The National Treasury used up 90 per cent of its overdraft facility at the Central Bank of Kenya (CBK) on the back of a biting cash crunch earlier this year that saw salaries for public sector workers delayed for the first time.
This is according to revelations by CBK to parliament’s Public Debt and Privatisation Committee, indicating that the government’s usage of the emergency fund has hit a record high.
“The current limit is Sh80.05 billion,” said CBK in submissions to the committee. “As of June 2, 2023, available space was Sh1.08 billion since Sh78.96 billion had been utilised.”
The government overdraft facility at CBK is meant to provide temporary financing to Treasury by offsetting fluctuations between receipts from budgeted revenue and payments.
The facility is limited to five per cent of the gross recurrent revenue of the government’s previous years’ audited accounts.
Data from CBK indicates that the overdraft facility stood at Sh27.25 billion in September last year, showing that the government borrowed more than Sh50 billion from the emergency fund in the last six months.
The funds are part of proceeds from loans that the International Monetary Fund (IMF) granted to Kenya in the previous financial year.
“In the 2021-2022 financial year, CBK transferred SDR 260.4 million (Sh49.3 billion) being part of the IMF Special Drawing Rights (SDR) allocation for Kenya to the National Treasury,” says the regulator in its latest annual report.
“The amount will be repaid to the Bank over 20 years in half-yearly instalments each of SDR 6.5 million (Sh1.2 billion),” explains CBK.
“This allocation is revalued every month and the amount recognised is the balance as of 30 June 2022 in Kenya shilling equivalent.”
Earlier this year, the government was hit with a cash crunch that affected several public offices, with some civil servants threatening to down their tools over delayed payment of salaries.
In an interview with the media in May, President William Ruto said that the cash crunch was a necessary pain because the government will no longer take on more debt for recurrent expenditure.
“If you look at this budget, I have made a deliberate conscious decision, in fact, against the advice of the IMF,” he said.
“The IMF actually wanted us to borrow slightly more, I told them no, we are not borrowing.”
President Ruto claimed that the government has cut the fiscal deficit from Sh1.1 trillion to Sh630 billion, vowing that the country would not default on its debt as witnessed in other countries.
“That is why you saw there was a delay in salaries in April because some characters thought that I was joking,” he said.
“I told them that we are going to live within our means. Even if we are to delay salaries for two or three days, we will.”
CBK converted the government’s overdraft facility exceeding the statutory limit in 1997 into a loan at three per cent interest repayable by 2039 and guaranteed by the National Treasury. Principal repayments of Sh555 million are paid every six months, while interests accruing are paid monthly. In 2022 the National Treasury paid out Sh2 billion to CBK in interest on the overdraft, a 10 per cent drop from Sh2.2 billion paid out in 2021.
According to Parliament’s Budget Office, the country’s revenues are expected to grow moderately to remain at 17.2 of GDP with recurrent expenditure at 16 per cent of GDP, resulting in a higher fiscal deficit than presented by Treasury.
“This may result in a fiscal deficit of approximately Sh927 billion, which is equivalent to 5.8 per cent of GDP for the 2023-2024 financial year,” explained the budget watchdog, disputing the President’s Sh630 billion budget deficit claim.
“It is important to note that, without the implementation of fundamentally different and quantifiable tax policy measures in the 2023/2024 financial year, it is unlikely that the ambitious target of collecting total revenue amounting to Sh2.89 trillion will be realized,” states Parliament’s Budget Office in its latest report.
This government is banking on the Finance Bill 2023 to introduce a raft of new tax proposals that will assist in raising ordinary revenues. The Bill has, however, been suspended in court following a legal challenge by Busia Senator Okiya Omtatah.