IMF backs Ruto’s plan to privatize insolvent Kenya Airways
The International Monetary Fund (IMF) has sided with President William Ruto on his plan to sell the government’s controlling stake in the carrier to cut the budgetary baggage arising from financially challenged State Owned Enterprises (SOEs) such as Kenya Airways (KQ) and Kenya Power.
In postscripts expanding upon its decision to disburse US$447.39 million (Kes55 billion) to Kenya, the multilateral lender was dissatisfied with the progress attained in ensuring the leanness and efficiency of SOEs, singling out KQ for slow pace.
The IMF pointed out retrogression in weaning underperforming state corporations off government bailouts, with SOE support relative to Gross Domestic Product (GDP) escalating in the current financial year, compared to the previous one.
“The authorities reduced extraordinary SOE support to Kes17.5 billion (0.14 percent of GDP) in FY 2021/22 from an originally budgeted Kes32.3 billion, while the FY2022/23 Supplementary Budget will reflect extraordinary support of Kes37.3 billion (0.3 percent of GDP).
“The bulk of this would go to KQ, while support to KPLC would be reduced. Given limited fiscal space, the focus remains on identifying cost-saving reforms at KQ and KPLC,” said the IMF.
The global lender views privatization as “President Ruto(‘s) bold objective” to rationalize SOEs, perhaps cognisant that he recently met Delta Air Lines top brass looking to offload government’s 48.9 percent stake in Kenya Airways.
Additionally, the institution maintains that KQ’s present cost cutting targets and measures are inadequate to reverse its insolvency status.
“KQ remains insolvent with the highest cost base among regional airlines even as it met 75 percent of its targeted cost reduction in FY 2021/22,” said the IMF.
“Priorities of its restructuring plan include network optimization, lease negotiation, staff rationalization, and other cost management efforts. The airline has retired sixteen loss-making networks and renegotiated some aircraft leases but faces challenges in rationalizing staff costs.”
