Kenya’s President Ruto orders commercial parastatals to remit 80pc of net profit to Treasury

The Kenyan government has issued a directive ordering commercial corporations to remit 80 percent of their profits to the Treasury. This move is part of efforts to boost revenues and reduce the country’s growing debt burden.

The decision has stirred controversy among businesses, with many expressing concerns about the impact it will have on their operations. Some argue that such a high remittance rate will make it difficult for companies to reinvest in their growth and expansion.

However, the government defends its decision, stating that it is necessary to ensure that corporations contribute their fair share to the country’s development. The Treasury has also emphasized the importance of sustainable fiscal policies to address Kenya’s economic challenges.

It remains to be seen how the new directive will be implemented and its ultimate impact on the business environment in Kenya. Businesses are closely monitoring the situation and seeking clarity on how the remittance rate will be applied.

“Our budgets and expenditures must be subjected to rigorous audit to eliminate abuse of public resources.

We will leverage on technology to maximise on the value for money and boost service delivery”, said Kenya’s President William Ruto.

The Treasury data indicated that about half of the State corporations did not make any effort of repaying their loans in the financial year ended June 2022, highlighting the struggles the entities have in repaying.

Kenya Power for instance had an outstanding loan of Sh56.15 billion followed by Kenya Airways with a pended amount of Sh31.27 billion, Athi Water Services Board Sh47.18 billion, Coast Water Services Board Sh15.84 billion, while Rural Electrification Authority’s loan stood at Sh13.4 billion.

The State was exposed to roughly Sh1.3 trillion in fiscal risk from underperforming State corporations, which could need assistance for vital tasks including loan repayment, supplier payments, and legal defense, on top of the loan to parastatals.

Ruto’s latest orders, however, coincide with Prime Cabinet Secretary Musalia Mudavadi’s clerical call to all government agencies that they should work on profitable plans or face privatization.

“Currently, we have 79 State Corporations that are commercial in nature. Although these agencies have some strategic objectives, their main reason for existence is “for-profit”.

They are meant to be a source of revenue for the Government through dividends to the National Treasury,” stated Mudavadi.

“Unfortunately, only about 5 per cent of the 79 Agencies pay any such dividends. In fact, over 40 per cent of the commercial state corporations turn to the exchequer for financial subsidy.”

Meanwhile, Kenya has 248 State corporations, out of which 46 are commercial enterprises, and 201 are non-commercial entities.