Kenya’s National Treasury has ordered all State corporations to surrender all cash balances in their bank accounts.
The decision to order parastatals to surrender all their cash is aimed at reducing Kenya’s appetite for borrowing and public debt continues to balloon.
Kenya’s public debt stands at 5.81 trillion shillings as the Jubilee government continues to borrow to meet budget deficits.
The National Treasury has been borrowing from parastatals while paying back with an interest. It is like borrowing your own money and then paying yourself back with an interest.
According to Treasury PS Julius Muia, the directive is “in line with the law and a prudent way for the government to cut costs on borrowing.”
More than 10 state corporations have more than 100 million shillings in their accounts which they argue is used to the running of day-to-day operations.
Banks are scared
Kenyan commercial banks who are among the largest lenders and buyers of Treasury bonds are scared of the directive.
Most of the money they use to buy and lend to Treasury comes from parastatals and are worried that the recall will affect their operations.
Kenyan banks have in the past blamed of choosing to trade with the government due to the low risk involved as compared to lending to Kenyans, especially Small Medium Enterprises (SME s).
On the wheels of debts
Currently, Kenya is running on the wheels of debts with China remaining the largest lender.
The World Bank and the International Monetary Fund have raised a red flag on Kenya’s borrowing appetite saying the country might not be able to pay back what she owes creditors.
Kenyans are basically scared of the terms and conditions contained in the agreements between Kenya and China in terms of loans.
Word has it that some assets belonging to Kenyan government such as the Port of Mombasa have been used as collateral.