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Treasury’s CBK emergency borrowings hit historic Sh107.5bn
The National Treasury building in Nairobi. Treasury’s borrowings from the Central Bank of Kenya (CBK) emergency kit have hit an all-time high of Sh107.5 billion.
Treasury’s borrowings from the Central Bank of Kenya (CBK) emergency kit have hit an all-time high of Sh107.5 billion, exposing the extent of government’s cash flow pressures as it raced to settle interest on domestic loans.
CBK has disclosed in its latest weekly release that the government overdraft at the institution rose by Sh44.5 billion to Sh107.5 last week, extending a trend witnessed the previous week when the borrowings had grown by Sh27.8 billion to Sh63.05 billion.
The current stock of the emergency loans has driven the CBK’s share of the country’s overall domestic debt to 1.79 percent, up from 0.59 percent two weeks ago.
The overdraft facility, which represents a last resort avenue to fund government’s budget deficits, is largely tapped by the Treasury to address short-term needs in situations of a cash crunch, including settling priority recurrent expenditures like debt repayments.
CBK data indicates that the government’s overdraft has grown from a low of zero borrowings at the close of September last year to rise at the fastest pace last week.
“The overdraft facility is a temporary source of cash to fund the deficit in payment of domestic instruments such as matured Treasury bills,” noted the Controller of Budget (COB) in a past commentary.
According to the Public Finance Management (PFM) Act, the facility is restricted to a maximum of five percent of the most recent audited revenues and is expected to be paid off by the end of the financial year.
Interest on the overdraft facility is usually charged at the rate equivalent to the Central Bank Rate (CBR), which currently runs at 10.75 percent.
The use of CBK overdrafts are set to remain the norm as the government strives to deliver services against the backdrop of higher spending pressures seen through the delay in disbursement of critical funds such as capitation to schools.
In September last year, disclosures from the COB revealed that overdraft charges from the government jumped by 87 percent during the fiscal year ended June 2024, as cash flow challenges left the Treasury tapping more emergency loans from the apex bank amid rising interest rates.
In her report, the COB revealed that between July 2023 and June 2024, it cost the State Sh9.6 billion in charges for the overdrafts it took, translating to an average monthly charge of Sh802.5 million up from an average of Sh429.8 million the prior year.
The overdraft facility has however come under sharp scrutiny in the past, with critics likening the borrowings to 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 while he was CBK governor, said borrowing from the government’s fiscal agent was inflationary, equating the practice to printing money, which risks sparking inflation.
