This archive report was first published on 18 November 2021.
Kenya's Treasury is grappling with a Sh1.3 trillion debt burden from 18 State corporations, which could be forced to repay taxpayers if they fail to meet their obligations.
According to the Budget Policy Statement, 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.
These liabilities are an equivalent of about 13.6 per cent of the country's GDP.
As Treasury Cabinet Secretary Ukur Yatani noted, the debt stems primarily from liquidity challenges resulting from unfavourable revenue and economic performance.
Many 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.
Already, taxpayers have 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 the 2019/2020 financial year.
Kenya Railways Corporation and Nzoia Sugar have not made any interest or principal repayments on loans from the government in the last three years.
Notably, in July, Treasury said the 18 firms needed Sh70 billion in bailouts over the next five years, excluding potential financial support to Kenya Airways, which has already received Sh28 billion from the exchequer in the supplementary budget 2020/21.
Furthermore, 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.
