Government isn’t broke; it is just bad cash and bank account management
What you need to know:
- That in our context, danger lights only start flashing when we see the government dilly-dally about going to borrow from the domestic market and instead resorts to abusing its overdraft limit at the Central Bank.
- From the vibes I am getting, that tight-fisted inflation hawk, namely the new governor of the Central Bank of Kenya, Dr Patrick Njoroge, cannot allow the Treasury to abuse the overdraft facility to the levels it has done in the past.
- We have lost billions in corruption waste and profligate spending by county governments and constitutional commissions, but to state that the government has no cash is to completely miss the point.
I received a surprise telephone call from a well-connected senior Nairobi lawyer on Sunday. He said he had important information to share with me.
He said he had received information from well-placed Central Bank of Kenya insiders to the effect that the government had resorted to printing currency notes to pay civil servants.
His voice ringing with a sense of urgency, he argued that Kenya was on the brink of a Ghana-style meltdown.
Unfortunately, the call dropped before I could give him my take on the recent developments and to share with him information I had gathered from my own sources about the cash crisis the government is going through.
I had wanted to inform him that the Central Bank prints currency notes all the time to replace old notes and whenever there are shortages.
That in our context, danger lights only start flashing when we see the government dilly-dally about going to borrow from the domestic market and instead resorts to abusing its overdraft limit at the Central Bank.
When you see the government massively going beyond that overdraft limit, then it is engaging in reckless printing of money.
From the vibes I am getting, that tight-fisted inflation hawk, namely the new governor of the Central Bank of Kenya, Dr Patrick Njoroge, cannot allow the Treasury to abuse the overdraft facility to the levels it has done in the past.
Indeed, the government’s overdraft has been for most of this year at its legal limit.
The law says that the overdraft must not exceed 5 per cent of the gross recurrent revenue of the government, as shown in the appropriations account for the latest year for which those accounts have been audited by Mr Edward Ouko.
Still, the big question is: Is the Government of Kenya broke? Is the National Treasury dry of cash?
Granted, the government is currently experiencing cash problems. Receipts from the Kenya Revenue Authority have dwindled.
The domestic borrowing programme for this financial year has been badly mismanaged. With the T-bill rate hitting 21 per cent, borrowing costs have gone haywire. Foreign loans contracted when the exchange rate was at Sh85 to the dollar have had to be re-priced to reflect the prevailing level of Sh103.
We have lost billions in corruption waste and profligate spending by county governments and constitutional commissions, but to state that the government has no cash is to completely miss the point. The government has loads of cash.
What we are witnessing right now is a problem of poor cash management and inefficient banking arrangements. The root of the problem is that the government does not have a single Treasury account from where it can see all the idle bank balances located outside the Central Bank of Kenya.
Ministries maintain multiple and separate accounts — some for projects, special funds, and extraordinary budgetary purposes. Funds belonging to county governments lie idle in accounts for months.
What we are seeing right now is inability to fund expenditure in a timely manner and to meet all obligations as they fall due.
A 2012 study by a mission of the International Monetary Fund estimated that the government had in excess of 10,000 bank accounts in commercial banks with idle funds. I have also seen another study that estimated that 60 per cent of government balances were situated outside the Central Bank.
There are instances where the government has had to go to the market to borrow money even as billions of shillings belonging to county governments are lying idle at the Central Bank.
If I were President Uhuru Kenyatta, I would immediately appoint a national treasury management agency operated by professional and experienced treasury managers.
I think the reason the treasury managers of commercial banks keep running rings around their counterparts at both the National Treasury and the Central Bank of Kenya is the skills gap. It is the reason the borrowing programme for this financial year has been so messed up.
The proposed agency should take over the role of fiscal agent from the Central Bank and manage a single Treasury account.
And it is time the government accepted that the so-called Integrated Fiscal Management Information System is a big flop.
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