Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
CBK emergency loan fees to Treasury down 17pc on rate cuts
The Central Bank of Kenya in Nairobi. The CBK is likely to be more aggressive in pushing rates lower as it addresses a contraction in private sector credit.
Charges on the government’s overdraft facility at the Central Bank of Kenya (CBK) dipped by 17 percent to Sh3.48 billion in the six months to December 2024, new data shows, reflecting cuts in the apex bank’s benchmark rates which guide the fees on the emergency loans.
A report by the Controller of Budget (CoB) Margaret Nyakang’o said fees on the overdraft dropped by Sh730 million in the half-year to December 2024 compared to the previous year.
“In the first six months of the financial year 2024-25, the total charge on the overdraft facility was Sh3.48 billion, indicating a 17 percent lower interest cost compared to Sh4.21 billion in the first six months of the financial year 2023-24,” the CoB said in a submission to Parliament last week.
The overdraft is a temporary loan to the National Treasury to meet short-term expenses and is capped at five percent of the most recently audited government revenues.
The exchequer uses and replenishes the overdraft on a regular basis and is expected to repay the balance by the end of the financial year.
Interest on the overdraft is usually charged at the rate equivalent to the central bank rate (CBR), which is currently set at 10.75 percent. The CBR serves as the base for all monetary policy operations to enhance clarity and certainty in monetary policy implementation.
The dip in the exchequer spending on the emergency kitty in the half year to December could, however, be short-lived amid a resurgence in the use of the facility to fund short-term needs, including salaries and debt repayments.
The Treasury’s borrowings from the CBK emergency facility, for instance, hit an all-time high of Sh107.5 billionlast month, showing the extent of the government’s cash flow pressures.
The CBK data reveals increased use of the facility since last September when the overdraft grew from zero borrowings.
The Public Finance Management (PFM) Act, 2012, introduced the overdraft, which is restricted to the management of cash flows.
The CoB has recommended that the National Treasury works with the CBK to attain lower borrowing rates for the overdraft facility to free up resources for essential spending.
“The National Treasury should engage the Central Bank of Kenya to establish affordable overdraft rates to reduce the cost of short-term financing, allowing more resources to be allocated to essential public services and development initiatives,” said the CoB.
The deployment of the overdraft facility is widely expected to persist as the government strives to deliver services against the backdrop of higher spending pressures as seen in the delayed disbursement of key expenditures such as schools’ capitation.
Borrowings from the overdraft have drawn sharp criticism with critics likening the practice to the monetisation of the funding gap or printing money to fill the void.
Former Treasury Cabinet Secretary Njuguna Ndung’u when serving as the CBK governor, for instance, deemed the facility inflationary.
