MPs' budget experts: ‘Rushed’ parastatals sale risky, could backfire

Parliament's independent budget office has cast doubt on President William Ruto’s administration’s ambitious plan to reform the country’s state corporations.

In a report, the experts warn that the planned overhaul is fraught with financial, legal and operational risks.

Parliamentary Budget Office (PBO) argues that the sweeping reforms could disrupt critical public services and fail to achieve the cost-saving goal informing the proposed changes.

In its latest Budget Watch report, PBO confirms the government’s intent to merge 42 corporations into 20, dissolve nine, and divest from 16 others.

However, the experts frame the move as a not-so-sure solution, but a high-stakes gamble that requires meticulous management lest it backfires.

“Although the proposed mergers promise significant fiscal and operational benefits, they carry a number of potential risks that must be carefully managed,” the experts report.

PBO cites mounting debts among the key bottlenecks in the face of the targeted entities’ struggle to meet obligations.

Pending bills for the targeted corporations hit Sh121 billion by the end of June 2025, crippling small businesses and contractors whom they engaged.

While acknowledging the need for reform, citing the Sh120 billion recurrent budget the entities gobble up on average every year, PBO issues a long list of risks that the government must navigate.

At the top of their list of fears is the imminent redundancy of personnel, particularly in top management and support services.

“This may lead to legal and political challenges if not handled transparently and fairly,” the PBO warns.

The office warns of ‘institutional resistance’ from agencies fearing job losses.

“Affected agencies may fear loss of autonomy, relevance, or jobs, which could result in internal pushback, slowed implementation, or low staff morale,” the report reads.

PBO further warns of ‘legal and regulatory complexities’ in amending dozens of Acts of Parliament.

“Amending enabling Acts and aligning mandates could delay or derail consolidation efforts if not adequately planned,” the experts noted.

The report further warns that ‘disruption of ongoing services’ is likely in critical sectors like education financing (from merging HELB, UF and CUE), agriculture, and research.

“Sectors like education financing, agriculture and research are likely to be affected where continuous delivery is critical,” PBO said.

The experts also highlight the human and financial cost, especially in winding up the six regional development authorities.

The move stands to affect 1,529 employees, with the authorities said to owe up to Sh6.37 billion in long-term and contingent liabilities.

"Staff redeployment, pensions, or severance may prove to be a significant hurdle," the report states.

PBO further questions the financial sustainability, pointing out that mergers could initially disrupt revenue-generating operations, leading to reduced internally generated funds and operational instability.

Already, the government has frozen all hiring and contract renewals across the state corporations marked for restructuring.

A memo by Head of Public Service Felix Koskei enforces a strict moratorium on recruitment, contract extensions, salary adjustments and new capital projects in affected agencies.

“A moratorium is issued on the recruitment and renewal of contracts for chief executive officers or any other officers serving on contract terms at the lapse of their current tenure,” the memo reads.

Koskei further halted “any ongoing recruitment processes of staff in any cadre” as well as the creation of any new human resource policies, personnel emoluments and benefits of any kind.

Already, a team tasked by Cabinet to execute the reforms is evaluating staff complements and competencies, according to National Treasury disclosures.

Among the high-profile mergers are the Kenya Urban Roads Authority and Kenya Rural Roads Authority, which will combine into a single roads management body.

Three separate water regulators, namely the Water Services Regulatory Board, the Water Regulatory Authority, and the Regional Centre on Groundwater Resources, Education, Training and Research, will merge into one authority.

The Uwezo Fund, Women Enterprise Fund, and Youth Enterprise Fund will also be consolidated into a single financing entity.

Kenya National Trading Corporation and National Cereals and Produce Board were also merged, as were Uwezo Fund, Women Enterprise Fund and Youth Enterprise Fund.

Cabinet also resolved that 25 state corporations be dissolved and their functions returned to ministries and agencies.

Some six agencies face restructuring to align their mandates, while four funds were reverted to their parent ministries.

At least 13 professional bodies listed as state corporations were declassified in the reforms plan, aimed at slashing the recurrent expenditure bill of over Sh120 billion.

As MPs are due to consider the directives, PBO is effectively providing Parliament with a checklist for rigorous oversight.

It urges lawmakers to ‘keep an eye on’ key issues, including whether promised savings actually materialise and pending bills are cleared.

They also want lawmakers to ensure new boards have clear mandates and are accountable.

It also wants MPs to monitor the process so that the public does not suffer from reduced access or quality of services during the transition.

INSTANT ANALYSIS

The success of this reform, according to the Parliament's budget watchdog, hinges not on the plan itself, but on the government's ability to manage the immense risks the PBO has laid bare. The experts say the sale is inevitable as state corporations consume over 17 per cent of government revenues but contribute only 3.5 per cent. They also suffer from overlapping mandates, duplicate staff and heavy reliance on the National Treasury.