Treasury clears overdraft at CBK, cashflow improves

The Central Bank of Kenya (CBK) headquarters in Nairobi. FILE PHOTO | NMG 

By GEOFFREY IRUNGU

More by this Author

Summary

• Data from the CBK showed that the overdraft stood at Sh14.13 billion as at June 8, down from Sh44.35 billion at the end of last month.
• This is a 68.1 per cent reduction or slightly over Sh30 billion in absolute terms.
• The fall in overdraft effectively pushed down the outstanding amount of domestic debt by Sh30.6 billion to a total of Sh2.417 trillion — which is slightly below half of the total public debt currently estimated at about Sh5 trillion.

The Treasury has paid down its entire overdraft with the Central Bank of Kenya from the beginning of this month indicating the government cashflow position has improved.

This came after the government reached the limit of its domestic borrowing programme that stood at Sh287.7 billion a week ago and is on track to hit the revised limit of Sh293.7 billion with new offers for Treasury bonds and bills.

In the most recent offer, the government is trying to raise Sh40 billion through a bond whose sale closes tomorrow. Data from the CBK showed that the overdraft stood at Sh14.13 billion as at June 8, down from Sh44.35 billion at the end of last month.

This is a 68.1 per cent reduction or slightly over Sh30 billion in absolute terms.
The fall in overdraft effectively pushed down the outstanding amount of domestic debt by Sh30.6 billion to a total of Sh2.417 trillion — which is slightly below half of the total public debt currently estimated at about Sh5 trillion. Ordinarily, the overdraft should come close to zero by the end of the financial year, says investment bank Kestrel Capital quoting the Treasury.
According to the Treasury, usage of the overdraft at the CBK fluctuates within the financial year but reduces close to zero at the end of June,” says Kestrel.

READ: Kenya's public debt load hits Sh5 trillion

However, this is rarely achieved. On June 30, 2016, for example, the outstanding amount was Sh44.2 billion, close to the Sh46.8 billion limit for that fiscal year; the CBK shows in the 2016/17 annual report.
The government borrows from the CBK to the maximum of five per cent of the most recently audited gross recurrent revenues with the interest payments on the facility pegged to the Central Bank Rate (CBR) that currently stands at 9.5 per cent.
The overdraft rate charged on the government by the CBK cannot exceed the CBR.

The amount – being incurred from a presumably expensive short-term facility – is supposed to be repaid once the Treasury is able to raise cash through other avenues such as treasury bills and bonds. However, the amounts outstanding normally remain high throughout the year except towards the end of the fiscal year or a few weeks afterwards.