Budget Brief No. 26 – Government Spending: How Much Money is Tied up in State Corporations?

Oct 2, 2014

Key Points

  • State corporation budgets are opaque. It requires time-consuming research to determine how much they get from the budget each year.
  • State corporations were allocated Ksh 352 billion in the 2012/13 financial year (FY 2012/13). This was more than 30 percent of Kenya’s total budget for all Ministries, Departments and Agencies (MDAs). Furthermore, state corporations accounted for roughly half of all development expenditure in FY 2012/13.
  • In FY 2012/13, almost 40 percent of the budgets of state corporations were funded by external sources in the form of loans and grants.
  • A number of state corporations perform devolved functions and should be reformed in some way. In FY 2012/13, state corporations controlled roughly Ksh 117 billion in funds related to both devolved and concurrent functions, but 45 billion of this was externally financed and cannot be devolved.
  • Additional funds from internally generated revenues of nearly 30 billion (Appropriations in Aid) could plausibly be devolved, but most of this funding was for roads, over 40 percent of it for national roads. The road funds that should be devolved might be devolved through conditional grants rather than given to counties outright for their use.
  • While some of the remaining Ksh 42 billion should be considered for devolution to counties, many state corporations, such as water service boards, perform regional functions and should not simply be dissolved. It may make more sense to restructure these corporations to give counties managerial control than to dissolve them and redirect their funding to county budgets.
  • In general, slashing state corporation budgets without well-conceived policy reform may actually undermine services and lead to a lack of clarity about who is responsible for delivering them.
  • There has been little reform of state corporations since 2012/13. The 2014/15 budget shows that those corporations performing potentially devolved functions have actually increased their budgets by a small amount since devolution began.