This archive report was first published on 13 August 2019.
On August 12, 2019, the National Treasury invited heads of state-owned corporations to discuss how much cash they would surrender to the state. The move is part of a broader effort to reduce the cost of borrowing for the government.
Government entities are among the biggest buyers of treasury securities, meaning they lend to the government at a cost. To address this, the Treasury has instructed all government-owned institutions to hand over their cash balances in their bank accounts.
According to Treasury Public Secretary Julius Muia, this is not a new demand, but rather a formalization of previous requests. The surplus money collected from the corporations will be accounted for as retained earnings, Muia explained.
Commercial banks and parastatals have expressed concerns over the Treasury directive. Banks fear that the order will affect their liquidity, while parastatals worry that taking away the surplus will limit their cash for daily operations and contingencies.
However, Muia reassured that the process would be carried out smoothly, after consultation with each state corporation. He also brushed off banks' fears, stating that there is sufficient liquidity in the market.
“But the amounts are not big, and if you look at the liquidity of the banking sector, they are awash with money with liquidity ratios higher than that required by the CBK,” Muia said.
