The International Monetary Fund (IMF) has given Kenya up to June 2024 to quantify the fiscal risks emanating from fifty broke state parastatals as the multilateral lenders continue to tighten loan conditions.

This is part of fresh conditions IMF penned in its latest review of the country last week after approving the disbursement of $415.4 million (Sh58.8 billion) budgetary support under the now 48-month credit facility that started in mid-2021. This means that the number of cash-strapped State-Owned Enterprises (SOEs) on the radar of the IMF has been revised upwards from the previous 18 that were targeted for restructuring when Kenya first tapped the credit facility.

State corporations report

“National Treasury (NT) to complete financial evaluation for fifty SCs (State corporations), using their FY2022/23 audited accounts, to quantify fiscal risks emanating from SOEs and report the outcome to the Fiscal Risk Committee,” IMF said in the report published last week.

The audit will guide SEOs mergers, liquidation or dissolution, privatisation, and transfer of some to the county government to reduce the financial burden on the exchequer. Kenya has about 263 parastatals, most of which are cash-strapped and have been declared insolvent by the auditor general, necessitating urgent reforms to wean them off government support.

National Treasury revealed last January that the government is glaring at a Sh2.66 trillion fiscal risk should SEOs default on guaranteed loans tapped from commercial and multilateral lenders. Most of these loans always go towards investments through paying off contractors and other bills but with little or no return, leaving the parastatals in a perpetual financial hole.

Struggling parastatals default loans, call for State bailouts and interests guaranteed by the Treasury. While the IMF has not named the SEOs, those likely to be targeted are the biggest beneficiaries of bailouts, Kenya Airways (KQ) Kenya Power and Lighting Company (KPLC), which is expected to announce losses in the coming weeks for its full-year ending June 2023.

About seven parastatals which were declared insolvent by the auditor general in December 2022 are also likely to be up for restructuring. These included the Kenya Bureau of Standards (KEBS), Kenya Post Office Savings Bank (Postbank), the Postal Corporation of Kenya, and the National Oil Corporation of Kenya (NOCK) which has already defaulted billions of debt owed to local banks.

While parastatals are not necessarily obliged to make a profit like the private sector or state-affiliated corporations, they must maintain some financial prudency and surplus to enable them to pay dividends to the government.