State moves to restore fiscal discipline in rogue parastatals

By John Oyuke

State Corporations are now conditioned to observe financial discipline or face exclusion from any support of the central Government.

An elaborate Treasury circular to all state corporations directs parastatals to generate reasonable returns to the ministry of Finance and other stakeholders and to devise an appropriate dividend policy to ensure this is done.

The parastatals are also under instructions to submit annual budgets for the 2011/2012 financial year to the parent ministry with a copy to the investment Secretary not later than January 31.

The circular signed by Treasury PS Joseph Kinyua and copied to all accounting officers and parastatal chief executives emphasises that all commercial State corporations are expected to generate reasonable returns to Treasury and other stakeholders.

Kinyua noted that poor financial performance of a number of state corporations still persist, leading to delays in repayment of loans due to Treasury resulting in arrears, defaulting on local and foreign loans guaranteed by the Government.

It has also led to delays in remittance of dividend payments due to Treasury and taxes collected or other statutory deductions like pension, NSSF, NHIF and cooperatives Societies by state corporations.

To round this, Kinyua told the parastatal heads that all state corporations must take debt service and statutory obligations as a first charge on their revenues and other income.

Loan defaulters

"Treasury will not recommend for approval by Parliament requests for government guarantee on any new foreign or local borrowings for those state corporations in default of past obligations," he reiterated.

Where a corporation is in default on debt service, statutory and other obligations, Kinyua added, the state corporation should initiate a restructuring proposal within the financial year.

He has also emphasised that the preparation of the 2011/2012 budget should be informed by the Vision 2030 and Medium Term Plan (MTP) priorities geared towards achieving the flagship projects.

Kinyua cautioned that Treasury would not encourage proposals for purchase of new plants and equipment unless they are absolutely essential and the institution can demonstrate the acquisition would lead to increased profitability and improved service delivery.

"Treasury will not, under normal circumstances, authorise any new offices or residential accommodation project for ay state corporations," he added.

In addition, according to the circular, State corporations should ensure that all investment projects generate a reasonable rate of return.

Where, however, a state corporation is not able to quantify a project in financial terms, an adequate justification should be provided in terms of other criteria such as socio-economic impact, it added.

Kinyua said, external borrowing should be confined to investments and projects that clearly demonstrate commercial viability, satisfying rate of return criteria and generating cash flows to pay off the loans.