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Cash-strapped parastatals seek loan write-offs as defaults hit Sh74b

Cash-strapped parastatals seek loan write-offs as defaults hit Sh74b

Kenya Power workers fix a 3 phase distribution transformer of 250KVA at Ndimaini Village in Karatina, Nyeri on December 28, 2020. Parastatals have failed to service interest payments on Sh921.93 billion State loans, with the majority of them seeking write-offs as losses mount.

State-owned enterprises (SOEs) including Kenya Power, Kenya Railways and East African Portland Cement, were in default at end of June 2021, failing to repay Sh74.014 billion interest and principal on loans.

The latest defaulted payments, coming on the back of disruptive Covid-19 environment, are a 77.4 per cent rise from the previous financial year, when the SOEs had failed to pay the government Sh41.72 billion.

The National Treasury says many of the 260 State corporations operating in key sectors such as energy, agriculture, transport and finance are now bidding for write-offs to stay afloat. READ MORE

“Majority of the SOEs are facing financial constraints and have applied for consideration of their loans to be written off,” says the National Treasury. The rising defaults are despite the Treasury having added these entities Sh54.93 billion in the financial year ended June 2021, to take the total stock of loans to SOEs to Sh921.93 billion.

The outstanding debts to the SOEs are equivalent to 55 per cent of the Sh1.669 trillion that the Kenya Revenue Authority (KRA) collected in the entire financial year 2020/2021.

Treasury write-offs look unlikely given the pressure from lenders such as the International Monetary Fund (IMF) for government to effect structural changes, including layoffs and closure or merger of some parastatals.

SOEs have also continued to benefit from the billions of shillings transferred from the exchequer, diving into the public opinion over the socio-economic benefits accruing to taxpayers.

Treasury recently estimated that taxpayers may spend about Sh382 billion in sustaining operations of 18 of the SOEs in the next five financial years.

Firms such as Kenya Railways Corporation, Nzoia Sugar, Kenya Power, East African Portland Cement, South Nyanza Sugar Company, National Oil Corporation, Post Bank, Postal Corporation of Kenya, Muhoroni Sugar Company and Kenya Electricity Transmission Company are all in losses.

National Treasury usually borrows funds from both external and domestic sources and then lends to SOEs.Chances of recovering such money are usually lower given that the Treasury emphasises on the strategic role of SOEs and the projects being implemented as opposed to the ability to repay.“The SOEs should be playing a strategic role in the economy, have a weak balance sheet that […]

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