Treasury takes biggest overdraft


The National Treasury building in Nairobi. FILE PHOTO | DENNIS ONSONGO | NMG

The Treasury took an emergency facility of Sh30.2 billion from the Central Bank of Kenya (CBK) last week, the biggest overdraft in a week in over three years, pointing to biting cash flow pressures owing to a tough economic environment.

This came in the same week that the public debt crossed the Sh9 trillion mark for the first time after it hit Sh9.1 trillion on December 22 last year according to data published by the CBK on Friday.

Outstanding overdraft at CBK rose to Sh64.51 billion by end of Friday last week from Sh34.32 billion on January 20 as the National Treasury tapped on this emergency facility to finance its spending with both tax receipts and borrowing falling behind the target.

Read: Treasury overdraft in CBK hits Sh67.33bn as cash crunch bites

The official report shows that the outstanding overdraft at the Central Bank of Kenya (CBK) rose to Sh64.51 billion by end of Friday last week from Sh34.32 billion on January 20.

This is one of the highest weekly tapping of the overdraft facility by the National Treasury and comes at a time when the Government was under pressure to service some Chinese debts that matured.

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.

“Either revenue collection was not satisfactory during this period or there might have been some additional expenditures,” said Churchill Ogutu, an economist at Mauritius-based IC Group.

Outstanding overdraft fell from Sh55.57 billion early last month to Sh34.32 billion on January 20 as Treasury paid off part of this emergency loan.

The overdraft facility then jumped by a huge margin of Sh30.19 billion towards the end of last month as Treasury tapped this facility to plug its budget deficit.

Tax collection in the first five months of the current financial year fell short of the target by Sh32.2 billion, pointing to a difficult economic environment that has been worsened by a looming global recession.

The Kenya Revenue Authority (KRA) collected Sh786.5 billion between last July and November in taxes, falling short of the target of Sh818.7 billion that had been set by the Treasury for the period.

The Treasury has also been behind on its borrowing target, with jittery investors snubbing longer-dated Government securities for short-term papers.

President William Ruto’s administration has failed to cut the annual government spending in its first mini-budget due to multi-billion shilling expenditure in his predecessor’s last days, continued expenses on subsidies and the launch of the hustler Fund.

The National Treasury, whose finances have been negatively impacted by the looming global recession amidst tight liquidity in the global financial market, has been forced to borrow a lot of money from the domestic market, including taking an overdraft from the CBK, to help the economy recover.

Read: Treasury exceeds spending by Sh 65.5 billion in first quarter

Section 46(3) of the Central Bank of Kenya Act sets the limit of the government of Kenya’s overdraft facility at the Bank at five per cent of the Gross Recurrent Revenue as reported in the latest Government of Kenya audited financial statements.

Interest is charged at the Central Bank Rate, currently at 8.75 percent. The cash from the CBK is supposed to be repaid by the end of the fiscal year.

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.

For example, the current Treasury secretary governor Njuguna Ndung’u wrote in the Kenya Financial Sector Stability report back in 2012 when he was the CBK governor: “Accelerated borrowing from the central bank is inflationary as it is equated to the printing of money and therefore leads to macroeconomic instability through inflationary pressures.”

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