The National Treasury has sharply reduced its emergency borrowing from the Central Bank of Kenya (CBK) just weeks before heavy domestic debt payments fall due. Latest CBK disclosures show the government cut its overdraft from Sh67.36 billion to Sh6.94 billion in mid-January — a significant drop that signals efforts to ease short-term pressure before settling maturing Treasury bills and bonds.
By the end of next month, the government is expected to pay Sh378.6 billion in domestic obligations. Of this amount, Sh145.2 billion is due by the end of this month, while Sh233.3 billion will be settled next month.
The CBK overdraft is mainly used as a temporary cash-flow tool when government inflows, such as tax collections, delay. However, it is legally capped under Section 46(3) of the CBK Act at 5 percent of the most recently audited revenue. The facility currently attracts 9 percent annual interest, aligned to the Central Bank Rate.
Data from the Controller of Budget shows that interest charges on the overdraft fell to Sh697.5 million in the first three months of the current financial year, down from Sh1.9 billion in a similar period last year. The drop has been linked to lower CBK interest rates.
Even so, economists have in the past warned against heavy reliance on central bank financing. Former Treasury Cabinet Secretary Prof Njuguna Ndung’u cautioned that accelerated borrowing from the CBK can be inflationary and may trigger wider economic instability by injecting excess liquidity into the economy.
The latest reduction in overdraft borrowing therefore comes at a critical time, as Treasury balances immediate cash needs with the broader goal of maintaining economic stability.
