Money Markets
The National Treasury Building in Nairobi. PHOTO | FILE
By GEORGE NGIGI, gngigi@ke.nationmedia.com
The parliamentary Budget Office has hit out at the
Treasury’s poor cash management that has seen the State constantly rely
on costly overdraft from the Central Bank.
The Budget Office specifically points out the fact that the
Treasury failed to clear its outstanding credit with Central Bank at the
end of the financial year as a source of major concern.
The office noted the cost charged on the overdraft at the prevailing Central Bank Rate, currently 8.5 per cent.
“The continued use of the overdraft and lack of
repayment at the end of the financial year raises concern on the cash
management framework being implemented by the Treasury,” reads a section
of its monthly bulletin.
Parliament echoed previous concerns raised by
Central Bank that “overdraft instrument has adverse effects to the
economy such as pushing up inflation in the domestic market”. Government
use of overdraft facility is equivalent to printing cash.
Overdraft is a short-term debt, implying that the
money is not meant for development expenses but rather recurrent
obligations such as payment of wages.
Currently, the Treasury has overdrawn Sh22.6
billion at CBK against a cap of Sh39.2 billion. The cap is fixed at five
per cent of the government latest audited revenues.
The overdraft position at issue remained at Sh39.2
billion end of June when State was required by law to clear it or bring
it close to zero as possible. This is despite the government receiving
the Eurobond money in June while also front loading its borrowing in the
same month.
The short-term debt fell to Sh13 billion in mid-August before rising again to Sh24.9 billion the next week.
Failure to implement the single account system has
been identified as a major reason for the increased reliance on the
overdraft.
The Treasury has blamed a technical hitch at the
Central Bank for the delayed switch to the single account stating that
it would launch it as the banks’ regulator configures its new system.
Under single account system all money allocated to
ministries and government institutions should be held in a common pot
from where it is withdrawn upon approval. Centralising of cash ensures
the government does not go borrowing while some of its institutions are
holding idle cash.
Treasury secretary Henry Rotich has said the
ministry intends to institute the single account system in counties too
in line with prudential cash management practices.
Kenya’s public debt rose to Sh2.3 trillion at the
end June which is equivalent to 57 per cent of the country’s GDP.
External debt contributed 45.8 per cent, with the local market providing
54.2 per cent of the stock against a target of 60 per cent domestic
borrowing and 40 per cent external.
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