The National Treasury will borrow Sh70 billion more to bail out ailing parastatals, including Kenya Airways and Kenya Power.
In his first supplementary budget for the current financial year ending June, National Treasury Cabinet Secretary Ukur Yatani revised the overall fiscal deficit - the hole that is left when spending exceeds revenue - from the original projection of 7.5 per cent to 8.1 per cent of Gross Domestic Product (GDP).
GDP - the sum of all goods and services produced in the economy - as at the end of the financial year is estimated at Sh12.4 trillion. This means that Treasury will have to borrow Sh1.003 trillion, an increase from Sh929.5 billion that had been projected in the original estimates.
Most of the additional borrowing will come from foreign creditors, through issuing the fifth Eurobond, and the World Bank.
Net foreign financing has been revised from the original projection at 2.2 per cent to 2.9 per cent of GDP. This means that the exchequer will borrow Sh352.4 billion by end of June, an increase from Sh267.3 billion.
“The government’s medium to long term borrowing is aimed at financing of developments. This borrowing is undertaken in line with the Medium Term Debt Strategy approved by Parliament,” said Mr Yatani.
Ailing State-owned enterprises (SOEs) will benefit from the borrowed cash as the government moves to restructure them under a programme Kenya has with the International Monetary Fund (IMF).
Loss-making Kenya Airways (KQ) tops in a Sh38.35 billion bailout unveiled on Tuesday to support struggling parastatals.
If the budget is approved by Parliament, Treasury will release an additional Sh26.56 billion under public finance management vote mainly to support KQ. That should help the airline, whose financial fortunes were battered by the Covid-19 pandemic, reduce its losses.
Also to benefit from the supplementary budget will be universities after the university education programme was added Sh8.58 billion.
Kenya Power has also benefited from the budget review with Sh2.99 billion under the power transmission and distribution vote head.
Under the IMF programme, whose objective is to reduce the country’s debt vulnerabilities, the country is projected to borrow Sh977 billion in the current financial year to plug its deficit.
The allocation to KQ comes barely a month after Treasury revealed it had dropped plans to nationalise the airline and will instead roll out a Sh147 billion ($1.3 billion) multi-year restructuring programme that includes taking over debts.
Treasury told IMF it will take over KQ’s debts and implement a series of measures including reducing frequency of flights, cutting fleet size and laying off staff.
The three-year IMF programme is aimed at improving the country’s public finances by increasing tax revenues and reducing spending, especially non-essential expenditure. This will narrow the country’s fiscal deficit.
Top public universities, including the University of Nairobi, Kenyatta and Moi universities will also get an additional Sh8.5 billion to streamline their operations.
Kenya Power will also get Sh3.3 billion, which will be used for restructuring.
In July last year, 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 SOEs are in the red, with liabilities exceeding their assets.
Yatani said the government would soon be undertaking a rigorous restructuring of the cash-strapped corporations.
Most of the SOEs will be expected to stand on their own by diversifying their revenue sources, cleaning up their payrolls, selling non-profitable assets and ventures and leveraging on ICT.
State corporations might have to tighten their belts further after it emerged that the National Treasury was preparing a mini budget to buy more Covid-19 vaccines, mitigate drought and bail out ailing parastatals.