Kenya needs way out of cash crisis

The government must act to quickly dig the country out of the current financial hole lest it faces worse times ahead. Having not been in a position to pay civil servants and county governments on time puts the government in a precarious situation, meaning that it needs a serious strategy to shore up revenues and grow the economy.

In many ways, the cash crisis is making it difficult for growth by stymieing the velocity of money, even as pending bills that had started to be paid, especially in counties, now hang in the balance with the risk that they could increase further.

By last month, the amount of money that had been delayed by the National Treasury had crossed the Sh122 billion mark, having fallen four months behind schedule. This followed the lapse of the March 15 deadline by which the Treasury should have disbursed the March 2023 equitable share of revenues.

Unfortunately, this not only leaves millions of Kenyans at risk of exclusion from critical services but also makes it impossible for companies that are owned by counties and the national government to operate.

The bad news is that even the government may struggle to refinance maturing debt after the bond issue performance rate topped 17.8 per cent last week. This after the results of the ten-year Treasury bond attracted offers totalling Sh20 billion with Treasury accepting only Sh3.5 billion due to the high bid rates.

Clearly, this means that the government — which is facing heavy maturities this year — is also likely to struggle in its quest to raise the funds it needs to retire maturing bond payments.

Granted, the country is banking on austerity measures by the State and changes in debt strategy to improve the fiscal space, but as Treasury warns of tough times ahead, the ongoing drop in collection of taxes and levies is worrying.

This could be an indication that the government could have acted too hastily in making many drastic changes at Kenya Revenue Authority (KRA), which led to a dip in tax collection. To reverse this decline, the government must quickly move to streamline revenue administration processes to increase output. This should entail engaging taxpayers more proactively, and above all, motivating tax collectors by giving them stability, direction, achievable targets and incentives for surpassing their deliverables.

This is the country’s best hope. The other option, which is not very attractive, is to go for expensive loans, which is part of the reason the country is in its current state in the first place.

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