The government is facing growing concern over a financial risk that may soon affect public finances if not carefully managed.
This risk comes from unpaid debts linked to state-owned companies whose loans were guaranteed by the government. Recent disclosures show that the country could be responsible for about KSh78 billion if these debts are not settled by the borrowing institutions themselves.
This situation has raised alarm among lawmakers, economists, and financial experts who are closely watching the country’s debt position.
Several major public enterprises are involved in these guaranteed loans. They include Kenya Airways, KenGen, and the Kenya Ports Authority, which play important roles in the economy.
When the government guarantees a loan for such companies, it gives lenders confidence that the state will repay the money if the borrower fails to do so.
While this support helps public firms access funding, it also places risk on the government, especially when the companies face financial difficulties.
Some of these state-owned firms have struggled in recent years due to high operating costs, weak revenues, and economic pressures. As a result, meeting loan repayment schedules has become difficult for them. If they fail to repay, the government is expected to step in and cover the debts.
This would mean using public funds that could otherwise support services such as health, education, or infrastructure.
These guaranteed debts are known as contingent liabilities. They do not appear immediately in the national budget or debt figures because they only become actual costs if the guarantee is called. However, when they materialise, they can put sudden strain on public finances.
Parliamentary records and treasury reports indicate that such guarantees have existed for many years and form a steady part of Kenya’s overall debt exposure.
Experts point out that the continued growth of these liabilities shows weaknesses in how some state-owned companies are managed.
Poor financial planning and limited accountability can increase the chance that these firms will depend on government support.
This has led to calls for stronger oversight and clearer rules before any new loan guarantees are issued.
Opposition leaders and economists have warned that taxpayers could eventually bear the burden if the issue is not addressed. They argue that public enterprises should improve their financial health and governance before seeking government backing.
Better performance would reduce the risk of default and limit pressure on the national budget.
This concern comes at a time when the country’s public debt remains high compared to the size of the economy. Oversight institutions and financial analysts have already raised questions about debt sustainability.
The growing exposure from guarantees adds another layer of risk.Going forward, policymakers may need to rethink how government guarantees are used. A more cautious approach, combined with stronger monitoring of state-owned companies, could help protect public finances and support long-term fiscal stability.
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