Treasury cash data fails to reveal a broke government
Thursday April 20 2023
Treasury data indicate that the government’s financial position was better in March than in February despite the larger debt payments, contradicting public statements by officials portraying the government as broke.
President William Ruto, his Deputy Rigathi Gachagua and a host of top administration officials recently blamed delays in paying civil servants’ salaries in March on an acute cash crunch and loan repayments that they said required the government to pay creditors about Sh150 billion — about double the amount that’s usually paid.
Treasury data published in the latest Kenya Gazette notice show Kenya’s debt repayment bill grew to Sh121.3 billion in March from Sh66.7 billion in February, reflecting an extra Sh54.6 billion.
But revenues for March grew from Sh84.2 billion to Sh260.9 billion, which was more than adequate to cover for the additional debt repayment expenses.
Top Treasury officials, while admitting the cash crunch, have sought to play down claims by the Presidency and politicians that Kenya was broke.
The officials reckon that Kenya is able to meet its core obligations, including debt repayment and civil service salaries on time.
Read: Treasury signals more switch bonds in 2023
Business Daily enquiries revealed that the majority of civil servants had received their salaries at the time politicians raised the alarm that the government had failed to pay March salaries for workers in the national government.
“The government is not broke because the government has so far been able to pay debt obligations when they fall due. In other words, we have not defaulted on debt obligations,” a top official at the Treasury who sought anonymity told the Business Daily.
Some leaders went on to declare the government was “broke”, laying the blame on the previous administration of Uhuru Kenyatta for excessive borrowing whose repayments were quickly falling due.
An analysis of monthly expenditure from the government’s main account, the exchequer, has revealed it was not the first time it was facing debt obligations of such magnitude relative to revenues.
The data, gazetted by Treasury Cabinet Secretary Njuguna Ndung’u, show elevated debt obligations in March, largely driven by interest payments to domestic creditors, were lower than in January.
The Treasury data show the Sh121.32 billion debt costs for March were slightly lower than the Sh123.53 billion paid in January when biannual loan repayment obligations to China fell due.
The obligations in March were equivalent to 77.19 percent of Sh157.17 billion taxes in March, which is a lower share compared with January (81.20 percent) and November (78.40 percent).
The Ruto administration, which rode to power on a pledge to lift the economic welfare of those at the bottom of the pyramid, has tended to blame the previous administration for economic hardships, including the elevated cost of living.
In explaining the March salary delays and protracted failure to disburse funds to the counties on time, Mr Gachagua, for instance, said the current administration was rebuilding the economy “from scratch” after inheriting “empty” coffers from the previous one “which borrowed money left, right and centre”.
He echoed comments from President Ruto.
“I know we have an issue of delayed salaries [which] …is the first time this has happened, but also it is the first time we are having such monumental debts,” Dr Ruto said on April 11, explaining the delays in salaries for a section of employees and release of shareable revenue to the counties.
Kenya’s public wage bill was projected to reach Sh131.9 billion in the three months through December, putting the monthly bill at Sh43.9 billion.
The data show total revenue in March grew at a faster pace of 15.48 percent year-on-year to Sh260.91 billion against a 13.18 percent rise in expenditure to Sh259.63 billion.
Read: Treasury saves Sh32bn on lower debt repayment
The Sh260.91 billion was an increase from Sh176.7 billion in February, translating to an extra Sh84.2 billion including extra taxes of Sh22.7 billion and Sh43 billion from borrowings.
“The challenge the government is facing is a temporary liquidity shortage due to a delay in receipt of funds expected earlier, but now are set to be disbursed in May and June 2023,” the Treasury official said.
“The government has also avoided borrowing from the international markets because the international money markets are not favourable at the moment.”
The data show the Treasury has struggled to raise money domestically, with nine-month borrowing (new borrowing and rollovers) through March falling short of the target by Sh268.57 billion on a prorated basis.
This is after the Central Bank of Kenya, the government’s fiscal agent, raised Sh396.32 billion in the review period against a full-year target of Sh886.52 billion.
Bond sale data, for instance, show only one in four Treasury bonds offered this year has met its target, with investors demanding higher interest than what the government is offering.
Interest rates on bonds have ranged from 12.9 percent and 14.4 percent this year compared to returns of between 11.2 percent and 13.9 percent in the same period last year.
“Is public finance that difficult? It’s reported every other day debt service is consuming 60%+ of revenue. Liquidity crunches come with the territory. When maturities bunch up, revenue falls short, or markets shift, something has to give. Salaries or default? Take your pick,” said David Ndii, the President’s economic adviser on social media.