IMF asks Kenya to limit support to struggling State corporations

The International Monetary Fund (IMF) has asked the National Treasury to limit its support to struggling State owned enterprises (SOEs) as part of new financing conditions.

In its latest country report published on Wednesday, the IMF wants the exchequer to limit its support to State Corporations and grant new funding on the basis of urgent demands only.

The National Treasury has been undertaking and evaluation of fiscal risks presented by its SOEs to the end of last month with the analysis forming the basis for the expected restructure of the enterprises.

The evaluation has involved nine entities including Kenya Airways (KQ), Kenya Railways (KRA), Kenya Airports Authority (KAA), Kenya Power, KenGen, Kenya Ports Authority (KPA) and three of the largest public universities.

“State owned enterprises have emerged as an important source of fiscal risks. The profit of public entities outside the budgetary central government declined by a third in the 2019/20 financial year to Ksh.62.5 billion as many SOEs saw reduced profits and a handful showed large sources,” stated the IMF.

“While the deteriorating income position of the SOE sector reduces its contribution to the budget, additional fiscal pressures could arise from SOE debt on-lent or guaranteed by the government.”

The IMF states several SOEs underlying financial weaknesses have only been exacerbated by the COVID-19 crisis to include the now loss making Kenya Power, Kenya Railways and national carrier Kenya Airways.

By the end of May, the government is required to prepare a strategy for addressing financial pressures in the SOE sector including an in-depth and forward-looking financial evaluation of the top 20 SOEs representing largest financial and fiscal risks.

By the end of September, Treasury will be required to expand its fiscal risk analysis quantifying contingent liabilities stemming from high risk SOEs and initiate coverage of public-private partnerships (PPS) in its yearly Budget Review and Outlook Paper (BROP).

The move is geared at improving transparency and accessibility of information on the broader public sector to improve fiscal; policy planning and reduce fiscal risks.

The SOEs restructure is part of conditions underpinned in the Ksh.255 billion ($2.34 billion), 38 months loan program approved by the IMF Executive Board on Friday which is further premised on other fiscal reforms.

This include the restoration of tax revenues to levels achieved in recent years through the reversal of extra ordinary measures such as temporary tax cuts, spending efficiency and a ramp up in fiscal transparency.