The National Treasury will embark on budget cuts and restructuring of eighteen state corporations to evert fiscal risks they pose on the economy.
According to an the in-depth financial evaluation and fiscal risk analysis conducted by Treasury and the International Monetary Fund (IMF) the 18 State Owned Enterprises (SEOs) out of 260 are projected to require Kshs. 70 billion annually to keep them afloat, cumulating to Kshs. 382 billion within five years.
The financial evaluation is part of a deal reached between the Government of Kenya and IMF under the $2.34 billion (Kshs. 250 billion) 38-month facility approved by IMF Executive Board in April, and is intended to support the country’s COVID-19 response and address weaknesses in SEOs.
In a statement released on Thursday, CS Yatani says the financial evaluation and analysis of the 18 major state enterprises include a presumption that their finances will be affected in the current financial year, same as last year due to COVID-19.
“The estimated liquidity gap reflects the sizable financial woes in the State Corporation Sector. If these challenges are not addressed, they may crystalize into significant risks to Kenya’s economy,” said CS Yatani.
The government is now targeting to mitigate economic risks posed by the State Owned Enterprises (SEOs) through a raft of measures in order to restore their financial health within the period.
“Unprofitable State Corporations pose high fiscal risks to the Government because of large debts they owe the National Treasury and the associated repayments risks as well as unsustainable pending bills,” CS Yatani warns.
Treasury has recommended a possible reforms and restructuring to include spending cuts, enhancing revenue measures and sealing revenue leaks to reduce exchequer allocations especially on insolvent or loss-making SEOs.
Treasury is also considering new concession borrowing, deferred payment for on-lent loans, a debt-to-equity swap and additional allocations as it seeks to reduce Exchequer dependence among the SEOs.
Kenya has so far received Kshs. 76 billion ($714.5 million) under the facility after receiving second disbursement amounting Kshs. 44 billion ($407 million) mid last month.
Evaluated state corporations Among the 18 state corporation evaluated, only Kenya Ports Authority (KPA), Kenya Pipeline Company Ltd. (KPC), Kenya Airports Authority (KAA) and Kenya Electricity Company Plc (KenGen) were profitable as they regularly pay dividends and taxes and are the main revenue earners and profit makers in the State Owned Enterprises sector.Kenya Power and Kenya Railways Corporation (KRC) were deemed unprofitable as they are highly indebted with on […]