Kenya is counting on privatisation of several state agencies to cut on high wage bill that is now taking over 30 per cent of domestic revenue.

The latest data from the Central Bank of Kenya shows the bill shot up by 5.5 per cent to hit a record Sh520.03 billion last year, increasing by Sh27 billion from Sh493.03 billion in the previous year.

National Treasury Cabinet Secretary Chris Kiptoo says Kenya Kwanza's government aims to maintain its public sector wage bill within the stipulate target and international benchmark of 7.5 per cent of GDP for sufficient fiscal space.

He added that due to the negative impact of a high wage bill, it is important that effective public sector wage bill management strategies be put in place to achieve the wage bill to revenue target of not more than 35 per cent.

The wage bill at the current level of 48.1 per cent of revenue is consuming much more revenue than the recommended requirement of not more than 35 per cent, stipulated in the Public Finance Management.

"The conventional approach has been to limit expenditure growth and increase revenue collection efforts. The privatisation plan will go a long way into achieving this,'' he said. 

He added that in the next five years, the public sector wage bill must deliberately be maintained within the stipulated Public Management Fund Act target to enable the country to have sufficient fiscal space to meet its obligations.

Late last year, President William Ruto said the government will bring six to 10 companies to the market through an Initial Public Offer (IPO), urging the private sector to also list at least five firms.

"My administration will revitalise the capital markets by privatisation of state-owned enterprises, where divestiture is overdue and strategic," said the president.

At least 26 poorly performing state corporations have already been targeted for privatisation to cut down government spending, mainly continued capital injection.

They included the six sugar millers, the Kenya Meat Commission, the Development Bank of Kenya, and the Kenya Tourism Development Corporation.

The World Bank and the IMF have been pushing for the sale of loss making state agencies and merging those with duplicating roles to plug budgetary deficits.

The country has close to 400 State agencies, half of them being regulatory bodies.

The National Treasury estimates that parastatals have a maximum fiscal exposure of Sh1.3 trillion, which equates to 13.6 percent of GDP, putting some of them on permanent bail-out that eats into the public coffers.

Restructuring of state agencies as part of IMF's conditions for access to credit facilities last year, among them a $264 million (Sh31.9 billion) loan for budgetary support during the Covid-19 pandemic period.

Efforts to revive the closed Mumias Sugar by a private investor have been marred by court battles.  

Ruto's government plans to slash the budget deficit to 4.3 per cent of GDP in the 2023/24 financial year, from an estimated 5.8 per cent in the current period, before cutting it further to 3.6 per cent in the 2026/27 period.

Ruto's government plans to save at least Sh300 billion through austerity measures targeting expenditures of ministries, departments, and agencies (MDAs) in the current financial year.