Kenya: Cheaper Cash Options Keep State From CBK Overdraft

Aug 01, 2017 | Daily Nation; All Africa

The Treasury has kept away from the overdraft facility at the Central Bank of Kenya (CBK) for the past three months as investors bombard it with cash, opting instead to fill short-term cash-flow needs through the sale of treasuries.

Data from CBK shows the Treasury currently holds zero funds in overdraft, having only accessed the facility on two occasions since the end of April when it borrowed Sh2.7 billion in the week ending May 5 and Sh30 million in the week ending June 2. The facility attracts interest at the prevailing CBK rate, now at 10 per cent. The State is confined to borrowing 5 per cent of the last audited accounts following abuse of the facility during the Goldenberg Scandal in the early 1990s. The cost of funds on the 91-day T-bill has held below nine per cent this year, making it a cheaper option for short-term financing. "They went aggressively on borrowing from the end of the first quarter so they've not needed to tap the overdraft. It tells you that they've been tapping T-bills largely to cover short-term cash flow needs," said Kestrel Capital head of fixed income Alexander Muiruri. "They have also suspended a lot of government spending as we've come closer to the election... so this will likely revert to normal post-election or as we head toward September." Quick cash The facility comes in handy for the Treasury when it needs cash quickly such as for the settlement of public sector salaries or in times of emergency, and is by law repayable within 12 months of the date of borrowing. This year, the government has enjoyed abundant offers for the short-term treasuries, especially from banks which have been pumping cash into the risk-free government debt following the capping of customer loan rates last August. Read more on All Africa. Source: All Africa