Overdraft facility increases by Sh27 billion on low interest regime

Controller of Budget Margaret Nyakang'o's report shows that usage of overdraft facility increased by 44 per cent in the financial year that ended in June 2025. [File, Standard] The sustained low interest regime by the Central Bank of Kenya (CBK) gave room for the government to borrow more through overdraft in the financial year that ended in June 2025, but still paid less in interest charges. However, the government's reliance on this credit line has come under scrutiny by the Controller of Budget whose latest report shows that usage of this debt facility increased by 44 per cent in the period. Despite borrowing more than the previous financial year, the government paid less interest by Sh2.19 billion as shown in the National Government Budget Implementation Review Report 2024/2025 by the Controller of Budget (CoB). "The analysis of 2024/25 Financial Year (FY) data from the National Treasury shows that the Government paid interest on the overdraft amounting to Sh7.44 billion. This was a reduction of Sh2.19 billion from the Sh9.63 billion paid during the FY 2023/24," the report says. The report explains that the prevailing Central Bank Rate (CBR) determines the interest charged on the overdraft. "The CBR rate moved from nine per cent in FY 2022/23 to 13 per cent in the FY 2024/25. The change in the rate will result in a higher interest charge on the overdraft," reads the Margaret Nyakang'o report. In July 2024, at the beginning of the 2024/25 financial year, the CBR rate stood at 13.0 per cent having been raised by the CBK in February that year. However, the low interest regime kicked in that August, as the rate dropped to 12.75 per cent, and has been falling ever since. By the end of the FY 2024/25, in June, the CBR was 9.75 per cent and it's now at 9.5 per cent. The Sh88 billion borrowed in the last financial year through CBK overdraft, while within the threshold as provided in the Central Bank of Kenya Act, the report points out this as a growing concern citing it as a sign of fiscal pressures. "The reliance on overdraft reflects the ongoing fiscal pressures and revenue shortfalls," says Nyakang'o in the report. But the increase in usage of this overdraft facility also happens to coincide with a consistent improved revenue collection. In that 2024/25 financial year when the government accessed Sh88 billion through overdraft, Kenya Revenue Authority (KRA) surpassed the Sh2.5 trillion mark in revenues. In the previous financial year, the taxman had also set a new record with Sh2.4 trillion collection. The report by the CoB shows that CBK overdraft stood at Sh61 billion as at June 2024, growing to Sh88.0 billion in the year that ended in June 2025. The stock of overdraft in the country's domestic debt has also increased to 1.4 per cent from 1.1 per cent in June 2024. Total domestic debt by June 2025 stood at Sh6.3 trillion. CoB explains that under Section 46(3) of the Central Bank of Kenya Act, the government's overdraft facility is capped at five per cent of the most recently audited revenues. Overdraft capped The report adds that this statutory limit is designed to prevent excessive short-term borrowing that could lead to inflationary pressures. The limit now stands at Sh97.05 billion. This threshold may go up once the latest revenues are audited. Historically, the report adds, the government has utilised the CBK overdraft facility to address short-term cash flow challenges, especially when tax revenues and external loans fall short. It is restricted to a maximum of five per cent of the most recently audited revenues and is expected to be paid off by the end of the financial year as specified in Section 15 (3) of the Public Finance Management Act "In FY 2024/25, the overdraft limit stood at Sh97.05 billion, and the amount outstanding at the end of each month was charged at an average interest rate of 11 per cent per annum," the report says.

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