State nets Sh2bn interest from loans to parastatals

The National Treasury office building.

The National Treasury office building. The government earned Sh1.86 billion in interest from loans it borrowed from local and international lenders on behalf of State corporations. 

Photo credit: Diana Ngila | Nation Media Group

What you need to know:

  • Income from onward lending forms part of revenue streams.
  • Broke State firms borrowing with the backing of the government to fund their daily needs.
  • The stock of on-lent loans by the government to State-owned enterprises hit Sh921.93 billion in June last year, according to National Treasury data, up from Sh867 billion in June 2020. 

The government earned Sh1.86 billion in interest from loans it borrowed from local and international lenders on behalf of State corporations. 

Cash-strapped State firms have in recent years turned to taking loans with government backing to fund new projects and address cash-flow challenges.

The stock of on-lent loans by the government to State-owned enterprises hit Sh921.93 billion in June last year, according to National Treasury data, up from Sh867 billion in June 2020. 

This is in addition to Sh157.22 billion worth of government-guaranteed debt held by State corporations by June last year, exposing taxpayers to repayment risks in case of default.

At the same time, nine State entities alone had accumulated Sh104.84 billion of non-guaranteed debt.

Kenya Power borrowed more than half of the money (Sh53.8 billion), Kenya Pipeline Company (Sh19 billion), and KenGen 13.6 billion.

Others are the Jomo Kenyatta University of Agriculture and Technology (Sh2.7 billion), East African Portland Cement (Sh1.7 billion and Kenyatta University (Sh1.2 billion).

Interest payments on the loans by the parastatals are forming a solid part of the government’s investment income, helping the exchequer hit its revenue collection targets. 

Kenya Revenue Authority collected a record Sh2.031 trillion in revenues for the financial year 2021/22 up from Sh1.669 trillion it netted in 2020/2021, driven by economic recovery during the period.

“State agencies with on-lent loans from the National government paid interest of Sh1.9 billion against the revised target of Sh2.2 billion,” the Treasury said.

Government investment revenue, however, fell to Sh45.5 billion, down from Sh49.9 billion during the period.

“During the financial year 2021/22, the government collected Sh45.5 billion of investment income in the form of dividends, surplus funds, directors’ fees, and loan interest receipts against a revised target of Sh39.9 billion,” the Treasury said.

Central Bank of Kenya recently warned of the worrying increase in borrowing of billions of shillings by parastatals to pay salaries, wages, and other operational expenses, which is weakening their ability to repay the loans.

Most State firms remain highly indebted worsened by persistent losses or thin profits that have hit them with liquidity challenges, forcing them to borrow or seek bank overdrafts to fund their daily operations.

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