Central Bank of Kenya rejects bailout for State in row over billions

CBK Governor Patrick Njoroge

The Central Bank of Kenya (CBK) has defied an order from the Treasury for State agencies to surrender cash and Treasury bills, saying that the banking regulator is not in the business of bailing out a cash-strapped government.

CBK Governor Patrick Njoroge Tuesday said it would not be coaxed to surrender the surplus cash and government securities, arguing that it would be akin to printing money. The Treasury had on November 11 ordered all State agencies to forward surplus cash and Treasury Bills to it before November 12 with the CBK expected to remit between Sh25 billion and Sh27 billion.

The cash directive was meant to ease a cash flow crisis in government, which has regularly failed to meet its revenue-collection targets, contributing to the overall funding shortfall.

Dr Njoroge, who has recently been releasing hard hitting statements against the government, reckoned that State bailouts sought from central banks have never worked. “If the government is short of revenues and wants in a sense to assault the CBK and grab whatever resources there are, that has never worked and will never work,” Dr Njoroge said at the Monetary Policy Committee press briefing on Tuesday.

“Such bailouts monetise the deficit one to one which means the central bank prints money, it will be printing money to cover the deficit and would draw the central bank as a conspirator in fiscal decisions this will subordinate the central bank to fiscal decisions and political imperatives,” he said.

The Treasury had sought Sh78 billion from State agencies as surplus cash and surrender of government securities invested to the benefit of the agencies or the State-backed firms’ worth about Sh186.6 billion.

CBK trades in Treasury bills under its name to reduce or increase money supply in the economy.

“There were concerns that we also have been commanded to surrender T-bills that we hold. So just like Kenya oil or some parastatal we are thrown into this ring and forced to surrender. That couldn’t be further from the way things work, we do not operate under those sort of regimes,” Dr Njoroge said “If decisions are made in smoke filled rooms by people who want to send rockets to the sun they end up with those figures. We follow specific laws and we have been doing it for 54 years,” he said.

The push by the Treasury for more cash from the State agencies came in period when the Kenya Revenue Authority (KRA) has missed tax collection targets in a business environment that has been plagued by job cuts and reduced corporate profits hurting duty collections.

Kenya experienced tax shortfalls of Sh60.2 billion in the three months to September and internal revenues from items like fines, payments for passports and marriage fees were below target by Sh24.4 billion.

Business owners have accused national and county governments of delaying payments to suppliers worth more than Sh150 billion

They have blamed the non-payments on mismanagement and corruption and said that the East African nation’s economy is suffering. This has seen businesses cut back on operations, cut jobs and keep wages stagnant in the race to remain afloat, a development that has worsened Kenya’s economy situation.

“This delayed payment of goods and services led to deterioration of financial positions of businesses and in particular the SMEs (small and medium enterprises),” acting Treasury Secretary Ukur Yatani said last week. Last week, CBK gave the Treasury Sh4 billion as dividends from the year ended June, from Sh800 million in a similar period last year and nil in 2017

“In making its determination, the CBK board also considered CBK’s financial needs with the objective of ensuring CBK is well-resourced to deliver on its mandate,” CBK said in a statement. It has increased its authorised capital to Sh50 billion from Sh5 billion, where it has been for a decade.

This was meant to accommodate the rise in paid-up capital from Sh20 billion to Sh35 billion, further denying the Treasury the additional cash. The National Treasury collected Sh24.6 billion in the year to June 2018 from state owned companies, regulators and private firms where it has shareholding against a target of Sh36.7 billion.

It blamed the shortfall on lower remittances by CBK, one of its biggest contributor which was expected to deliver Sh5.8 billion but only offered Sh800 million using part of its income to print the new currency.

President Uhuru Kenyatta in June renewed Dr Njoroge’s term having been first appointed to the post in June 2015 for a four-year term, which is renewable once. Dr Njoroge, a US-educated economist who worked as an adviser with the International Monetary Fund, has recently been vocal on government policies. He faulted the structure of Kenya’s economy for delivering economic growth without jobs and a rise in income.

Dr Njoroge reckons that households have not felt Gross Domestic Product (GDP) growth, arguing that increased infrastructure spending has not spread wealth among working Kenyans. “It is true you have GDP numbers but you can’t eat GDP. At the end of the day, what is needed is specific income. That is what anybody else wants plus jobs,” he said.

Source: Business Daily Africa