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Treasury taps Sh28bn emergency loan from CBK
The National Treasury building in Nairobi in this picture taken on March 15, 2023. The National Treasury has taken an emergency loan of Sh27.8 billion from the Central Bank of Kenya (CBK).
The National Treasury took an emergency loan facility of Sh27.8 billion from the Central Bank of Kenya (CBK) last week, marking the biggest weekly overdraft since the week ended December 18 last year, pointing to State cash flow pressures.
Data from the country’s apex bank shows that outstanding overdraft from the government’s fiscal agent hit Sh63.05 billion last week, to account for 1.06 percent of the country’s overall domestic debt, up from Sh35.24 billion which made up 0.59 percent of domestic borrowings the preceding week.
The overdraft facility – a temporary source of cash to cater for priority payments and emergencies – is usually tapped when government revenue streams such as tax receipts and debt do not flow into State accounts at a pace that matches expenditure needs.
The facility is restricted to a maximum of five percent of the most recently audited government revenues.
Interest on the overdraft is usually charged at the rate equivalent to the Central Bank Rate (CBR), which was earlier this month revised downwards to 10.75 percent down from 11.25 percent.
In September last year, disclosures from the Controller of Budget (COB) revealed that overdraft charges for the government jumped by 87 percent during the fiscal year ended June 2024, as cash flow challenges left the Treasury tapping more emergency loans from the CBK amid rising interest rates.
In her report, the COB revealed that between July 2023 and June 2024, it cost the State Sh9.6 billion in charges for the overdrafts it took, translating to an average monthly charge of Sh802.5 million up from an average of Sh429.8 million the prior year.
Last week, the overall outstanding gross domestic debt expanded by Sh21.94 billion to hit Sh5.95 trillion as of February 7 up from Sh5.92 trillion on January 31.
Deficit financing from the CBK overdraft has come under sharp scrutiny in the past, with critics likening the borrowings to the monetisation of the funding gap, which is usually equated to the printing of cash by the government.
Former Treasury Cabinet Secretary Prof Njuguna Ndung’u, speaking while he was CBK governor, said borrowing from the government’s fiscal agent was inflationary, equating the practice to printing money, which risks sparking inflation.
