Parastatals outpace others in lending to government

Parastatals draw the bulk of their revenues from the sale of goods and services with the balance coming from transfers and grants from ministerial and State departments, investments in government securities as well as other income.

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The share of the government’s domestic debt held by parastatals grew at the fastest pace compared to that held by other institutions during the six months ended December 2024, pointing to a heightened appetite by State-backed firms to invest in government securities.

A Business Daily analysis of official Central Bank of Kenya (CBK) data indicates that State agencies grew their lending stock to the government by 18.4 percent during the period, adding Sh51.1 billion in new loaning to hit Sh328.65 billion up from Sh277.55 billion at the close of June.

Parastatals were followed by retail investors whose pace of loaning to the government grew 10.5 percent or by Sh73.32 billion to achieve a loan stock of Sh772.33 as at the close of December up from Sh699.01 billion in June, while insurance firms marked a 9.8 percent acceleration rate adding Sh38.43 in new lending to hold Sh429.59 billion up from Sh391.16 billion in June.

Retail investors-classified as “others” in the government’s breakdown of its domestic lender groups, comprise individuals, Saccos, religious and educational institutions, private firms and self-help groups.

Banking institutions led in fresh lending to the government after they added Sh202.76 billion, which translated to an 8.3 percent growth from a loan stock of Sh2.44 trillion in June to Sh2.64 trillion at the close of December.

Pension funds, on the other hand, grew their investments in government paper at the slowest pace of 5.8 percent, adding Sh93.46 billion to hold Sh1.69 trillion by December up from Sh1.6 trillion in June.

CBK data shows that during the six months, the total gross government domestic debt jumped 8.5 percent, growing by Sh458.5 billion to stand at Sh5.87 trillion on December 31, up from Sh5.41 trillion in June.

The enhanced pace of parastatal investments in government securities comes at a time when the President William Ruto-led Kenya Kwanza regime has trained guns on mopping up State corporations’ cash surpluses to enhance exchequer nettings.

In March last year, Dr Ruto ordered all commercial State-owned firms to remit 80 percent of their net income to the National Treasury, following a meeting between the President and the chairpersons and chief executive officers of State corporations.

In addition to remitting 80 percent of net profits, the President also directed that the recurrent budgets of the entities be cut by 30 percent.

“The money some parastatals make does not belong to their boards or management. It belongs to the people of Kenya as a returns on investment. We have to shut down some of those loss-making parastatals. We must end excess capacity,” said President Ruto at the time.

Parastatals draw the bulk of their revenues from the sale of goods and services with the balance coming from transfers and grants from ministerial and State departments, investments in government securities as well as other income.

The intensifying pace of parastatal loanings to the government also comes against the backdrop of a surge in T-bills returns that have made the purchase of government paper attractive against other investment classes like bank deposits and shares.

The average return on T-bills rose 16.8 percent in June last year from single digits.

The rate of return on the government paper increased as the CBK lifted the benchmark lending rate in the period to combat high inflation and exchange rate volatility.

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