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Massive layoffs cap IMF’s release of Sh29 billion facility to Kenya

BUSINESS
By Dominic Omondi | November 7th 2021

KEMSA office in Nairobi on September 16, 2021 [Boniface Okendo, Standard]

This has been a dramatic week for two State corporations - Kenya Power and Kenya Medical and Supplies Authority (Kemsa).

The boards of the two-State entities made announcements that shook their workforce.

Kemsa, still stained by the Sh7.9 billion scandal, announced that all non-core staff members would be working from home for the next 30 days. Personnel from the National Youth Service (NYS) and Kenya Defence Forces (KDF) will manage operations at the agency temporarily.

A source privy to the on-goings at Kemsa told the Weekend Business that the employees had been fired.

KPLC’s board, on its part, sent home 59 senior managers in the procurement department to pave for an audit of the power distributor’s tendering process. 

But as Kenyans were still digesting the news of these cleanup exercises aimed at accounting for the billions of cash lost through corruption, the International Monetary Fund (IMF) announced that its staff had reached an agreement with Kenya that will see the country receive some Sh29.4 billion from the Washington-based institution.

Whether the chronology of events was purely coincidental, what is clear is that the two State-owned enterprises (SOEs) are part of the dozens of parastatals on IMF’s watch-list.

“The IMF staff team and the Kenyan authorities have reached a staff-level agreement on the second reviews of Kenya’s economic programme under the Extended Fund Facility and Extended Credit Facility and have held discussions on the 2021 Article IV consultation,” said IMF in a statement on Friday.

This is as a result of the virtual review of the country’s economic performance that was done between October 12 and November 3 this year.

The staff-level agreement is subject to the approval of IMF management and the Executive Board, its highest decision-making organ.

The Bretton Woods institution insists that some of these institutions, besides being a burden to the taxpayer, have been bogged down by corruption and wastage. “It might just be a spurious relationship,” said Churchill Ogutu, economist, IC Asset Managers (Mauritius).

However, noted Mr Ogutu, for Kenya to access a Sh256 billion credit facility that is aimed at cleaning up the country’s public finances, one of the conditions touched on reforming State-owned enterprises.

“Where Kemsa may lie, from a distance, may be the issue around debt disclosure and insistence of audit of Covid-19 funds,” said Ogutu.

On Kemsa, the IMF had given Kenya until the end of June this year to reveal the names of owners of companies that benefited from the controversial Sh7.9 billion tender scandal.

“The move to issue sacking letters has been triggered by donors who have been giving Kemsa a wide-berth following the Covid-19 scandal. Donors are saying they need reforms at Kemsa,” a source told The Standard on Friday. 

The country has not met this condition, citing legal difficulties. Last Friday, the National Treasury said it was on course to complete the condition in which the government is required to reveal the names of beneficial owners of firms awarded public tenders.

“The authorities have an action plan to address legal impediments that prevented publication of beneficial ownership information of successful bidders on the public procurement website,” said the IMF in a statement.

It is not just the two-State corporations (Kemsa and Kenya Power) that the IMF wants to undergo a surgical process, the restructuring will also touch on other State enterprises including loss-making national carrier Kenya Airways (KQ) and some of the top public universities.

“Efforts to tackle difficulties of financially-troubled State-owned enterprises, including Kenya Airways and Kenya Power and Lighting Company (KPLC or Kenya Power), are advancing,” said IMF.

At KQ, the IMF expects the recently completed forward-looking financial evaluation to catalyse the restructuring of the loss-making airline whose woes were aggravated by the Covid-19 pandemic.

An international aviation consultant was retained by Kenya Airways in May to undertake an in-depth financial assessment of the troubled airline which is expected to be nationalized.

In February, the government injected Sh26.5 billion into the airline as part of its plan to nationalise the carrier. Kenya Power, in which the government owns a 50 per cent stake, has also been fingered for clean-up in what is aimed at reducing Kenya’s fiscal risk.

The clean-up of Kenya Power is ongoing with 59 senior managers in the supply chain department being sent home to pave way for the audit of the power producer’s tendering process.

The electricity distributor said the supply chain and logistics department staff had been made to step aside pending investigation into possible procurement malpractices that have threatened the sustainability of the company while exposing consumers to high power bills.

There have also been attempts to reform public universities most of which are cash-strapped.

In July, the National Treasury announced that it had completed a financial health check on 18 parastatals that unearthed a cumulative five-year financial shortfall of Sh70 billion, which means that a good number of the parastatals are in the red with liabilities exceeding their assets.

Consequently, National Treasury Cabinet Secretary Ukur Yatani said the government will undertake a rigorous restructuring of the State corporations.

“This requires multi-faceted efforts by all stakeholders to address the financial challenges facing SOEs including, but not limited to, possible reforms and restructuring through expenditure rationalisation, revenue-enhancing measures and sealing of revenue leakages to minimise financial support from the Exchequer,” said Yatani.

Kenya Broadcasting Corporation, East African Portland Cement Company, Postal Corporation of Kenya and Kenya Post Office Savings Bank were found to be insolvent. The IMF acknowledges there might be negative results that might come with restructuring, with most Kenyans recalling the 1990s when hundreds of thousands of retrenched civil servants died of stress after being hounded out of jobs.

“In preparing to support the restructuring, the authorities are moving to proactively manage difficult tradeoffs while protecting social spending and achieving their debt reduction objectives in line with the IMF-supported programme,” said the IMF. Should the IMF’s executive board approve the staff-level agreement, Kenya will have received a total of Sh109.7 billion from the Bretton Woods institution.

“The authorities have remained firmly committed to their economic programme in this complex environment,” said the IMF in a statement, noting that the government outperformed on their fiscal target for the financial year 2020-21.

The country’s tax collection revenue, said the global lender, has improved offering the National Treasury essential resources that will see it cut down on its borrowing needs.

The three-year programme is aimed at improving the country’s public finances by increasing tax revenues and reducing spending, especially non-essential spending. This will narrow of the gap between the country’s tax revenues and its spending budget or fiscal deficit.

The programme will also see some fledgling State corporations that have been a burden to the Exchequer put on the chopping board.

The restructuring of these State-owned enterprises, critics fear, is likely to result in the retrenchment of civil servants as some of the State bodies are merged, privatised or just killed.

The IMF noted that although Kenya’s economic recovery continued due to intensified vaccinations against Covid-19, drought in northern parts of the country and emerging security threats are likely to slow this rebound.

To safeguard public resources and enhance accountability, a special audit of Covid-19 vaccine spending will be undertaken, and the comprehensive audit of the financial year 2021/21 expenditure will include a chapter on Covid-19-related spending.

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