Treasury sharply increases CBK overdraft

Money Markets

The Central Bank of Kenya building along Haile Selassie Avenue in Nairobi. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• The Central Bank of Kenya borrowed Sh32.7 billion up from Sh8.2 billion taken in the week ending March 26. This was the third highest borrowing taken in any one week since January this year.

The government sharply increased its overdraft from the Central Bank of Kenya (CBK) four-fold in the week ended April 1 compared to the previous week.

It borrowed Sh32.7 billion up from Sh8.2 billion taken in the week ending March 26. This was the third highest borrowing taken in any one week since January this year.

The other large amounts taken this year were Sh35.9 billion borrowed in the week ending February 20 this year and Sh34.2 billion in the week ended February 27.

Analysts have argued the State tends to borrow a lot of cash from the monetary authority towards the end of the month to pay salaries.

If tax money collected in the month has not moved from the accounts of the Kenya Revenue Authority to the government accounts, then the State uses borrowing from CBK.

To prevent excessive emergency borrowing similar to what happened in the 1990s, the amount advanced to the State is limited to five per cent of revenue as indicated in the most recently audited accounts.

“The thing that comes at the top in this borrowing is the need to pay salaries for its employees. The wage bill is very high and the government occasionally appears to be struggling to pay,” said Crispus Otieno, a fixed-income dealer at Afrika Investment Bank, in an earlier interview.

Mr Otieno said despite raising cash during the weekly auctions, there may be times it is not enough to pay all the recurrent expenditure for a particular month thus occasioning borrowing.

“The money for development can be borrowed using the long-term bonds, but recurrent expenditure has to be met immediately through an overdraft,” said Mr Otieno.

Currently, the government is spending about Sh47 billion per month to pay its employees including State officers, which translates into Sh568 billion in a year. The State also has to pay for Treasury bonds and bills redemptions due any particular week.

According to data from Nairobi-based investment bank Kestrel Capital, redemptions in the week ending March 30 stood at Sh5.7 billion while in the previous week they were Sh24.7 billion.

The amount borrowed by the state in any one week this year is still below that achieved in the week ending September 12 last year when Sh38.3 billion was taken from the monetary authority.

The money advanced to the government is supposed to be paid in full by the end of the financial year that ends on June 30.