Sh1.3 trillion parastatals’ debt haunts the Treasury

The National Treasury has disclosed a Sh1.3 trillion parastatal debt that taxpayers could be forced to repay in case 18 State corporations fail to meet their obligations.

In the Budget Policy Statement, Treasury revealed that the firms have accumulated Sh343 billion in commercial loans from banks, Sh664 billion on-lent by the government and require bailouts of Sh211 billion to stay afloat

The corporations are also facing litigation where they have been sued for a combined Sh109 billion and the State has guaranteed Sh343 billion against political and performance risks. The Sh1.3 trillion liability is an equivalent of about 13.6 per cent of the country’s GDP.

“These stem primarily from liquidity challenges resulting from unfavourable revenue and economic performance. They also reflected a high liquidity risk demonstrated by their quick ratios being less than one implying their inability to service short-term obligations when they fall due,” Treasury Cabinet Secretary Ukur Yatani said.

A huge number of parastatals are in the red and have turned to commercial loans to fund operations—a worrying trend that has seen some fail to meet their loan obligations.

Taxpayers have already started paying off some parastatal debts, including those by East Africa Portland Cement,Kenya Broadcasting Corporation, Tana, and Athi River Development Authority which defaulted on their obligation to repay government-guaranteed loans in Financial Year 2019/2020.

Kenya Railways Corporation and Nzoia Sugar have not made any interest or principal repayments on loans from the government in the last three years.

In July, Treasury said the 18 firms needed Sh70 billion in bailouts over the next five years.

The figure excluded potential financial support to Kenya Airways, which has already received Sh28 billion from the exchequer in the supplementary budget 2020/21 to help it meet its liquidity needs and debt obligations.

The Treasury wrote off Sh37.06 billion debts by struggling parastatals in the year ended June 2021, exposing the deteriorating financial health of the State-controlled entities tasked with strategic roles in economic development.

The on-lent loans , which were written off to keep the State-backed firms afloat were part of the slightly more than Sh74.01 billion that were in arrears in the review period, comprising Sh38.03 billion in principal and Sh35.98 billion in interest.

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