The government has set its sights on collecting additional cash from dozens of regulatory authorities.
As part of the non-tax revenues, or ministerial appropriation-in-aid, the Treasury has been going after surplus funds from regulatory authorities to plug its budget deficit.
Three years since it started mopping up surplus funds from state corporations, the Treasury has set itself a target of around Sh95 billion.
After paying for salaries, programmes, and administration, any money left over is a surplus that should be returned to the National Treasury.
Under the Public Finance Management Act and Treasury circular No. 15 of 2024, regulatory authorities are mandated to remit 90 percent of their operating surpluses, after covering salaries and essential internal expenses, to the Consolidated Fund.
The Consolidated Fund is the government’s bank account at the Central Bank of Kenya (CBK).
How much does the government expect to collect from surplus funds?
In the current financial year, the National Treasury expects to increase the collection of surplus funds from cash-rich parastatals by nearly a third to Sh42 billion.
In the previous year ended June 2024, the Treasury netted Sh32.94 billion in surplus funds from these State bodies. The Treasury has projected it will collect a lower amount of Sh20 billion in next fiscal year starting July, 2025, bringing total collection in three years to Sh95 billion in the mop-up exercise.
What have been the challenges of collecting surplus funds?
Since the government launched the mop-up exercise, it has not been easy to collect all the excess surplus held by parastatals, as some of it had already been locked in properties or government securities.
By the end of May, for example, parastatals had put Sh366.2 billion in Treasury bonds and bills, an indicator of how they are flush with surplus cash.
This was an increase of Sh88.7 billion from Sh277.54 billion that regulatory authorities had put in government securities by the of June 2024.
Treasury Cabinet Secretary John Mbadi Treasury recently said he had unearthed a ploy that parastatals use to avoid remitting 90 percent of the surplus cash to the Exchequer.
He said most of the State corporations have set aside cash for future capital expenditure from surpluses in their accounts, cutting the shares they surrender to the government.
“It has been noted with concern that some regulatory authorities are adjusting operating surplus by providing for capital expenditure to determine the 90 percent to be remitted to the national Exchequer,” said Mr Mbadi in a circular to the chiefs of State corporations ahead of the preparation of annual budgets for the financial year starting July 2025.
Is this the first time the Treasury is trying to collect surplus funds?
The attempt to mop up surplus funds from parastatals started with the administration of former President Uhuru Kenyatta.
During his tenure as National Treasury Cabinet Secretary, Ukur Yatani emphasised the importance of State corporations and regulatory authorities remitting surplus funds to the Treasury.
In Circular No 22 of 2019, Mr Yatani provided guidelines for the preparation of annual budgets for state corporations for the financial year 2020-21, directing them to surrender 90 percent of their surplus funds.
Why has the government suddenly been going after regulatory authorities for surplus funds?
Years of over-borrowing has left the national government in a bad shape financially. This has seen successive government try to raid parastatals for any extra shilling they make, noting that these funds will supplement what they get from ordinary taxes.
Indeed, the government has even increased fees and fines charged by various regulators in a bid to shore up non-tax revenue, or what is known as ministerial appropriation-in-aid.
Which regulatory authorities are targeted by this latest mop-up?
Some of the prominent regulatory authorities that are on the sights of Treasury’s mop-up exercise include Capital Markets Authority, the Communications Authority of Kenya, the Energy and Petroleum Regulatory Authority, Kenya Bureau of Standards, and Insurance Regulatory Authority and the Central Bank of Kenya.
Why are some regulatory authorities opposed to the mop-up of surplus funds?
Despite these legal requirements for parastatals and other regulatory authorities to surrender 90 percent of surplus funds to Treasury, there have been resistance, highlighting the debate between the need for centralised fiscal management and the autonomy of regulatory bodies to manage their finances effectively.
Some of the agencies argue that retaining surplus funds is crucial for their financial independence and ability to plan long-term projects.
They fear that whenever the money goes to consolidated fund, coming back has never been easy.
Others have argued that immediate remittance of surplus funds could hinder their capacity to execute planned capital projects and maintain operational efficiency.
