Kenya puts a cap on borrowing by its agencies

L-R: Presidents Museveni of Uganda, Uhuru Kenyatta of Kenya and Paul Kagame of Rwanda after the opening of the Northern Corridor integration project in Nairobi two weeks ago. PPU Photo 

By KENNEDY SENELWA, TEA Special Correspondent

In Summary

• A new rule introduced by the National Treasury to curb excessive borrowing also requires government ministries, state agencies and corporations to ensure their cashflow requirements are handled through a single Treasury accountinShare

Loans from domestic banks to Kenyan state corporations will not be ............................
guaranteed by the government.

A new rule introduced by the National Treasury to curb excessive borrowing also requires government ministries, state agencies and corporations to ensure their cashflow requirements are handled through a single Treasury account.

The Treasury will only allow state corporations to borrow money, either in the domestic or external market for investments or projects that are commercially viable, and satisfy the rate of return criteria.

National Treasury Cabinet Secretary Henry Rotich said business plans have to demonstrate that an investment or project will generate sufficient revenue to repay the loan in full without recourse to the government for a bailout.

“Where interpretation in respect of terms and conditions of outstanding loans to government or on-lent/guaranteed loans by government is not clear, clarification should be sought from the investment secretary,” said Mr Rotich.

Treasury releases budgetary allocations to government agencies and corporations through the Exchequer when they have surplus funds held in short term bank deposits invested in Treasury-bills or bonds.

This has resulted in the country incurring huge borrowing costs as a result of failure to synchronise national government cashflow requirements (cash inflows versus cash outflows) to ensure smooth budget execution.

To ensure proper cashflow management, circular No.12/14 stipulates that requirements for ministries, departments and agencies including state corporations must be conducted through the Treasury Single Account.

Public institutions will now be required to prepare and submit cash flow statements and projections on quarterly basis, and also submit a schedule of investments of surplus funds held in financial institutions and banks or in Treasury-bills and bonds.