Cost of State emergency loans spikes on higher CBK base rate
Business
By
Macharia Kamau
| Sep 26, 2024
The high cost of borrowing following successive hikes of the Central Bank Rate (CBR) has seen the interest rates on emergency loans that the National Treasury takes from the Central Bank of Kenya (CBK nearly double.
Interest rates on the government's overdraft facility, through which Treasury borrows directly from CBK to meet pressing financial needs, including debt repayment, increased by 87 per cent over the financial year to June 2024, according to a new report by the Controller of Budget (COB) Margaret Nyakang'o.
Treasury paid Sh9.63 billion as interest over the last financial year compared to a charge of Sh5.16 billion in the year to June 2023.
This was a result of the hike in the CBR, which went up from nine per cent in June 2023 to 13 per cent by the end of the 2023-24 financial year last June.
"For the financial year 2023-24, the overdraft limit is set at Sh97.05 billion and charged at the prevailing CBK rate on the amount outstanding at the end of each month. In the 2023-24 financial year, the CBK interest rate applied was 10.5 per cent (July to December 2023), 12.5 per cent (December 2023 to February 2024), and 13.0 per cent (February to June 2024)," noted COB in the report. "During the 2023-24 financial year, the total charge on the overdraft facility amounted to Sh9.63 billion, an increase of 87 per cent compared to the overdraft facility charges of Sh5.16 billion in the 2022/23 financial year. This increase is due to the gradual change in the CBK rate and increased use due to revenue shortfalls at the National Treasury."
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The overdraft limit was raised to Sh97.05 billion over the financial year to June 2024 from Sh80.05 billion in the financial year to June 2023. The overdraft facility is a temporary source of funds primarily used to finance the shortfall in domestic debt instruments such as matured Treasury Bills and foreign debt payments. The government overdraft is restricted to a maximum of five per cent of the latest audited revenues. The Public Finance Management Act requires Treasury to fully repay the overdraft by the end of the financial year. CBK started raising the CRB in June last year, shortly after Dr Kamau Thugge called for an unscheduled meeting of CBK's Monetary Policy Committee after taking over as governor. At the time, the MPC increased the CBR to 10.5 per cent, the highest level in seven years, from 9.5 per cent as it sought to slow down inflation.