Treasury Pulls Back on Central Bank Lifeline as Debt Payments Loom

Kenya’s Treasury has sharply scaled down its use of emergency funding from the Central Bank of Kenya (CBK), a move that signals tighter cash management as large debt repayments approach.

CBK data shows the government cut its overdraft balance to Sh6.94 billion in mid-January, down from Sh67.36 billion just a week earlier. Rather than focusing on the borrowing itself, the shift highlights Treasury’s effort to reduce short-term dependence on the central bank at a time when domestic debt obligations are coming due fast.

By the end of next month, the government must settle Sh378.6 billion in domestic debt, including Sh145.2 billion due by the end of this month and another Sh233.3 billion next month. These payments cover interest and maturing Treasury bills and bonds, putting pressure on cash flows when tax collections may not fully align with payment schedules.

The CBK overdraft is meant to act as a temporary cash buffer when revenues fall behind spending needs. However, it is tightly regulated. The facility is capped at 5% of the most recently audited government revenues under the CBK Act and attracts interest of about 9% a year, in line with the Central Bank Rate.

Lower reliance on the overdraft is already easing costs. Controller of Budget figures show interest charges on the CBK overdraft dropped to Sh697.5 million in the first three months of the current financial year, down from Sh1.9 billion over the same period last year, helped by lower interest rates.

Economists say the reduction matters beyond bookkeeping. Heavy use of central bank financing can weaken inflation control by injecting extra money into the economy. Former Treasury Cabinet Secretary Prof Njuguna Ndung’u has previously warned that fast-rising borrowing from the CBK can be inflationary and may destabilise the economy.trThe sharp pullback suggests Treasury is trying to walk a careful line: meeting near-term debt payments while limiting reliance on central bank support that could raise longer-term economic risks.