being in the second last year in office, legislators are keen to have the money at all costs to increase their chances of re-election.

Attempts by National Assembly Majority Leader Amos Kimunya and Speaker Justin Muturi to pacify MPs failed as the lawmakers stalled a special session called to pass the Supplementary Budget I of 2019/20 and the Division of Revenue Bill 2021.

MPs are demanding payment of Sh14 billion in arrears for the 2019/20 financial year and Sh13.7 billion in the current fiscal year.

They also threatened to shoot down the National Aviation Management Bill 2020, which saw Mr Kimunya withdraw it during a special sitting last Thursday.

Early this month, it took riots from university students for the government to release funds to the Higher Education Loans Board (Helb). Some students are yet to receive their cash despite assurances from Helb.

To conserve cash, Treasury also wants to lock out counties that have unspent cash in their accounts at the Central Bank of Kenya.

Treasury disclosed that ordinary revenue for the six months through December fell short of the Sh907.7 billion target by Sh107.6 billion.

Mr Yatani attributes the cash shortfall to the sharp economic contraction caused by Covid-19 shutdowns, besides the temporary tax reliefs that benefited workers, consumers and businesses for nine months starting April to December last year.

The government has since reversed these taxes to their pre-Covid levels to stop further deterioration of its cash position.

Treasury is also seeking various loan repayment reliefs from the Paris Club and other lenders in a bid to free up resources necessary to fund the ballooning public expenditure.

“We’ve applied for debt suspension from January to June, and that process is going on,” Dr Haron Sirma, the director-in-charge of Debt Management at the National Treasury, said in a meeting with editors.

Dr Sirma revealed that the government is planning to go back to the international debt market for another Eurobond to repay the maturing Eurobond should it fail to raise enough concessional funds.

Treasury says it also decided to approach the International Monetary Fund for a Sh264 billion three-year loan to support debt as well as restructure some loss-making State-owned enterprises.

Raid parastatals

This comes at a time when some cash-rich parastatals among them Kenya Power and Kenya Airways have now become dependent on State funding to remain afloat.

The cash shortfall has seen Treasury raid the remaining moneyed parastatals for their cash reserves.

So far, CBK has wired a total of Sh14.8 billion to government accounts since the onset of the Covid-19 pandemic last year.

Kenya Pipeline Corporation also handed over Sh2.7 billion to the government last year.

The government has also been falling behind schedule in paying frontline healthcare workers at a time when they are most needed in the fight against the pandemic.

In the past three months, health workers from various counties have cumulatively been on strike for over 70 days. 

Mr Yatani says the Jubilee government has a very ambitious manifesto which it wants to achieve, but that cannot be done without funding. He says, due to the pandemic, most of the budget assumptions could not hold.

Kenya's economy was hard hit at the onset of the Covid-19 crisis, but growth has been recovering since mid-last year.

IMF says Kenya's forceful early actions cushioned the pandemic's economic impact, and real GDP growth is projected to have contracted by just negative 0.1 per cent in 2020.