Treasury’s emergency loans at CBK surge to Sh63 billion

Treasury CS Ukur Yatani. FILE PHOTO | NMG

By CONSTANT MUNDA
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Summary

• Latest data by the CBK shows that the Treasury had as October 30 tapped Sh63.53 billion from the overdraft facility — the highest since April 17 when the figure stood at Sh64.44 billion.
• The overdraft facility, a temporary source of cash to cater for priority payments and emergencies, is usually used by the Treasury when revenue streams such as tax receipts and debt do not flow in at a pace that matches expenditure demands.

The Treasury’s outstanding overdraft at the Central Bank of Kenya (CBK) last week touched its highest level in more than six months, official data show, pointing to rising cash flow pressure amid revenue shortfalls.

Latest data by the CBK shows that the Treasury had as October 30 tapped Sh63.53 billion from the overdraft facility — the highest since April 17 when the figure stood at Sh64.44 billion.

The overdraft facility, a temporary source of cash to cater for priority payments and emergencies, is usually used by the Treasury when revenue streams such as tax receipts and debt do not flow in at a pace that matches expenditure demands.

Tax collections in the three months to September dropped 14.69 per cent to Sh317.6 billion on a year-on-year drop in economic activity largely because of travel and trade restrictions to contain the spread of the pandemic.

As a result of the revenue shortfalls, Treasury secretary Ukur Yatani in September raised Kenya’s forecast budget deficit for this financial year ending June 2021 to 8.9 per cent of gross domestic product from 7.5 per cent in June.

The emergency lending, which is regarded as the direct creation of cash by the CBK, is ideally meant to be restricted to a maximum of five per cent of the most recently audited revenues and repaid by the end of the fiscal year.

The Treasury had repaid and kept off the overdraft facility between the weeks ending July 24 and August 7.

Haron Sirima, director-general for public debt management at the Treasury, had at the time attributed that to “improved debt and cash management operations as well as better coordination with monetary operations” by the CBK.

Increased liquidity in the market and the resultant drop in interest rates had also prompted the Central Bank of Kenya, the Treasury’s fiscal agent, “to front-load borrowing to finance critical development expenditures at the lowest cost, but balancing the need to not crowd-out private sector”, Dr Sirima had explained on August 7.