Kenya allays fears of financial crisis amid low revenue collection

The Kenyan government has allayed fears there is a looming financial crunch in the country which has paralysed services at both national and county levels.

Treasury Cabinet Secretary Henry Rotich blamed the current crisis on increased financial commitments made by government agencies at the beginning of the current financial year that started in July.

Rotich who appeared before a parliamentary budget committee on Thursday said massive financial obligations committed by ministries, departments and agencies at the tail end of the financial year are becoming a cost to the Exchequer and must be stopped to avoid unnecessary spending amid low revenue collections.

"The first quarter of each financial year is usually a slow quarter in terms of revenue collections. Revenues usually pick close to the end of the financial year. It is not an unusual circumstance," Rotich told Budget and Appropriations Committee of Parliament.

"We are also reviewing our budget to ensure that we retain only the priorities that can be funded within the available resource envelope and keep the deficit down," he added.

He said the Kenya Revenue Authority (KRA) will identify and enforce collection on debt which is not in dispute.

Rotich said the tax collector also expects to generate funds from the real estate programme, which has been in pace for the last three years targeting 150,000 potential landlords.

Fears of a collapsing economy has been sparked by delay in disbursing monies to the counties as well as failure by the government to pay salaries for civil servants including more than 280,000 teachers who have not been paid their September salaries.

"The government is facing serious financial crisis. Inability to pay salaries continues. Transfer of money to counties and even institutions like Parliament being unable to pay their bills is a matter of serious concern," Senate Finance, Commerce and Economic Affairs Committee chairman Billow Kerrow said during the meeting.

Rotich said the sliding local currency against the U.S. dollar had contributed to a cash crisis in government.

Rotich who was summoned to answer questions on government budgeting and spending which in recent times have seen delayed disbursement of salaries for civil servants added that the ministry is looking at the possibility of swapping foreign exchange trading with the dollar, for other global currencies with a more stable exchange rate.

He noted that while the local currency is currently trading at 103 shillings to the dollar, having hit a four-year low of 106 shillings, other major currencies have mostly stayed stable against the shilling.

"This time round, things were compounded by the tightening of liquidity, the increase in the interest rates, huge carryovers of the financial year 2014-15, and that became the first charge on available resources to avoid penalties," Rotich told the lawmakers.

The East African nation is bearing the brunt of high wastage coupled with poor cash management that is piling pressure on the National Treasury, which is turning to the debt market and leading to borrowing interest rates shooting through the roof.

The burden of borrowed funds used to plug the budget deficit and meet short-term obligations comes amid concerns of wastage of public funds - by both the national government and counties - through lavish spending on hospitality, travel and other non-priority expenditure, which must be addressed to ease Kenya out of the current cash crunch.

Kenya's debt is 51 percent of the country's GDP and pointed out that the U.S. has a higher debt which is 100 per cent of its GDP, while Japan is servicing a debt that is 200 per cent of its GDP.

Rotich also blamed poor planning by ministries, State agencies and counties that submit requests for cash beyond stipulated deadlines as some of the challenges that have fueled the current crisis.

He said measures have been put in place to avoid cash crisis in future.

As part of the plan, county governments, ministries, departments and agencies need to put in place a cash plan that takes into account any carryovers from the last financial year before they can seek the release of money from Treasury.