Treasury Cash Data does not Reveal a Bankrupt Government

Despite larger debt payments, Treasury data show that the government’s financial position improved in March compared to February, contradicting public statements by officials portraying the government as bankrupt.

President William Ruto, his Deputy Rigathi Gachagua, and a slew of top administration officials recently blamed the delays in paying civil servants’ salaries in March on a severe cash crunch and loan repayments, which they claimed required the government to pay creditors Sh150 billion — roughly double the amount usually paid.

According to Treasury data published in the most recent Kenya Gazette notice, Kenya’s debt repayment bill increased to Sh121.3 billion in March from Sh66.7 billion in February, representing an increase of Sh54.6 billion.

However, March’s revenues increased from Sh84.2 billion to Sh260.9 billion, more than enough to cover the increased debt repayment costs.

Top Treasury officials have attempted to downplay claims made by the Presidency and politicians that Kenya was insolvent while still acknowledging the cash crunch.

According to the officials, Kenya can timely repay its debt and pay its civil servants’ salaries, among other basic obligations.

“The government is not broke because the government has so far been able to pay debt obligations when they fall due. In other words, we have not defaulted on debt obligations,” a top official at the Treasury who sought anonymity said.

The government was later labelled “broke” by some leaders, who blamed Uhuru Kenyatta’s previous administration for taking on excessive debt that was rapidly approaching repayment.

It was not the first time the government had to deal with debt obligations that were so significant in comparison to revenues, according to an analysis of monthly expenditures from the exchequer, the government’s main account.

The data, which were published by Treasury Cabinet Secretary Njuguna Ndung’u, show that while interest payments to domestic creditors were higher in March than in January, total debt obligations were higher in March.

The Sh123.53 billion paid in January, when biannual loan repayment obligations to China became due, was slightly less than the Sh121.32 billion debt costs for March, according to Treasury data.

He echoed comments from President Ruto.

“I know we have an issue of delayed salaries [which] …is the first time this has happened, but also it is the first time we are having such monumental debts,” Dr Ruto said on April 11, explaining the delays in salaries for a section of employees and release of shareable revenue to the counties.

Kenya’s projected public wage bill for the three months ending in December would total Sh131.9 billion, or Sh43.9 billion per month.

According to the data, total revenue increased at a faster rate in March than expenditures, growing by 15.48 percent year over year to Sh260.91 billion compared to a rise of 13.18 percent to Sh259.63 billion.

The Sh260.91 billion represented an increase from the Sh176.7 billion in February, or an additional Sh84.2 billion, which included additional taxes worth Sh22.7 billion and borrowings worth Sh43 billion.

“The challenge the government is facing is a temporary liquidity shortage due to a delay in receipt of funds expected earlier, but now are set to be disbursed in May and June 2023,” the Treasury official said.

“The government has also avoided borrowing from the international markets because the international money markets are not favourable at the moment.”

According to the data, the Treasury has had difficulty finding domestic funding, with nine-month borrowing (new borrowing and rollovers) through March falling Sh268.57 billion short of the target on a prorated basis.

This follows the government’s fiscal agent, the Central Bank of Kenya, raising Sh396.32 billion during the review period as opposed to a full-year target of Sh886.52 billion.

According to data on bond sales, only one out of every four Treasury bonds sold this year have reached their goal because investors want higher interest rates than the government is willing to offer.

In comparison to returns of between 11.2 percent and 13.9 percent during the same period last year, interest rates on bonds have ranged between 12.9 percent and 14.4 percent this year.

“Is public finance that difficult? It’s reported every other day debt service is consuming 60%+ of revenue. Liquidity crunches come with the territory. When maturities bunch up, revenue falls short, or markets shift, something has to give. Salaries or default? Take your pick,” said David Ndii, the President’s economic adviser on social media.