The National Treasury took an emergency loan facility of Sh22.6 billion from the Central Bank of Kenya (CBK) last week to help repay interest on bonds. This marked the biggest weekly overdraft since January last year and pointed to cash flow pressures in the aftermath of sustained youth-led protests that hurt revenue collections.
Data from the CBK shows that outstanding borrowings from the apex bank hit Sh91.8 billion last week to account for 1.68 percent of the overall government domestic debt, up from Sh69.19 billion, which made up 1.27 percent of domestic borrowings the preceding week.
Last week’s new overdraft is the highest since the Sh30.2 billion emergency facility that the Treasury took during the final week of January 2023, at a time when the government was under intense pressure to service several Chinese debts that had matured.
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.
“This was majorly due to the settlement of Treasury bond interest of Sh26.1 billion on Monday, July 22, which will be replenished in the next auction,” Treasury PS Chris Kiptoo told the Business Daily.
“It is important to note that the government has an overdraft facility of Sh97 billion, legally capped at five percent of the last audited exchequer revenues. As of July 29, we had utilised Sh60.5 billion; hence, there is space for an additional Sh36.5 billion.”
Interest on the overdraft is usually charged at the rate equivalent to the Central Bank Rate (CBR), which currently runs at 13 percent.
Slightly over a week ago, government spokesperson Isaac Mwaura said in a press briefing that the government had lost Sh6 billion in tax receipts due to protracted protests that had grounded business activities across Kenya’s major towns.
“Overall, the country has lost approximately Sh6 billion, according to Kenya Revenue Authority (KRA), as a result of the demonstrations, and fears are bound that if the protests continue, the economy will have a negative impact in this financial year as well,” said Mr Mwaura on July 18.
Last week, the overall outstanding gross domestic debt expanded by Sh35.45 billion to hit Sh5.472 trillion as of July 24, up from Sh5.437 trillion on July 17.
Emergency overdrafts tapped from the CBK crossed the Sh90 billion mark for the first time in December last year, when the outstanding loan stood at Sh94.13 billion, up from lows of Sh61.12 billion at the close of July the same year.
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 when he was the CBK governor, said borrowing from the government’s fiscal agent was inflationary, equating the practice to printing money, which risks sparking inflation.
