In response to directives from Treasury Cabinet Secretary John Mbadi, commercial banks have significantly reduced their lending to state-owned enterprises (SOEs), cutting loans by Sh13.5 billion—a 14.7% decrease from Sh91.7 billion in July 2023 to Sh78.2 billion in July 2024. This move aligns with the government’s strategy to curb the financial risks associated with defaulting parastatals.
Mbadi’s directive aims to prevent parastatals that have defaulted on loan repayments and accumulated pending bills from accessing fresh debt, thereby reducing the burden on taxpayers. He emphasized that the National Treasury will withhold concurrence for new borrowings or guarantees for SOEs in default.
The financial strain on these parastatals is evident, with SOEs holding nearly Sh1.38 trillion in outstanding debts as of the last financial year. Additionally, by September 2024, state corporations had amassed Sh410.7 billion in arrears to contractors and suppliers. In light of these figures, Mbadi has instructed SOEs to implement prudent financial management practices, including rationalizing personnel, operational, and administrative costs, and leveraging technology to enhance service delivery.
This development has raised concerns among public sector employees and labor unions about potential job losses. The Union of Kenya Civil Servants has expressed apprehension that the government’s austerity measures might lead to staff retrenchments.
In summary, the reduction in bank loans to parastatals reflects the government’s commitment to enforcing financial discipline within state corporations, aiming to mitigate fiscal risks and promote sustainable economic management.
