[ad_1]
The National Treasury last week repaid Sh63.35billion in outstanding emergency loans from the Central Bank of Kenya (CBK), signaling easing cash demand pressure to settle interest on domestic debts.
CBK has disclosed in the latest weekly report that the government overdrafts plunged to a paltry Sh10 million in the week ended October 2, from Sh63.36 billion a week earlier.
The huge payoff pushed the share of CBK overdrafts in debt liabilities to zero, a rarity last witnessed more than four years ago in July 2020.
The Treasury uses the overdraft window at the CBK as a cash management tool for settling priority payments such as interest and principal sums due to bondholders, at a time when public coffers run dry.
Proceeds, largely from monthly bond sales, are tapped to reimburse cash taken from the emergency loans window.
Section 46(3) of the CBK Act limits the amount the Treasury can access at five percent of the most recently audited exchequer revenues.
The Treasury is still using the Sh97.05 billion cap for the last financial year ended June 2024 pending a fresh audit of the government accounts.
“Depending on the level of maturities, the National Treasury utilises the overdraft and replenishes the same on a regular basis,” Bernard Ndungu, the director-general for accounting services at the Treasury, said.
“What’s important to note is that the overdraft is always within the stipulated limit [Sh97.05 billion for this fiscal year].
The settling of the emergency loans points to easing interest payments due to bondholders after Sh21.9 billion payments on September 9.
The Treasury is looking to raise Sh30 billion from two re-opened 10-year bonds in ongoing auction for this month, after it tapped Sh19.28 billion from undersubscribed Sh30 billion sale last month.
Maturities on maturing Treasury bills — which have a tenure of three, six, and 12 months— have also fallen in weeks preceding the replenishment of the emergency funds.
T-bills maturities, for instance, dropped to Sh5.04 billion on September 26, from Sh10.48 billion in the prior week and Sh13.55 billion on September 12.
Tapping of the emergency funds currently attracts an annual interest of 12.75 percent — an equivalent of the prevailing Central Bank Rate.
Some economists, however, warn against excessive use of the overdraft facility, arguing that it’s tantamount to printing money – with the attendant risks of creating inflationary pressures.
For example, former National Treasury Cabinet Secretary Njuguna Ndung’u wrote in the Kenya Financial Sector Stability report back in 2012 when he was the CBK governor: “Accelerated borrowing from the Central Bank is inflationary as it is equated to the printing of money and therefore leads to macro-economic instability through inflationary pressures.”
[ad_2]
