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David Ndii, Wehliye Warns Of Severe Consequences On The State’s Directive To Handover All Their Cash Reserves To The Treasury

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The government is in dire need of cash, the new measures are meant to help it address the cash shortage that is threatening to cripple the President’s Big Four projects.

Parastatals are required by law to remit surplus funds to the Consolidated Fund every year, instead of keeping the cash in commercial banks. Mr. Yatani further wants them to make full disclosures of internally generated revenues.

Days after President Kenyatta summoned the heads of State corporations and reinforced acting Treasury Cabinet Secretary Ukur Yatani’s orders to remit excess cash in new austerity measures, the treasury has received about half of the sh78 billion target.

However, Global Economist David Ndii is sending a warning over this latest move by the State as it comes with severe consequences. In sex points, Ndii deconstructs the directive and translating what it means.

Below are his pointers;

So State House has ordered parastatals to hand over all their cash reserves, treasury bills/bonds and even A-in-A revenue (i.e what they earn in service fees) to the Treasury. What are the implications? A thread.
This is going to impair the cash flow of these corporations and in effect, operations and service delivery. The state corporations which have had their own resources will now have to depend on the notoriously unreliable and unpredictable exchequer releases.
While the memo suggests that some of this money will settle pending bills, far from solving the problem, it has now transferred it to parastatals whose suppliers will now be at the mercy of the exchequer. Expect some parastatals to default on their suppliers in coming days.
Because the key driver of the government’s financial crisis is foreign debt, part of the money confiscated from parastatals is going to pay the foreign debt. Instead of circulating in the economy it is going to China. Another body blow to an already battered economy.
The confiscation of t-bills/bonds is for all intents of purposes, a default action. It does not matter that these are state corporations, these debt instruments backed by law, and the government/debtor has suspended law. It’s a case of might is right, impunity.
The confiscation of t-bills/bonds is for all intents of purposes, a default action. It does not matter that these are state corporations, these debt instruments backed by law, and the government/debtor has suspended law. It’s a case of might is right, impunity.
When it gets more desperate as it will, what will stop it doing the same to other vulnerable investors eg. public pension funds? By resorting to such a draconian action, it has exposed that its more distressed than its been letting on. Expect investors to take note.
Mohamed Wehliye, Advisor, Banker and Economist:

Mohamed Wehliye.

1. GoK has instructed parastatals to transfer ownership of all the t-bonds they hold to GoK. Debtor asking Creditor to transfer all debt to it. This effectively = forced debt cancellation.
2. Some would ask – what is the problem? government borrowed from itself in the first place & that is now being reversed. Well, it is complicated.

3. You see, when parastatals bought these t-bonds, they paid GoK. So GoK has already spent this money. Kwisha, that money has been spent!

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4. In the absence of a 3rd re discounter (market is illiquid), these t-bonds can only be rediscounted at CBK (the guarantor & lender of last resort of GoK)- meaning CBK (a GoK agent) will pay GoK for these t-bonds! This is akin to printing money – backdoor overdraft to GoK!

CBK would then have to go out & mop up all that liquidity from the market later. Fiscal patient spreading its disease to its monetary brother. Selling t-bonds not once but twice! Would like to see how this instruction would be implemented


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