When the government sold the Grand Regency Hotel to Libyan investors for about Sh3.1 billion three years ago, you would have expected that the money would have gone straight into the Exchequer and released immediately to fund government operations.
Instead, the money was deposited into a special account at the Central Bank of Kenya and earmarked for the development of Lamu Port.
My sources tell me that the decision to ring-fence the proceeds from the sale of Grand Regency came from very high up in the government decision-making ladder.
The other day, the government deposited Sh2 billion into a special bank account with a local commercial bank where the money was ring-fenced to fund the revival of the Webuye-based Pan African Paper Mills.
I know of several other examples where funds paid to the government as dividend income or appropriations-in-aid, are not remitted directly to the Exchequer, but deposited in special accounts.
The thinking is that when you ring-fence such lumpy amounts and deposit them in special accounts, you keep it out of reach of bureaucrats eager to spend it on routine government operations.
There is a flipside to all this. You end up with too many special accounts dispersed between the Central Bank of Kenya and commercial banks, a good number of which cannot be tracked with the computer system that tracks the government’s cash position.
I have come across a recent study by the African Technical Assistance Centre of the International Monetary Fund (IMF) who were here to examine cash management and banking.
The study estimates that the number of government accounts held outside the Central Bank are in excess of 10,000.
Thus, huge amounts of money will be sitting idle in special accounts for months even in circumstances where the government is experiencing serious cash-flow problems and is unable to pay its creditors.
A few weeks ago, the government could not raise money for the free primary education programme on time.Yet at that point in time, billions of shillings were sitting idle in the banking system.
Considering that the Lamu Port is still in its very initial stages of implementation, a good proportion of the Grand Regency money must still be sitting idle somewhere. Nor has the money in the special account dedicated for Pan Paper been fully absorbed.
It is only recently that the Ministry of Industrialisation announced that it was about to release Sh400 million from this account to pay the receivers who had camped at Webuye.
Clearly, the cash-flow crisis the government was whining about was self-inflicted, brought about by poor management and the opaque and antiquated banking arrangements.
It is the taxpayer who picks up the tab at the end of the day. Every week, the government goes to the Treasury Bill market to borrow money at very high interest rates for its cash-flow needs.
Why should the government be burdening us with loans when it has money lying idle in accounts within the banking system?
One of the reasons why I support the Public Finance Management Bill currently in Parliament is that it seeks to introduce the system known as the Single Treasury Account.
This will make it possible to reduce the number of these special accounts and introduce a system where the government can track all the cash lying idle.
All the cash belonging to the government must be pooled together to minimise idle bank balances and make it possible to avoid excess borrowing charges.
My parting shot is on the subject of devolution. We are not ventilating enough on its financial implications. I see major problems.
Government expenditure is already at 25 per cent of the gross domestic product (GDP).
We cannot borrow more because with a debt to GDP ratio of more than 45 per cent, we are very close to passing the allowed limits.
Are we going to devolve some of the functions in phases? How are we going to deal with issues of capacity at the county level?
Let us discuss.