The National Treasury Building in Nairobi. PHOTO | FILE
What you need to know:
Agency says failure by State to clear CBK debt source of major concern.
The parliamentary Budget Office has hit out at the Treasury’s poor cash management that has seen the State constantly rely on costly overdraft from the Central Bank.
The Budget Office specifically points out the fact that the Treasury failed to clear its outstanding credit with Central Bank at the end of the financial year as a source of major concern.
The office noted the cost charged on the overdraft at the prevailing Central Bank Rate, currently 8.5 per cent.
“The continued use of the overdraft and lack of repayment at the end of the financial year raises concern on the cash management framework being implemented by the Treasury,” reads a section of its monthly bulletin.
Parliament echoed previous concerns raised by Central Bank that “overdraft instrument has adverse effects to the economy such as pushing up inflation in the domestic market”. Government use of overdraft facility is equivalent to printing cash.
Overdraft is a short-term debt, implying that the money is not meant for development expenses but rather recurrent obligations such as payment of wages.
Currently, the Treasury has overdrawn Sh22.6 billion at CBK against a cap of Sh39.2 billion. The cap is fixed at five per cent of the government latest audited revenues.
The overdraft position at issue remained at Sh39.2 billion end of June when State was required by law to clear it or bring it close to zero as possible. This is despite the government receiving the Eurobond money in June while also front loading its borrowing in the same month.
The short-term debt fell to Sh13 billion in mid-August before rising again to Sh24.9 billion the next week.
Failure to implement the single account system has been identified as a major reason for the increased reliance on the overdraft.
The Treasury has blamed a technical hitch at the Central Bank for the delayed switch to the single account stating that it would launch it as the banks’ regulator configures its new system.
Under single account system all money allocated to ministries and government institutions should be held in a common pot from where it is withdrawn upon approval. Centralising of cash ensures the government does not go borrowing while some of its institutions are holding idle cash.
Treasury secretary Henry Rotich has said the ministry intends to institute the single account system in counties too in line with prudential cash management practices.
Kenya’s public debt rose to Sh2.3 trillion at the end June which is equivalent to 57 per cent of the country’s GDP. External debt contributed 45.8 per cent, with the local market providing 54.2 per cent of the stock against a target of 60 per cent domestic borrowing and 40 per cent external.
Mr Rotich has disclosed he intends to push down domestic borrowing using cash raised from the sovereign bond soon after disbursing funds for infrastructure projects.
Lowering of government participation in the market is expected to in turn pull down commercial interest rates.
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