Cash outside banks hit an all-time high of Sh282bn in December 2023

The Central Bank of Kenya in Nairobi.

The Central Bank of Kenya in Nairobi. 

Photo credit: File | Nation Media Group

Cash outside of banks rose to an all-time high of Sh282.1 billion in December last year pointing to increased liquidity in the economy during a period, which also saw State Corporations substantially reduce their arrears to suppliers and contractors.

The value of bank notes and coins in circulation in the review period surpassed the previous record of Sh273.4 billion in July 2023, data from the Central Bank of Kenya (CBK) shows.

The surge in cash outside of banks coincided with the period when the State Corporations reduced their stock of pending bills by Sh29.7 billion from Sh121.3 billion by the end of September, figures from the National Treasury show.

By close of last year, State Corporation’s pending bills had reduced to Sh91.5 billion, in what was a boon to a cash-strapped economy that was characterised by delays in spending by private firms and reduced job hires amidst inflationary pressures aggravated by a weak exchange rate.

“The SC pending bills include payment to contractors/projects, suppliers, unremitted statutory and other deductions, pension arrears for Local Authorities Pension Trust, and others,” said Treasury.

“The highest percentage of the SCs pending bills belong to contractor/projects and suppliers,” added the Treasury.

After the release of the monies by the State corporations to suppliers and contractors, the latter would subsequently make payments to employees, including project supervisors, managers, and casual labourers, setting off a flurry of transactions in the economy.

Rather than being parked in savings accounts, a big chunk of this payout might also have been used to oil the spending binge that is common during the December holidays, a month when cash outside of banks increases.

High meat demand for delicacies and other consumer goods together with the rush by Kenyans to reunite with kin in rural areas stymied what would otherwise have been a major drop in inflation due to good rains and lower fuel prices that the country recorded in the review period.

The rise in cash in circulation mirrored an increase in mobile money payments, an indicator that payments by State corporations did not only end up in the pockets of Kenyans but also mobile money wallets through which an increasing number of Kenyans pay for goods and services.

CBK data shows that the cash in and out of agents rose to an all-time high of Sh788.35 billion in December last year. The earlier record of Sh722.52 billion in July 2022, a month when there is also a tendency to have copious amounts of cash outside of banks as the government makes the end of the fiscal year disbursements in June.

“The cyclicality seen over the years speaks to the fact that there are usually outsize disbursements by the government made in July, although wrongly attributed to June. As the government releases funds to the real sector this leads to spikes in currency in circulation from the monetary sector perspective,” noted Churchill Ogutu, an economist at IC Asset Managers in an earlier interview.

The increase in cash outside of banks might also have contributed to the slightly improved business confidence during this month.

December last year recorded the weakest decline in private sector conditions in four months, according to an index computed by the Stanbic Bank.

Stanbic’s Purchasing Managers’ Index is a widely accepted barometer for health of the private sector with readings above 50.0 signaling better business conditions on the previous month, while readings below 50.0 pointing to a deterioration.

The headline PMI moved three points higher in December last year, up to 48.8 from 45.8 in November, to signal a modest and softer decline in operating conditions across the country.

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