Treasury overdraft breaches Sh85bn


The National Treasury building in Nairobi in this picture taken on March 15, 2023. PHOTO | DENNIS ONSONGO | NMG

Emergency loans the Treasury has tapped from the Central Bank of Kenya have crossed the Sh80 billion mark for the first time this month, pointing to a biting short-term cash flow crisis.

Latest data shows outstanding overdraft hit a record high of Sh85.12 billion on November 10 before falling a week later to Sh81.01 billion.

This means the Treasury has accessed more than 83 percent of the Sh97 billion limit available in the current financial year ending June 2024.

Read: Treasury takes biggest overdraft

The facility largely helps the Treasury to finance short-term needs when it faces a cash shortage, including urgent payment requirements such as salaries and other priority recurrent expenditures like debt repayments.

Section 46(3) of the CBK Act sets the limit of the Government of Kenya’s overdraft facility from the bank at five percent of the gross recurrent revenue as reported in the latest audited financial statements.

Borrowing under the overdraft facility has been capped at about Sh97 billion, according to a recent presentation by the CBK to the National Assembly, increased from Sh80.05 billion for the year ended June 2023 and Sh75.45 billion the year before.

Tapping of the emergency funds currently attracts an annual interest of 10.5 percent — an equivalent of Central Bank— which is the highest in seven years as part of the ammunition deployed by the CBK to battle elevated inflation by raising the cost of money.

High borrowing costs are expected to curtail expenditure on non-essential goods and services, thereby helping ease price pressures coming from the demand side. ]

Increased use of the overdraft facility is a signal of cash flow challenges being faced by the Treasury, which is behind its domestic borrowing target on prorated basis.

For example, the Treasury was behind the prorated domestic borrowing goal by Sh72.93 billion in the first four months of the current fiscal year in October after tapping a net of Sh156.48 billion against a full-year target of Sh688.21 billion.

This has been impacted by investors demanding more return than what the CBK, the government’s fiscal agent, is offering for Treasury bills which are repaid in six and 12 months as well as bonds.

This came on the back of broad tax sources such as income, value-added, excise, and import falling short of a cumulative target by Sh54.63 billion in the first quarter ended September, having received Sh497.99 billion.

Read: Treasury teeters on brink of breaching new overdraft limit

Economists, however, warn against excessive use of the overdraft facility, arguing that it’s tantamount to printing money – with the attendant risks of creating inflationary pressures.

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