The National Treasury Thursday admitted that it is facing a cash crunch, but expressed confidence that the situation would soon improve.
Treasury Cabinet Secretary Henry Rotich told Parliamentâ€™s Budget committee in Nairobi that a combination of domestic and international loan repayments falling due, the traditional slow collection of government revenue at the beginning of the financial year and demands for disbursements, had led to the cash crunch.
While this persists, the people should brace themselves for higher interest rates, Mr Rotich said.
However, he also asked government institutions to reduce wastage and improve efficiency in the use of tax money.
His comments came against the backdrop of a warning by the World Bank to the government to cut back on both its recurrent and development spending.
MPs had summoned Mr Rotich to explain why the government was not meeting its financial obligations, including disbursements for free education and salaries for some public servants.
The government has already borrowed Sh100 billion from the local market since July, and it is projected that it will have borrowed Sh600 billion by next June.
HIGH INTEREST RATES
Mr Rotich said the current financial difficulty was temporary and there were signs that the situation was improving.
However, he confessed that the government still had to take loans and that interest rates were unlikely to go down.
He also asked the government to tighten its belt and reduce wastage if the cash shortage is to be resolved.
Usually, revenue collection is slow in the first quarter of each financial year, but this year, the situation has been compounded by an increase in interest rates, meaning that the government could not borrow using the Treasury Bonds and Bills and had to use the revenue collected to pay its debts.
Sh148.7 billion was used to pay both domestic and external debts between July and September, as the government was unable to roll over Treasury Bills â€“ to take them forward at the same rate â€” because of the high interest rates.
â€œWeâ€™re now seeing this unwinding and interest rates will begin to go down. Talk of a liquidity crisis has been overstated,â€ he said during the televised meeting with the budget committee.
â€œWe have made sure there are no counties that are not able to meet recurrent expenses,â€ he said.
According to him, counties had Sh22 billion in their accounts from the Sh34 billion disbursed in the last three months and all the civil servants have been paid.
He had been asked to offer the country some hope amid worries that the government was in a financial crisis, which manifested itself in the form of delayed salaries, a cash shortage in Parliament, failure to disburse Constituency Development Funds and an increase in interest rates.
The CS will be meeting the committee again next Thursday to answer more questions.
Some of the legislators were still not convinced and were left with questions hanging as the time slotted for the meeting ran out.
â€œWhatever explanation we have been given by the ministry is not sufficient and itâ€™s not convincing to tell Kenyans the government is not broke,â€ said Ms Tiya Galgalo (Isiolo Woman Rep, TNA).
â€œThe reasons you have given us are so casual, so simple,â€ said Ms Mary Emaase (Teso South, URP). She argued that the Kenya Revenue Authority was not collecting enough revenue because of corruption.
TAX COLLECTION STRATEGY
The committee chairman, the Rev Mutava Musyimi, argued that because the government has more than 10,000 bank accounts, there was confusion and cash management was so bad that the Treasury did not how much was lying idle as it sought to borrow.
â€œThe idea that you have civil servants that are not paid is a serious security risk. We cannot afford that,â€ said the Rev Musyimi.
Mr Rotich told the MPs of a plan to take a Sh78 billion syndicated loan from banks in the next two weeks to ease the cash crunch in the short term.
To this loan will be added external borrowing in the form of a Eurobond similar to the $2 billion one offered last year.
â€œWe had programmed to borrow Sh220 billion from the domestic market. Because of the high interest rates, we want to substitute that with external borrowing,â€ he said.
He and Treasury Principal Secretary Kamau Thugge said the debt levels would remain sustainable because â€œwhat we borrow is what we consider feasible and does not undermine our debt sustainabilityâ€.
Mr Rotich added: â€œOur borrowing last year would have been huge had we not floated that Eurobond (last year).â€
There would also be a renewed focus on how the Kenya Revenue Authority collects taxes and the agency had been asked to provide a strategy on how it plans to collect unpaid taxes.
He said there had been weak audits by the KRA on transfer pricing, the manner in which multinationals manage their costs in such a way that some money is paid to entities abroad.
KRA audits such companies to ensure that the money paid is not merely an excuse for avoidance of taxes.
Large retailers and wholesalers and landlords are also bound to feel the tightening of the taxmanâ€™s net after Mr Rotich said KRA would be asked to get them into the tax bracket.