Treasury tightens screws on State corporations in fresh revenue hunt

Treasury CS John Mbadi says  all heads of State corporations have been instructed to prioritise cost-cutting measures. [File, Standard]  i

The cash-strapped administration of President William Ruto has issued a stern directive to State corporations, demanding increased revenue generation and stricter financial discipline as part of its ongoing fiscal consolidation efforts.

In a circular issued by Treasury Cabinet Secretary John Mbadi, all heads of State corporations have been instructed to prioritise cost-cutting measures.

They have also been ordered to enhance revenue collection to enable the Kenya Kwanza regime, which is battling rising debt levels amid a battered economy raise more revenues.

“State corporations are required to entrench prudent financial management practices in their planning and enhance cost control measures with the aim of delivering services in the most cost-effective manner,” the circular states.

The directive underscores the Ruto government’s expectation for State corporations to contribute significantly to government coffers.

“All commercial State corporations are expected to generate reasonable returns, declare and pay dividends to the National Exchequer and other shareholders,” the circular emphasizes.

Furthermore, the circular mandates that regulatory authorities remit 90 per cent of their operating surplus to the National Treasury.

“In accordance with the PFM (2012) Regulations, regulatory authorities are required to remit 90 per cent of the operating surplus reported in the audited financial statements to the National Exchequer,” the circular states.

The directive also prohibits State corporations from incurring expenditures without prior approval from the Treasury.

“Incurring expenditures without approval by line ministry and the National Treasury and Economic Planning is irregular, and they will be held personally liable for such expenditures in accordance with provisions of the Public Finance Management Act, 2012,” the Mbadi circular warns. 

Under the new Mbadi rules the Kenya Revenue Authority (KRA) has been delegated to collect 90 per cent of the operating surplus on behalf of the National Treasury.

This came even as the Treasury warned that it has been noted with concern that some “regulatory authorities are adjusting operating surplus by providing for capital expenditure to determine the 90 per cent to be remitted to the Exchequer.”

“No state corporation should provide for capital expenditure from operating surplus without a written National Treasury approval,” warned Mbadi.

The move comes as the Kenya Kwanza government grapples with rising debt levels and seeks to improve its fiscal position. By tightening the screws on State corporations, the government aims to boost revenue generation and improve the efficiency of public service delivery.

However, some analysts have raised concerns that these measures could stifle innovation and hinder the ability of state corporations to invest in critical infrastructure and services.

Mbadi noted that going forward State corporations are required to take into account the funding requirements of all ongoing projects, and multi-year funding requirements of capital projects up to their completion before initiating any new projects. 

Further, State corporations should submit a full breakdown of the capital expenditure for the 2025/2026 FY, including all ongoing projects indicating the status of implementation, implementation level, amounts required to complete the project, new projects and other capital items.

By Sections 1 and 12 of the State Corporation Act, approved budgets are effective for the respective Financial Year for which the approval was granted.

“These guidelines have clearly outlined how multi-year projects should be budgeted for each respective financial year over the project implementation period,” said Mbadi.

“On acquisition of plant, machinery and equipment with long lead time beyond the financial year, State corporations should confirm sources of funds for the acquisition, and the budget amount required to initiate the acquisition amount required on delivery for each respective financial year.”

It added: As provided under Section 12, any expenditure or use of public funds beyond the financial year requires fresh approval from the Cabinet Secretary for the National Treasury. In this regard, there should be no carry-over funds for purposes of implementing projects the respective financial year.”