The government’s reliance on emergency borrowing from the Central Bank of Kenya (CBK) eased in mid-January after the Treasury cut its overdraft balance to Sh6.94 billion last week, down from Sh67.36 billion the previous week.
Latest CBK disclosures show the steep drop came as the Treasury moved to replenish short-term liquidity in preparation for upcoming domestic debt obligations.
The overdraft facility is typically used as a stop-gap tool to smooth cash flows when tax receipts and other inflows lag scheduled payments, particularly interest and principal due on Treasury bills and bonds.
“The level of overdraft is subject to domestic debt obligations and funding of the same, mostly from Treasury bills and Treasury bonds auctions. Yes, in the past two weeks, we have funded the overdraft in anticipation of the heavy obligations coming up,” said Bernard Ndung’u, Treasury’s director-general of accounting services.
According to a repayment schedule seen by this publication, the Treasury faces domestic debt obligations amounting to Sh378.6 billion by the end of next month, covering interest payments and maturing T-bills and bonds.
Of this, Sh145.2 billion falls due at the end of this month, while next month carries a heavier burden of Sh233.3 billion.
The CBK overdraft window allows the government to bridge short-term financing gaps without immediately turning to the market. Section 46(3) of the CBK Act limits the Treasury’s access to five percent of the most recently audited exchequer revenues.
The overdraft facility is therefore capped at five percent of the most recent audited government revenues, ensuring a legal ceiling to emergency borrowing. The facility currently attracts an annual interest of nine percent, equivalent to the prevailing Central Bank Rate (CBR).
During the first three months of the current financial year, overdraft interest charges stood at Sh697.5 million, down from Sh1.9 billion in the same period the previous fiscal year, according to records from the Controller of Budget (CoB).
“The decline in overdraft interest payments compared to FY 2024/25 was primarily due to the decrease in CBK’s interest rates, which stood at 9.5 per cent in August 2025 compared to 12.75 per cent in August 2024,” wrote the COB in her latest report.
Excessive reliance on central bank financing is widely viewed as risky, as it can inject liquidity into the system in ways that complicate inflation control and monetary policy operations.
Economists have warned that heavy use of the overdraft is tantamount to printing money, with attendant inflationary risks.
Former Treasury Cabinet Secretary Prof Njuguna Ndung’u, speaking while he was CBK governor, said borrowing from the government’s fiscal agent was inflationary. “Accelerated borrowing from the Central Bank is inflationary as it is equated to the printing of money and therefore leads to macroeconomic instability through inflationary pressures,” he said at the time.
