The Treasury is only Sh400 million short of breaching its overdraft limit at the Central Bank of Kenya (CBK), as the State grapples with a cash crunch that has kept up interest rates on government securities.
The government borrowed Sh25.4 billion from CBK in the past week, compared to the maximum Sh25.9 billion that it is allowed to take as overdraft.
Under-subscription of treasury security sales and slow disbursement of funds by donors has put pressure on government finances as investors keep away from purchase of the papers mainly due to uncertainty over the direction of interest rates.
The government liquidity crunch is expected to continue exerting pressure on T-bill rates as government seeks to roll over maturing debt.
“We have not raised all the funds we had planned since the beginning of the fiscal year. But this is not the first time this is happening, the most important thing is that we have been able to meet all the expenditure requests,” said Geoffrey Mwau, the economic secretary.
The three-month treasury bill rates—which are seen as the market indicative rates-—went up 1.4 per cent in last week’s auction to 11.7 per cent.
The rising overdraft is an indication that Treasury is running short of cash, more so as donors seemed to have been slow to disburse funds.
The overdraft borrowing last week was the largest since February, as per the available data. The previous high was Sh24.3 billion two weeks ago.
CBK spokesperson Samson Burgei said the maximum was set at Sh25.9 billion for this financial year on the basis of the latest audited government revenues amounting to Sh518 billion for the 2008/9 fiscal year.
“Legally, the Government can borrow up to five per cent of the latest audited government annual revenue.
The limit currently amounts to Sh25.9 billion (outstanding at any one time during the fiscal year),” Mr Burgei said.
He said the purpose of the overdraft facility extended to the Government by the Central Bank is to smoothen Government cash flows.
According to African Alliance Investment Bank fixed-income report, the increase in the overdraft is indicative of constraints in government receipts — a development that could keep T-bill rates up as the state tries to roll over debt.
The analysts said they “anticipate market pressure on 91-day T-Bill yields over the next two weeks in a bid to rollover maturing government debt.”
“The build-up of the government’s overdraft at the CBK from Sh16.2 billion to Sh25.4 billion over the last month suggests that there’s a mismatch between revenue receipts and expenditure commitments and now comprises 3.3 per cent of total domestic debt,” said the African Alliance report.
Treasury said in its budget review for the past fiscal year that total cumulative revenue collection including donor funds and ministerial collections by the end of the fourth quarter ending June 30, 2011, was below the target by Sh18.9 billion.
But domestic ordinary revenue collection amounted to an over-performance of Sh3.3 billion.
As at June 30, 2011, Treasury’s quarter four review of government finances showed that the donors had failed to release as much as Sh25 billion intended for use in the 2010/11 fiscal year.
The same trend of slow disbursement continued into this fiscal year, with Treasury saying this also had to do with the slow procurement process, although it did not disclose the amount withheld at present.
“At the beginning of the financial year, line ministries start to procure and this can take time.
This explains why we don’t see disbursements early in the financial year except maybe for ongoing projects,” said Dr Mwau.
Some donors have said they would withhold funds due to scandals that have dogged government spending on projects including free education and construction of an embassy in Japan.