The government is facing an unprecedented cash-flow crisis that has resulted in delays in the payment of salaries for civil servants, Members of Parliament and county employees.

Sources told People Daily that the strained cash flow has been precipitated by increased spending demands amid lower revenue collections by the Kenya Revenue Authority (KRA). This is likely to result in delays for some payments to civil servants and disbursements to counties.

While the government has frozen some essential services to scale down expenditure, Treasury insiders told PD that the delay in payment of salaries and other obligations signals the gravity of the deteriorating cash-flow situation that has been made more pronounced by declining tax revenues, the depreciation of the shilling and worsening debt service obligations, especially for dollar and other foreign currency denominated loans. That means Kenya needs more shillings to service every dollar for such loans.

Since the beginning of the year, civil servants, including parliamentarians and their staff, who had previously been receiving their salaries by 25th of every month, have been receiving their pay after the 30th day.

By yesterday, hundreds of thousands of government and parastatal workers, save for teachers and members of the disciplined services, were yet to be paid. Unless they receive their pay today, they will have to wait until the long Easter holiday.

Only individuals employed by the Teachers Service Commission, Kenya Defence Force and the National Police Service have so far received their pay.

On average, Treasury requires about Sh50 billion monthly for civil servants’ salaries and another Sh8 billion for payment of pensions. The government has also not remitted statutory deductions such as National Hospital Insurance Fund, National Social Security Fund and Pay As You Earn  deductions.

Yesterday, National Treasury Cabinet Secretary Njuguna Ndung’u admitted that the government owes counties in excess of Sh96 billion for the months of January, February and March.

Prof Ndung’u pleaded with senators to approve the government’s request for an allocation of Sh385 billion to counties for the next Financial Year to ease pressure on Treasury starting from June. However, the CS promised to make available funds for January by end of next week after its plan to disburse the funds this week hit a snag due to underperforming revenue collections (see separate story).

Tax collection

Although KRA has not released collection figures for the last few months, it has indicated that tax collection has not grown in tandem with targets. This could be partly attributed to the leadership changes that have taken place at the institution since the new administration came to power.

Ms Rispah Simiyu is the acting Director-General. She took over in late February after the exit of Githii Mburu.

Reports indicate that as a result of the government’s cash-flow challenges, employees in at least 20 counties have gone without salaries for the last three months. Mombasa, Murang’a, Busia, Bungoma, Nyandarua, Marsabit, Kisii and Kakamega are some of those affected.

Many other counties are yet to receive money from the Treasury since November, when the last disbursement was made, and this has paralysed critical dockets like agriculture, health and nursery education. This has made it difficult for governors to meet key obligations, including retiring pending bills and fulfilling their election pledges. This also puts them at loggerheads with doctors and other workers, whose salaries, like those of nursery school teachers, are paid by devolved governments.

Yesterday, governors were up in arms over a Bill that proposes to impose a Sh5 million fine or five years jail term for public officers who fail to pay contractors and suppliers on time.

 With delays in disbursements from Treasury, such a law would put many governors at risk of being fined or jailed. Besides delayed disbursements to counties, the National Government Constituency Development Fund has not been spared either, as only Sh50 million has been allocated to each constituency in the current FY instead of Sh100 million.

According to sources, the outstanding disbursement to counties, Ministries, Departments and Agencies has surpassed Sh290 billion in total. The last time Kenya faced a serious cash flow crisis was in 2020, during the Covid-19 pandemic. However, when the new administration took over in September, its top leaders claimed that they found “empty coffers”.

Market shocks

Treasury officials who spoke to People Daily on condition of anonymity admitted that there was a cash flow problem but the government’s hands were tied, meaning that the situation can barely be solved unless the government borrows more money to fund its needs.

“The government lacks money to fund the prevailing economic shocks. It is a cash flow issue. We cannot address the market volatility because we don’t have any control over it,” said a senior official at the National Treasury who requested not to be identified due to the sensitivity of the matter.

A combination of factors, including global market shocks, drought, a strengthening dollar and servicing of maturing public debt have been consuming a significant chunk of funds from the government coffers.

With rains expected to ease food prices, and some strong economies like China turning from the dollar to the Yuan, some of these shocks are expected to ease in coming months. The government might also have to consider rescheduling some of the maturing debts and turning to the World Bank and International Monetary Fund for short-term relief.

The government is expecting funds from the World Bank through development policy operations and a programme with IMF through a resilience sustainability facility.

However, the situation is compounded by the shortfall in tax collections against the targets that the Treasury used when planning for project implementation and delivery of key services and projects.

Shortage in revenue collection has seen the government whipping various State agencies to start collecting dormant levies as KRA also tightens its noose to get more taxes. The Treasury has already gazetted higher stamp duty for at least 14 products, including bottled water, juices, cosmetics and alcohol.

Debt repayment — followed by salaries — account for the top two government priority expenses. With the current administration vowing to prioritise paying off maturing debt, payment of salaries could be affected temporarily until the situation stabilises.