OPERATIONS of some state corporations may grind to a halt after the National Treasury said it will not approve any further borrowing of those agencies in default of past loans.
The Treasury will also not make recommendations to parliament for government guarantee for those state corporations whop have defaulted past loan obligations.
This stand by the government will affect tens of state corporations who are currently not servicing their debt obligations.
In August, the Treasury disclosed that as at June 2012, the total on-lent loan portfolio amounted to Sh143.8 billion, out of 90 per cent is non-performing. This amount comprises of Sh87.9 billion in outstanding loans Sh39.6 billion in accrued interest and Sh16.2 billion in arrears. According to the annual debt report for 2011/2012, out of the outstanding loan amounts, the government only received Sh2.9 billion as repayment, out of which Sh1.8 billion was principal and Sh1.1 billion was interest. "In the event of default on on-lent loans and guaranteed or non- guaranteed loans, Central Government will bear the cost of the debt," the report said. The recent directive is contained in a circular to state corporations guiding them on preparation of the 2014/15 financial year budgets. The circular has also directed that the parastatals should take direct and on-lent loan service, statutory obligations and all arrears as a first charge on their revenues.
"State corporations should give a status report on remedial measures undertaken to settle all outstanding liabilities including dividend arrears to the National Treasury," the circular adds. Other liabilities which the state corporations are supposed to settle include outstanding pension contributions, NSSF, NHIF as well as employee's deductions and contributions to co-operative societies.
The circular has further directed the state agencies to improve efficiency in the management and utilisation of funds allocated to them. This directive may see state corporations cutting down on foreign travel and purchase of new things like furniture.
"It is reiterated and emphasized that no state corporation should enter into commitments or initiate new programmes, projects or activities in excess of funds allocated to them under the national budgetary provisions or funds available to them from other sources including internally generated revenues," the circular states.