Market News

Treasury pays overdraft as cash flow improves

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The National Treasury building in Nairobi. FILE PHOTO | NMG

The Treasury paid down its Central Bank of Kenya (CBK) overdraft of Sh36.3 billion in the first week of October, indicating that the government’s cash position has improved amid higher inflows from the sale of securities in the market.

Latest central bank data show that other than clearing the overdraft, the Treasury has also significantly cut the load of debt classified as ‘other domestic debt’, described as consisting of clearing items in transit, advances from commercial banks, Pre-1997 Government Overdraft and Tax Reserve Certificates.

This other debt, which had spiked sharply during the week ending September 28 from Sh31.7 billion to Sh168.5 billion, has come down to Sh31.7 billion, with indications being that the government had accessed short-term facilities to cover for heavy maturities of securities.

The net result of the debt pay-down is a fall in total outstanding domestic debt by Sh27 billion to Sh2.514 trillion.

It also points to increased confidence by the Treasury in its ability to raise cheaper money in the short term from Treasury bills auction, owing to improved liquidity in the money market.

The interbank rate, which gives an indication of the liquidity in the market, has fallen to a three-month low of 3.36 per cent in the last week.

The rate had climbed to as high as 8.5 per cent at the beginning of August on the back of delayed government disbursements to its departments and contractors but has gradually come down as cash flow through the market improved.

The government makes use of the CBK overdraft facility to plug short-term cash needs, paying interest at the prevailing Central Bank Rate (currently at nine per cent).