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Looming job cuts; several parastatals to be merged or dissolved in IMF deal.

FINANCIAL STANDARD
By Dominic Omondi | April 8th 2021
Treasury Cabinet Secretary Ukur Yatani. [File, Standard]

Kenya’s deal with the International Monetary Fund (IMF) will see about 20 State corporations put on the chopping board, with tens of thousands of 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 (SOEs) with the largest fiscal risks as part of the plan to restructure inefficient parastatals.

“By end-May 2021, National Treasury will prepare an in-depth forward-looking financial evaluation of the top 15-20 SOEs representing the largest fiscal risks as well as a strategy for addressing financial pressures in the SOE sector,” said the IMF in a detailed report on the Sh253 billion loan facility for Kenya that its executive board 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 as entities were either merged, dissolved or privatised.

Towards the end of December last year, Treasury Cabinet Secretary Ukur Yatani said the government plans to merge or dissolve hundreds of State corporations, a move that would see thousands of civil servants sent home.

IMF revealed that a financial evaluation of the nine SOEs with the largest fiscal risks in the current budget that ends in June was supposed to have been completed by the end of last month.

The evaluation, the IMF added, would cover Kenya Airways, Kenya Airports Authority, Kenya Railways Corporation, Kenya Power, Kenya Electricity Generating Company, and Kenya Ports Authority.

“The evaluation also covered three largest public universities. This evaluation will serve as a basis for extraordinary SOE support to these SOEs in financial year 20/21, which should be limited to exigent needs (the supplementary budget provides for 0.3 per cent of GDP),” said IMF.

Yatani is on record saying there are plans to merge or dissolve some State corporations.

He said the government had reached the tough conclusion that many State enterprises needed to be restructured “because, at the moment, some of them are a burden on the Exchequer”.

He gave an example where some parastatals, despite serving about 10 people a month, continue to incur huge administrative costs, including paying leases and employees.

“To avoid this… some of the State corporations will be merged, some will be dissolved and some will partner,” said the CS. He added: “We are going to work on structural reforms… heavily.”

Alluding to Kenya Power, Yatani noted that despite the strategic importance of some of the corporations, they are reeling from major governance challenges.

A report tabled in the National Assembly last year showed that about 12 State-owned enterprises are insolvent, with what they owe exceeding what they own.

Most of these enterprises are sugar companies. Nzoia Sugar’s liabilities, for instance, exceed its assets by Sh45 billion. Muhoroni Sugar, which is in receivership, has liabilities that exceed its assets by Sh28 billion, while Chemelil Sugar exceeds the same by Sh2.8 billion, and South Nyanza Sugar Company by Sh2.7 billion.

The liabilities for Agro-Chemical and Food Company, on the other hand, exceed its assets by Sh6.3 billion.

Other companies in the red include the National Research Fund, Sunset Hotel, University of Nairobi Enterprises Ltd, Kenya National Shipping Line, Rift Valley Water Works Development Agency and the Agricultural Development Corporation.

The government has pumped close to Sh87 billion into these corporations to correct market failures. This includes ensuring the prices of essential goods or services do not become unaffordable.

It also expects to partake in the profits of these companies, using the money to provide critical public services.

A new report by the country’s financial regulators noted that these corporations are now a threat to the country’s economic and financial stability.

“Financial viability of SOEs affects financial institutions, households, and private businesses through their interconnectedness and value chain since their borrowing and spending decisions affect balance sheets in the economy,” reads part of the Kenya Financial Stability Report 2020.

By the end of last year, a good chunk of the Sh100 billion that SOEs had borrowed from local banks was at risk of turning into non-performing loans, which are loans that have not been serviced for more than three months.

Yatani further noted that the report of the Presidential Task Force on Parastatal Reforms is complete and would be launched soon. The task force was headed by former Mandera Central MP Abdikadir Mohamed.

The merger of the Industrial and Commercial Development Corporation, Tourism Finance Corporation and Industrial Development Bank, said Yatani, will be concluded by the end of the current financial year.

“On privatisation of sugar companies, a decision has been reached to proceed with the privatisation of these companies by way of a long-term lease model, which will transfer the rights of use of each factory to the lessor for development and operation,” added the CS.

There are, however, no guarantees that the restructuring will be a success, going by the results of a similar exercise in the early 1990s.

In a much-publicised nationalisation plan, Kenya Airways will revert to the government after it was privatised in the first phase of parastatal reforms championed by the World Bank.

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