Cash-rich parastatals race with investors to loan State money

The Central Bank of Kenya, Nairobi. FILE PHOTO | DENNIS ONSONGO | NMG

Parastatals increased lending to the national government by Sh33.75 billion in the financial year that ended last month, as they joined private investors and banks in the race to lend to the government, which is offering some of the best returns.

Analysis of the latest Central Bank of Kenya data shows the state corporations held a Sh282.9 billion share of domestic debt stock, a 13.55 percent growth over Sh249.15 billion in the prior fiscal year.

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Lending to the government is now one of the most lucrative ventures for investors.

Government securities gave investors the highest returns out of main asset classes in the second half of the last financial year, with bonds offering average yields of 13.06 percent while bills earned investors between 7.2 percent and 10 percent interest.

This comes at a time lawmakers called for a special audit on cash lying idle in accounts held by cash-rich parastatals.

“The committee noted that a number of State-owned entities under the State Department of economic planning are holding cash surpluses in their bank accounts from the previous financial years and it’s not clear whether necessary disclosures to the National Treasury are done,” National Assembly Committee on Finance and National Planning wrote in its report on Finance Bill last month.

The amount of cash the entities, some of which play strategic roles in national economic development, invested in Treasury bonds and bills was, however, lower than Sh44.33 billion in the year ended June 2022.

The parastatals have grown lending to the government for the past three straight years, pointing to improving cash flows which had been hit hard by Covid-induced shocks on earnings.

The pandemic-era cash flow challenges had seen their allocation to T-bond and bills — the instruments the CBK as the government’s fiscal agent uses to borrow cash domestically to plug holes in the budget — fall by 6.29 percent to Sh182.04 billion in the year ended June 2020.

That value has since increased by Sh100.85 billion over the three years, an equivalent of the public money the Treasury has borrowed and paid interest during that period.

The drop in investment in domestic debt during the pandemic year came on the back of aggressive mopping up of surplus cash from the parastatals by the Treasury from the financial year ended June 2019.

The pursuit of excess funds state-controlled entities had followed miscellaneous amendments to the Kenya Revenue Authority (KRA) Act and Public Finance Management Regulations, through the Finance Act 2018, which empowered the taxman to collect as much as 90 percent of surplus funds in regulatory agencies.

The Ruto administration has renewed the push for state corporations and semi-autonomous government agencies such as CBK, Communications Authority of Kenya, Capital Markets Authority, Competition Authority of Kenya, Kenya Pipeline Company and Kenya Ports Authority to surrender idle cash in their accounts.

The Finance and Planning Committee of the National Assembly, for instance, asked the National Treasury to provide a detailed report by September 30 to the finance committee on the surplus funds the entities held as of June 30.

The National Assembly Committee on Privatisation had earlier in the year proposed that all ministries, departments and agencies should use a single Treasury account to ease the collection of the surplus cash.

The proposal is aimed at giving the Treasury unfettered access to billions the entities hold.

The mop-up of excess cash in the parastatals is expected to partly ease liquidity woes the Treasury faces in some months, prompting it to borrow through T-bills and bonds sale.

The Treasury also taps the overdraft facility at the CBK which attracts an annual interest of seven percent of the outstanding amount at the end of each month.

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The surpluses are comparable to profits by the State-owned entities and represent the balance between their revenues and expenses after tax.

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