Kenya plans to spend KSh 36 Billion to rescue financially distressed Kenya Power, Kenya Airways and three of the country’s largest public universities.
In its latest bulletin, the International Monetary Fund (IMF) says the KSh 36 billion in extraordinary support to State-Owned Enterprises (SOE) is intended to support them during this financial year ending in June 2021.
“All such extraordinary support is being based on careful evaluation of need and accompanied by steps to ensure that the entities are put on a sound footing,” said the IMF.
Inside Kenya’s rescue plan
This plan is part of the US$ 2.34 billion financial packages approved this month, based on Kenya’s request for financial assistance under the Extended Credit Facility and Extended Fund Facility arrangements.
The three-year financing package will, among others, support the next phase of the authorities’ COVID-19 response and the country’s plan to reduce debt vulnerabilities while safeguarding resources to protect vulnerable groups.
On the list of SOEs that will benefit from this bailout package are Kenya Airways, Kenya Power company and multiple public universities, which have all experienced steep drops in revenue.
A total of nine SOEs facing enormous fiscal risks include Kenya Airways, Kenya Airports Authority, Kenya Railways Corporation, KPLC, KenGen, KPA and the three largest public universities, Nairobi University, Kenyatta University and Moi University.
By the end of May 2021, National Treasury is expected to prepare an in-depth, forward-looking financial evaluation of the top 15-20 State-Owned Enterprises representing enormous fiscal risks and a strategy for addressing financial pressures in the SOE sector.
This includes a framework for deciding on interventions and reforms while considering the limited fiscal space and the program’s fiscal targets.
The IMF said COVID-19 shocks had created acute financial stress in several fully or partially government-owned entities.
In many cases, these public enterprises were already struggling financially before the pandemic, and the added financial pressures have necessitated government liquidity support.
For instance, over the last five years, Kenya Power has experienced declining financial performance driven by increasing costs, below-expectation demand growth, and tariff approval delays.
Despite rising revenues, state-owned railways corporation saw a significant worsening in profitability during the 2019/20 financial year as it started to service on-lent loans contracted by the national government for the construction of the Single Gauge Railway.
Kenya Airways, which like other airlines, was hard hit by the travel restrictions introduced in early 2020, has been accumulating losses since 2015. The carrier recorded the worst loss ever of $330 Million at the close of financial year ended 31st December 2020.
Fresh lockdown measures have made matters worse for an airline that was slowly shifting to cargo business to compensate for depleted passenger traffic.
The IMF reports that public entities’ profit outside the budgetary central government declined by a third in 2019/20 to KSh 62.5 Billion (0.6 per cent of GDP), as many of these enterprises saw reduced profits and a handful showed significant losses.