Money Markets
By GEORGE NGIGI, gingigi@ke.nationmedia.com
In Summary
- Amount rises to Sh39.1 billion following revision of legal borrowing ceilling.
The Treasury has increased its overdraft at the
Central Bank of Kenya (CBK) to the highest amount ever at Sh39.1 billion
following a rise in the legal borrowing ceilling.
Data from CBK shows the Treasury overdraft rose by
Sh5 billion from the previous limit of Sh34.2 billion. The cash-hungry
government is allowed to overdraw from its CBK account an amount equal
to five per cent of the last audited annual revenues.
Officials at the Treasury said the government
increased the overdraft following conclusion of the 2011/12 audit which
put the revenues at Sh782 billion.
“The revised limit came to play on May 12 following release of new figures,” said a senior Treasury official.
However, taking all available credit has shut a
useful borrowing window for the State at a time when it is hard- pressed
for cash, with revenues lagging behind soaring expenditure.
As at the end of March the government’s total
cumulative revenue amounted to Sh674 billion against a target of Sh727
billion, leaving it with a deficit of Sh53 billion.
Notably, the law requires that the Treasury clears
the overdraft by June 30 every year. The government’s decision to take
up the full credit as soon as the opportunity arose has provided a
glimpse into the tight cash at the Treasury.
The ministry has confirmed that it will be listing the country’s debut sovereign bond at the Ireland stock exchange whose regulatory structure is friendly, allowing for a quick issue.
Overdraft uptake by the government is ordinarily
equated to printing of money and is believed to trigger inflationary
pressures.
The five per cent limit was introduced after the
government misused the window during the Goldenberg Scandal to loot
public resources.
The government is currently charged an interest
rate equivalent to the Central Bank Rate (CBR), currently at 8.5 per
cent. The rate is lower than what the Treasury is paying for a 91 day
debt, 8.8 per cent, though.
Overdraft is a short-term debt which indicates
that the money is not meant for development expenses but rather
recurrent obligations such as payment of wages. The overdraft now
constitutes 3.2 per cent of the country’s total official debt of Sh1.2
trillion.
The Treasury has been holding back on borrowing
from the local market in an effort to keep interest rates low. Treasury
bills portfolio just grew by Sh3 billion during the month of May to
Sh279 billion, while long tenured bonds remained flat at Sh874 billion.
Increased participation of the government in the
local debt market would have the undesirable effect of crowding out the
productive private sector and pushing up interest rates. The sovereign
bond is slotted for early this month.
Analysts have, however, raised doubt on whether
the Sh132 billion ($1.5 billion) bond will quench the government’s need
for cash.
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