Inside Sh1tn bailout mess: State firms’ hidden debt crisis exposed

The revelations show an increasing fiscal risk that threatens to undermine budget consolidation plans and pile further pressure on taxpayers already grappling with heavy public debt.

Fresh Treasury data accompanying the 2026-27 budget estimates show that outstanding loans extended by the national government to parastatals, state agencies and other public entities stood at Sh1.05 trillion as of June 30, 2025.

The figures by Treasury CS John Mbadi reveal the scale of the hidden bailout economy, in which struggling public institutions survive on state support. They remain barely afloat despite years of austerity measures, restructuring promises and repeated warnings from auditors.

The debt burden cuts across nearly every key sector of the economy, including transport, energy water, housing, agriculture and higher education.

At the top of the list is Kenya Railways Corporation, which alone accounts for more than half of the debt stock after accumulating Sh547.4 billion in government loans.

The liabilities are largely linked to the construction of the standard gauge railway (SGR), one of the country’s most expensive infrastructure projects.

While the government continues allocating billions for the extension of the railway under Phases 2B and 2C, questions persist about whether the project can generate enough revenue to justify its cost.

Debt servicing linked to the railway continues to consume a significant share of public resources, while the Treasury struggles to contain the country’s widening fiscal pressures.

National carrier Kenya Airways is also among the largest debtors, owing the exchequer Sh122.9 billion, despite years of state rescues and restructuring efforts.

The airline has repeatedly relied on taxpayer-backed interventions, including a controversial debt-to-equity conversion, to remain operational following years of losses worsened by the Covid-19 pandemic and rising operational costs.

Treasury documents indicate minimal repayment inflows from the airline, underlining the heavy burden repeated bailouts continue to place on taxpayers. The energy sector has also emerged as one of the biggest consumers of government loans.

Kenya Electricity Generating Company (KenGen) owes Sh82.58 billion, while Kenya Power’s liabilities stand at Sh73.38 billion.

Kenya Electricity Transmission Company (Ketraco) owes Sh2.46 billion, while the Rural Electrification and Renewable Energy Corporation (Rerec) has accumulated Sh13.6 billion.

The debt exposure reflects mounting financial stress within the energy sector despite its central role in supporting economic activity.

Kenya Power, in particular, has faced persistent cash flow challenges arising from expensive power purchase agreements, system losses and delayed payments by public institutions.

The water sector presents another troubling picture. Athi Water Works Development Agency owes nearly Sh62 billion, while the Coast Water Works Development Agency has accumulated Sh16.86 billion in liabilities.

Lake Victoria North Water Works Development Agency owes Sh16.2 billion, and Lake Victoria South Water Works Development Agency has liabilities amounting to Sh9.7 billion.

Many of the loans were used to finance dams, sewerage systems and water supply projects across the country. However, several of the projects have faced delays, cost overruns and weak revenue recovery, limiting the agencies’ ability to service the debts.

Public universities, long plagued by financial distress, also have accumulated billions in direct Treasury loans even as they struggle with salary arrears, pension obligations and pending bills.

Kenyatta University leads with Sh10.8 billion in government debt, while Moi University owes Sh231 million.

The manufacturing and agricultural sectors have not been spared either, highlighting the continued decline of once-strategic state-linked enterprises.

The Kenya Meat Commission which successive governments have pledged to revive, owes Sh940 million, while East Africa Portland Cement Company has accumulated Sh1.94 billion in debt.

Agro-Chemical and Food Company owes Sh2.94 billion, while Halal Meat Products has outstanding liabilities of Sh28 million.

The Agricultural Finance Corporation owes Sh1.39 billion, while the Agricultural Settlement Fund and Central Land Board still have unpaid balances of Sh74.5 million linked to decades-old settlement schemes.

In the housing sector, the Kenya Mortgage Refinance Company has drawn Sh30.81 billion in state loans, reflecting the huge financial commitments tied to the government’s affordable housing agenda.

Kenya Development Corporation owes Sh3.68 billion. It is the state investment vehicle formed after the merger of several development finance institutions.

The transport and aviation sectors also feature prominently on the list of debtors.

Kenya Airports Authority owes Sh1.09 billion, while the Kenya Civil Aviation Authority has liabilities amounting to Sh1.3 billion.

Even Kenya Utalii College, Kenya’s premier hospitality training institution, owes Sh22 million.

Treasury records further show the Kenya Urban Transport Improvement Programme for various towns has an outstanding balance of Sh40.7 million.

The list also includes commercial banks that received state-backed loans.

Co-operative Bank owes Sh267.4 million, while Equity Bank has outstanding obligations amounting to Sh189.7 million.

The revelations come amid growing concerns within government over the ballooning cost of supporting struggling public entities at a time when Kenya is under pressure to reduce borrowing and cut expenditure.

The crisis has already attracted the attention of parliamentarians and the Auditor General, who have warned that billions of shillings pumped into state corporations risk being lost permanently.

In its report on audits of 2023, the Public Accounts Committee revealed that at least 13 state-linked entities owed the National Treasury a combined Sh19.6 billion in long-outstanding loans, many of which had shown no movement for years.

Auditor General Nancy Gathungu questioned why the loans remained unpaid and warned that the government lacked clear mechanisms to ensure dormant investments generated returns.

“Non-repayment of the loans has led to the write-offs of the loans as bad debts; opportunity costs in funding other critical areas and eventual loss of public funds,” Gathungu warned in her report.

Treasury admitted to MPs that a number of entities were effectively incapable of repaying the loans and were dormant, insolvent or defunct.

“The entities reported as not having confirmed their loan balances are defunct, hence, not in a position to confirm their balances. These entities’ loans are being considered for write off,” Treasury told Parliament.

Among the entities listed for possible write-offs  are Uchumi Supermarkets, which owes Sh1.2 billion, Mumias Sugar Company with Sh3 billion, Nairobi City Council with Sh102 million and the National Water Conservation and Pipeline Corporation with Sh2.4 billion debt.

Apart from Mumias Sugar and Uchumi, MPs heard that several entities had not even acknowledged the debts despite repeated follow-ups.

The Public Accounts Committee warned that some loans were poorly structured, weakly secured and exposed taxpayers to mounting liabilities without adequate safeguards.

The committee also blamed weak accountability and a lack of financial discipline among accounting officers for the worsening crisis.

The National Assembly has since directed the Auditor General to work with the Attorney General in developing enforceable sanctions for public officers failing to implement audit recommendations.

The move is considered an acknowledgement that years of audit warnings were ignored, allowing debts to accumulate unchecked across state corporations.

In an attempt to manage growing fiscal pressures, President William Ruto’s administration has moved to establish the National Infrastructure Fund, seeded using proceeds from the privatisation of Kenya Pipeline Company and the partial divestiture of government shares in Safaricom PLC to Vodacom.

The government is also planning to establish a Sovereign Wealth Fund with a Stabilisation Component and a Future Generation, or “Urithi” component to strengthen long-term fiscal buffers.

Concerns persist over whether such measures will be enough to stem the mounting liabilities facing the Treasury.

Instant analysis

As Parliament begins scrutiny of the 2026-27 budget, the Sh1 trillion parastatal debt burden is emerging as one of the clearest signs of the deep structural weaknesses within Kenya’s state corporations. Without strict enforcement of loan repayments, aggressive restructuring, privatisation of viable entities and liquidation of hopelessly insolvent ones, analysts warn that the bailout cycle will continue, leaving taxpayers to shoulder the burden of failed public enterprises for years to come.