All emergency loans tapped by the Treasury from the Central Bank of Kenya (CBK) will be fully repaid within a financial year to curb a pile-up of public debt, if Parliament approves proposals by the Controller of Budget (CoB).
Controller of Budget Margaret Nyakang’o said the present rollovers of CBK overdraft facilities into the subsequent financial years put undue pressure on Kenya’s ballooning public debt which closed June 2023 at Sh10.2 trillion, according to the latest data from the bank.
“The National Treasury should clear all overdrafts at the end of the year, rather than capitalising the same as public debt,” Dr Nyakang'o told the National Assembly’s Budget and Appropriation Committee on Wednesday.
The overdraft facility —a temporary source of cash to cater for priority payments and emergencies — is usually tapped by the Treasury when revenue streams such as tax receipts and debt do not flow into government accounts at a pace that matches expenditure cash demands.
If the proposal by the CoB is approved, the National Treasury will be on a tight leash to ensure it clears its overdraft obligations by June 30th every year.
The last time the government closed a financial year with zero balance on the CBK overdraft position was in the 12 months that ended June 2017, a pointer to the cashflow constraints that the State has faced in the recent past as expenses race ahead of revenues mobilised.
Kenya has since closed financial years with overdraft positions at Sh56.8 billion, Sh57.3 billion, Sh47.2 billion, Sh59.3 billion, and Sh76.5 billion in the periods ended June 2018, June 2019, June 2020, June 2021, and June 2022, respectively.
The overdraft facility is one of the mechanisms provided in the country’s Public Finance Management Act 2012 to help the State address emerging cashflow pressures depending on how sources of ordinary revenue, such as taxes, perform.
The law sets the ceiling for the overdraft facility at 5.0 percent of the most recent audited national government revenue but does not prescribe that the Treasury must close the financial year having settled its overdraft obligations in full.
“Over the medium term, the national government's borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure. Short-term borrowing shall be restricted to management of cash flows and in case of a bank overdraft facility it shall not exceed five percent of the most recent audited national government revenue,” the Public Finance Management Act 2012 states.
In the current financial year, the Treasury’s overdraft from the CBK stands at Sh75.1 billion as of September 8, according to the latest data from the apex bank.