Borrowing in T-bills hits Sh1trn on State cash crunch

Latest Central Bank of Kenya (CBK) data shows that by June 13, T-bills stood at Sh1.003 trillion, accounting for 16.13 percent of total government domestic debt, having gone up from Sh615.9 billion or 12.7 percent of debt in June 2024.

The current outstanding T-bills represent an all-time high in nominal terms, matching the Sh1 trillion seen at the end of April 2019, but as a percentage of government domestic debt, the T-bills are trailing the 37 percent share reported in February 2019.

Given that they are issued weekly and on tenors of between three and 12 months, T-bills can come in handy in funding short-term liquidity needs for the government, alongside the overdraft facility at the CBK.

“On the supply side, the high uptake on recent sales may suggest that the government is liquidity strained, or ramping up its ammunition given the underperformance in ordinary revenue,” said Churchill Ogutu, an economist at IC Capital Group (Mauritius).

“We have also seen increased demand for T-bills from money market funds and pension funds which are now handling enhanced contributions, and the government has also been deploying some of the funds collected under the affordable housing levy in the short-term securities.”

As per its medium-term debt strategy, the government prefers to use Treasury bonds for financing its budget deficit, with T-bills largely utilised as liquidity management tools by financial sector players.

Pursuing this policy —which is meant to reduce short-term refinancing pressure for the Treasury— saw the outstanding volume of T-bills dip to a six-and-a-half-year low of Sh546 billion in December 2023, before progressively rising again to the current level of Sh1 trillion.

Over the past year, tax collection has been hit by tough economic conditions facing businesses, as well as the government’s inability to impose sweeping new tax measures after the rejection of the 2024 Finance Bill. Some of the rejected measures were however reintroduced successfully via the Tax Laws (Amendment) Act 2024 that was signed in December.

The latest Kenya Revenue Authority (KRA) data shows that in the 10 months to April 2025, tax revenue collected on behalf of the national government stood at Sh1.91 trillion, equivalent to 95 percent of the prorated target of Sh2.006 trillion for the period.

Increased liquidity

At the same time, the National Treasury has within this financial year been forced to issue two supplementary budgets to cover the revenue shortfalls, with a third one currently tabled and under consideration in Parliament.

This higher demand for funding has coincided with increased liquidity in the money market, which has provided the demand for short-term securities.

Collective investment schemes have significantly contributed to the uptake through their money market funds, which are by law limited to investing in short-term government debt or cash deposits.

As per Capital Markets Authority (CMA) data, the assets under management of the schemes more than doubled to Sh496.2 billion in March 2025 from Sh225.36 billion a year earlier. They held 46.2 percent of these assets (Sh229.7 billion) in government securities.

Pension funds are also sitting on a larger pool of investable funds following the enhancement of contributions to the National Social Security Fund, some of which are ceded to private pension schemes as tier-two contributions.

Similarly, banks have parked more cash in government paper over the past year, with the growth in lending to the private sector standing at just two percent in the year to May 2025.

Their holdings of government debt rose by Sh174 billion to Sh2.82 trillion over the past 12 months.

In May, the government also disclosed that it had invested Sh20 billion collected from the affordable housing levy in Treasury bills and bonds, indicating that it was collecting the levy at a faster pace than it could deploy funds in the construction of houses.

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