State corporations operating on overdraft, create new bailout risk

Parastatals, counties and government institutions taking up loans to cover delays in disbursements from the National Treasury could default, requiring a bailout from the already strained state resources.

Auditor General Nancy Gathungu says the National Cereals and Produce Board, which is operating with bank overdrafts of up to Kes6.7 billion may not internally generate enough revenue to finance its operations in future without relying on the government support.

Cash flow issue within the government has seen state corporations, counties and parastatals tap on expensive overdrafts to bridge disbursement delays, but this may pose a risk of growing liabilities if the delays persist.

This means financial institutions are exposed to the risk of default that will require state bailout from the National Treasury already struggling to meet basic needs like paying civil servants.