Funding cuts spark urgency in state corporation shake-up, says Parliamentary Budget Office
The office urges the government to ensure transparency and communication throughout the restructuring process to safeguard service delivery and public trust.
Kenya’s growing struggle to attract foreign aid has triggered an accelerated push to overhaul and privatise non-performing state corporations, the Parliamentary Budget Office (PBO) has revealed.
The office says dwindling donor confidence, coupled with weak project execution and wasteful spending in public enterprises, has left the government with little choice but to embark on a sweeping rationalisation plan.
More To Read
- Audit exposes civil servants’ mismanagement of millions in imprests across ministries
- Government’s increased revenue strategy faulted amid missed targets, public backlash
- Controller of Budget flags 16 counties for concealing true staff expenditures
- Parliamentary Budget Office warns government borrowing risks slowing economic recovery
- Bill proposes separate bank accounts for each State project to boost accountability
- Audit exposes Sh332 billion in dormant assets held by banks, insurers
In its latest report, the PBO projects that Official Development Assistance will drop from Sh278 billion in the 2024/2025 financial year to Sh258.4 billion in 2025/2026, a reduction of about Sh20 billion.
It warns that continued poor coordination of development projects and low absorption of aid funds are frustrating Kenya’s growth prospects and threatening key sectors that rely on external financing.
The report highlights state corporations as a major strain on public finances, noting that while they consume nearly a fifth of total revenue, their combined contribution to the economy stands at only 3.5 per cent of GDP.
The PBO says this imbalance has renewed pressure on the government to restructure, merge or offload underperforming entities in order to free up resources and improve service delivery.
“Due to the challenges facing state corporations, the government developed a State Corporations Reform Strategy with the aim of streamlining government operations, reducing wastage and curbing excesses,” the office stated.
According to the report, the strategy seeks to enhance operational efficiency, strengthen financial sustainability and reduce reliance on the national budget.
It involves consolidating 42 corporations into 20, dissolving nine, reorganising six, and either winding up or privatising 16 with redundant roles.
Additionally, 13 professional organisations and four public funds will be reclassified to remove them from the state corporation category.
The PBO says the plan marks a shift from past focus areas such as wage management, with institutional restructuring now being viewed as the most critical step toward restoring fiscal balance.
The government is expected to prioritise mergers, divestitures, and dissolutions to open fiscal space and attract private sector investment.
Under the ongoing rationalisation drive, Kenya Pipeline Corporation (KPC) is set for listing before April next year, while 33 other institutions with a total budget of Sh118.5 billion will be merged.
A further eight agencies with a Sh1.6 billion allocation will be disbanded and their functions moved to line ministries. Another 14 with Sh3.1 billion in allocations are earmarked for sale or closure.
However, the PBO cautions that the reforms, while necessary, carry significant risks if executed poorly.
It warns of potential internal pushback, political interference, and job losses that could delay or derail the process. Agencies affected by the shake-up may resist change to protect their autonomy and relevance, potentially slowing down progress and lowering staff morale.
The report further notes that redundancies, especially among senior officials and administrative staff, could trigger legal challenges if not managed transparently.
“Although the proposed mergers promise significant fiscal and operational benefits, they carry several potential risks that must be carefully managed. Particularly, in top management and support services, this may lead to legal and political challenges if not handled transparently and fairly,” the PBO warns.
It adds that if not properly coordinated, the reforms could disrupt essential services in critical areas such as education financing, agriculture, and research.
The office urges the government to ensure transparency and communication throughout the restructuring process to safeguard service delivery and public trust.
Top Stories Today
