The Treasury increased emergency borrowings from the Central Bank of Kenya (CBK) to the near limit of Sh80 billion in the year ended June on cash flow pressures, more than doubling the apex bank’s interest earning from this lending.
The CBK discloses in the latest annual report that the Treasury closed the financial year ended June with overdraft worth Sh76.46 billion, being a 30.6 percent rise from Sh58.5 billion in the preceding financial year.
The increased use of overdraft by the Treasury raised the CBK’s interest from these borrowings to Sh5.16 billion or 2.5 times more than the Sh2.06 billion earned in the previous financial year.
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.
The facility 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.
Civil servants around April ran into salary delays with Treasury Cabinet Secretary Njuguna Ndung’u saying the government was battling financial constraints on the back of underperforming revenues and limited access to finance due to a narrow borrowing headroom.
“The national government is caught between two extremes; high level of debt financing and financing constraints due to limited access to finance in the domestic and international financial market,” said Prof Ndung’u in April.
The CBK charges interest at the Central Bank Rate, which is currently at 10.5 percent—the highest in seven years. The rate was at 11.5 percent in March 2016.
At Sh76.46 billion, the Treasury used 95.5 percent of the maximum borrowing window that was available for it in the year under review as is provided for in the CBK Act.
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.
The limit for the year ended 30 June 2023, which is the latest audited statement, was at Sh80.05 billion compared with Sh75.45 billion a year earlier.
The Sh80.05 billion limit is based on the gross recurrent revenue for the year ended June 2021 which are the latest audited financial statements, according to the CBK.
