By Benadeta Mwaura - Reporter
Kenya, 4 Decemebr 2025 - The National Treasury has slashed development funding to several state corporations undergoing restructuring, signalling a harder fiscal line as the government pushes to streamline a sprawling and expensive public-sector ecosystem.
The cuts come at a time of record budget pressure, revenue shortfalls and a growing insistence from policymakers that parastatals must demonstrate value or face consolidation.
For months, the Treasury has telegraphed its intention to rein in expenditure on state firms with overlapping mandates, persistent losses or chronic dependency on the Exchequer. The Parliamentary Budget Office (PBO) has repeatedly flagged the structural inefficiencies within dozens of agencies that continue to draw billions in subsidies despite minimal returns.
In its latest brief, the PBO reminded lawmakers that “due to the challenges facing state corporations, the government developed a State Corporations Reform Strategy intending to streamline government operations, reduce wastage and curb excesses,” a sharp assessment of how swollen the state corporation landscape had become.
The reform blueprint accelerated in January when the Cabinet, chaired by President William Ruto, approved the most sweeping overhaul in years.
In a formal dispatch after the meeting, the government confirmed that “forty-two State Corporations with duplicating, overlapping or related mandates are proposed for mergers to form twenty entities.”
The same statement underlined why the reset could no longer be postponed, saying the mergers were “necessitated by increasing fiscal pressures arising from constrained government resources, the demand for high-quality public services, and the growing public debt burden.”
Behind the diplomatic language is a blunt reality: the government cannot continue to bankroll institutions that absorb funds but offer limited productivity.
A previous audit found that some parastatals had vast wage bills and pending bills that swallowed development allocations, leaving little for actual service delivery.
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The worry among budget analysts is that, unless cost structures change, the fiscal room for pressing areas like health, education, and the digital rollout will continue to shrink. Anticipating pushback from workers worried about layoffs, State House moved quickly to offer reassurance.
Spokesperson Hussein Mohamed emphasised that “no State Corporation function will be lost, and no jobs will be lost as all affected employees will be absorbed into the Public Service.”
Even so, civil society groups and labour unions say that absorption alone is not enough unless the reforms also address governance failures that created redundancy in the first place.
The Treasury’s latest decision to cut funding is effectively an enforcement mechanism for the broader restructuring. Institutions that failed to provide credible reform plans or demonstrate clear financial and operational improvement were among the first to face reduced allocations.
Sector insiders describe this as a transition year, one where inefficient entities must either consolidate, wind down, or reinvent their models in line with the State Corporations Reform Strategy.
Beyond governance, the reforms carry political weight. Kenya’s fiscal space has narrowed sharply, and the government has been under pressure from lenders, rating agencies and the public to trim overheads and focus spending on projects that deliver measurable impact.
For the corporations under review, the coming months will determine whether they survive, merge, or are dissolved entirely. For the government, the success of the restructuring will hinge on whether promised accountability, transparency audits and performance tracking actually follow the budget cuts.
If the reforms work, services could become more efficient, less politicised and more responsive. If they fail, or stall, Kenya risks another cycle of ballooning expenditure with little to show for it.
