Cash circulating outside banks hits record high of Sh273.4bn; Report

Cash outside banks hits an all-time high of Sh273.4bn according to Central Bank of Kenya (CBK) data.

Following accelerated government spending at the close of the fiscal year in June, the amount of money circulating outside of banks reached an all-time high of Sh273.4 billion in July, alleviating the strain on contractors, suppliers, and their staff due to cash flow issues.

Cash outside of banks increased from Sh257.9 billion in June to the highest level under President William Ruto’s administration and surpassing the previous top of Sh267.7 billion reached in July of last year, according to data from the Central Bank of Kenya (CBK).

Cash outside banks refers to the amount of money in the form of paper notes or coins within the economy and which is used to conduct transactions between consumers and businesses.

The increase in cash outside of banks coincided with the end of the government’s fiscal year on June 30, which is typically accompanied by significant exchequer disbursements to meet spending goals for ongoing operations and capital projects.

The usual procedure is for the government to release funds to various ministries, departments, and organizations. These entities will then transfer the funds to vendors and contractors, who will then pay workers like project managers, supervisors, and casual laborers.

The increased cash in circulation found a cash-strapped economy where national government pending bills had, for instance, risen to a record-high of Sh567.5 billion at the end of June from Sh537.2 billion at the end of March.

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The state of the economy in July was equally precarious, with the data from Stanbic Bank’s Purchasing Managers Index showing a sharp downturn in business activity, underlined by the fall of new orders and the deterioration of customer demand amidst a sharp rise in living costs.

It is presumed to be the currency in hand, which is used throughout the economy to buy goods and services.

This would imply that during July, more cash was available in the economy for the purchase of goods and services from businesses and peer-to-peer transfers

At the end of the 2022/23 fiscal year, the Treasury disbursed nearly Sh460 billion in June to meet funding for recurrent and development expenditures alongside disbursements to counties under the equitable share of revenue.

“The cyclicality seen over the years speaks to the fact that there are usually outsize disbursements by the government made in July, although wrongly attributed to June. As the government releases funds to the real sector this leads to spikes in currency in circulation from the monetary sector perspective,” noted Churchill Ogutu, an economist at IC Asset Managers.

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