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Cash-strapped parastatals to get Sh65b

BUSINESS
By Dominic Omondi | June 29th 2021
[Courtesy]

The government might use an additional Sh65 billion to bail out cash-strapped parastatals in the next financial year, the International Monetary Fund (IMF) has revealed.

In its first review of the Sh256 billion programme, the IMF noted that government officials had indicated that State-owned enterprises (SOEs) undergoing restructuring would use the money to stay afloat.

Under the 38-month programme, the government is expected to restructure some of the big SOEs, in a bid to make them efficient as a cash-strapped Treasury looks to reduce its fiscal risks.

The evaluation covers Kenya Airways, Kenya Airports Authority, Kenya Railways, Kenya Power, KenGen and Kenya Ports Authority.

“Pending completion of these strategies, staff anticipates additional SOEs support of Sh65 billion overall may be needed in financial year 2021/2022 (not included in the draft budget),” read the review in part.

The Washington-based institution noted that the money was being given on account of “overdue obligations, debt servicing costs and losses related to the economic fallout from the pandemic, and amounts due from the government.” 

The corporations, together with others, are set for restructuring as part of an agreement that Kenya made with the IMF. The programme is aimed at helping Kenya reduce its debt vulnerability by mobilising more revenues and cutting wastage.

Also targeted include the three largest public universities which are set for a purge that might result in job losses, even as some State-owned entities are merged or dissolved.

Treasury is said to have completed financial evaluations of the nine SOEs with the largest fiscal risks to the budget, and even provided targeted financial support equivalent to Sh36 billion in the financial year 2020/2021 supplementary budget, the IMF noted.

“At end-May, an in-depth evaluation of 18 SOEs was completed by analysing their cash flow balances over 2021 to 2024 and potential cost-savings from viable restructuring options,” said the IMF. Kenya’s deal with IMF will see 20 State entities put on the chopping board, with many civil servants at risk of being rendered jobless.

This is after the Washington-based institution commissioned the National Treasury to take a health check of the State-owned enterprises with the largest fiscal risks as part of the plan to restructure inefficient parastatals.

However, delays in hiring an international aviation consultant to undertake an evaluation of Kenya Airways resulted in non-observance of the end-May review benchmark expected to be fully implemented in the coming weeks.

National Treasury has also finalised a strategy to enhance its financial oversight of SOEs. “By end-May 2021, Treasury will prepare an in-depth forward-looking financial evaluation of the top 15 to 20 SOEs, representing the largest fiscal risks as well as a strategy for addressing financial pressures in the SOE sector,” said the IMF in a report on the Sh256 billion loan facility for Kenya approved on Friday.

The global lender explained that the latest evaluation will chart the way forward on the expected surgical reforms of the State corporations. The expected restructuring of the parastatals is reminiscent of the 1990-style structural adjustment programmes that saw thousands of civil servants retrenched.

In December last year, Treasury Cabinet Secretary Ukur Yatani said the State plans to merge or dissolve hundreds of State corporations.

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