[ad_1]
The National Treasury paid off the outstanding overdraft balance at the Central Bank of Kenya last week to free up borrowing space for huge payments to bondholders this week, a top official said.
The CBK disclosed in the latest weekly bulletin that the Treasury cleared Sh63.35 billion in emergency loans last week, pushing the outstanding debt via a window to nearly zero, a rarity last witnessed more than four years ago in July 2020.
The emergency loans were repaid to create room for larger borrowing from the window in the wake of mounting cash demand pressure, including Sh56 billion bond repayments which were due this week.
“We cleared the overdraft balance last week to create space for some big Treasury bond maturities that were due on Monday,” Bernard Ndung’u, the director-general for accounting services at the Treasury, said.
Section 46(3) of the CBK Act limits the amount the Treasury can access from the facility to five percent of the most recently audited exchequer revenues.
The Treasury is still using the Sh97.05 billion cap for the last financial ended June 2024 pending a fresh audit of the government accounts.
The resultant fiscal space enabled the Treasury to tap the overdraft facility to retire Sh31.95 billion, a 15-year bond that matured on Monday. The matured bond, sold in October 2009, had a fixed coupon of 12.5 percent.
The remainder of the cash was taken from the window to pay interest on the three-year bond which was issued in April 2022 at a fixed rate of 11.766 percent and which will mature in April next year.
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 usually tapped to reimburse cash taken from the emergency loans window.
The Treasury has in the first quarter of the current financial year ending June 2025 faced unbudgeted cash demand pressures such as pay raises for teachers as well as university lecturers and non-teaching staff amid a softening economy on the back of anti-government protests and other economic shocks.
Elevated interest rates have also slowed private sector activities by prompting firms and households to postpone non-propriety spending.
This has hit tax collections which, for instance, suffered a rare drop in August on the back of depressed sales at the height of economic uncertainties that followed deadly anti-government protests.
This was after the Kenya Revenue Authority received Sh153.33 billion in taxes, a Sh9.19 billion or 5.65 percent, fall compared with a year earlier.
The drop, a rare one excluding the Covid year when the government extended tax breaks to households and businesses, partly reflected a drop in money circulation on reduced expenditure by companies and households.
Increased use of the overdraft facility is a signal of top cash flow challenges faced by the Treasury.
“Depending on the level of maturities, the National Treasury utilises the overdraft and replenishes the same on a regular basis,” Mr Ndung’u says. “What’s important to note is that the overdraft is always within the stipulated limit [Sh97.05 billion for this fiscal year].
Tapping of the emergency funds currently attracts an annual interest of 12 percent — an equivalent of the prevailing Central Bank Rate.
[ad_2]
