Former Auditor-General  Edward Ouko

Former Auditor-General  Edward Ouko at a past event. Mr Ouko chairs the Pending Bills Verification Committee.  

| Francis Nderitu | Nation Media Group

Kenya’s pending bills nightmare

What you need to know:

  • World Bank warned that arrears limit flow of funds to private sector, thereby constraining business growth.
  • The Controller of Budget attributed the high amounts to delays in approval of supplementary budget and disbursal of monies from Treasury, change in county administration, among others.

Businesses owed by county and national government agencies will continue holding up in the cold as a special committee created to address the pending bills menace puts its house in order, even as the debts continue piling.

The continued increase in outstanding bills sounds more pain to businesses in various sectors, which have been starved of cash, with the government holding close to Sh800 billion by September.

National government pending bills increased by Sh63 billion in just three months to end of September to hit Sh630.6 billion, according to the National Treasury’s latest budget review.

This has come up from Sh64.7 billion by June 2019, an 875 percent jump, the latest figures for national government pending bills show.

On the other hand, pending bills by counties hit Sh164.8 billion by end of June, having risen from Sh37.64 billion by 2015, a 338 percent increase over the last eight years.

Combined, the two levels of government owed companies Sh732 billion by end of June, a Sh633 billion increase from the level they were at just four years ago. The debts to local businesses and suppliers increased by Sh74.5 billion between July 2022 and June 2023.

The Pending Bills Verification Committee created to examine the pending bills menace and recommend a lasting solution, whose members were inaugurated a month ago, is currently setting up a secretariat, before embarking on a painstaking task of addressing a problem that has ballooned into a mountain of debts that have crippled many local businesses.

“We are still setting up the secretariat. We are at preparatory stages at the moment. We could have a better update in about two months,” former Auditor-General Edward Ouko, who is chairing the committee told the Sunday Nation.

This is yet another attempt at addressing the problem, which comes following intense calls and concerns by various stakeholders in the public finance space, including the Controller of Budget (CoB) and the Auditor-General.

With national government pending bills having risen by 11 percent between July and September, this means the debts to local businesses could be closing in on Sh800 billion, even as the State’s efforts to correct the mess appears to take longer than anticipated.

“The total outstanding national government pending bills as at September 30, 2023 amounted to Sh630.6 billion. These comprise of Sh509.4 billion (73.9 percent) and Sh121.2 billion (26.1 percent) for the State Corporations and Ministries/State Departments/other government entities respectively.

“The highest percentage of the state corporations’ pending bills belong to Contractor/Projects and Suppliers. Ministries/State Departments and other government Agencies, and mainly constitute of historical pending bills,” Treasury noted in the July- September Quarterly Budget Review.

The COB in June noted that despite the formation of internal committees at counties to verify pending bills when new governors entered office last year, their outstanding amounts still shot up by 11 percent to Sh164.8 billion by June 2023.

“Nairobi City County had the highest pending bills as of June 30, 2023 which represented 65.1 percent of the total county governments pending bills at Sh107.33 billion. Other county governments with a high level of pending bills are Kiambu (Sh5.96 billion), Wajir (Sh5.51 billion), Mombasa (Sh4.29 billion), Murangá Sh3.65 billion) and Mandera (Sh3.10 billion),” the COB stated.

Ms Margaret Nyakang’o, the CoB, attributed the high level of pending bills to delays in disbursing the equitable share by the National Treasury, the change of county administrations and the requirement to undertake a verification process of pending bills, which took time, untimely approval of supplementary budget estimates to adopt prior-year pending bills in the current budget, and political interference and refusal by successive governments to honour obligations.

County pending bills have shot up by 338 percent since 2015 when they were Sh37.6 billion, hitting Sh164.8 billion by June this year.

The Cabinet approved establishment of the Pending Bills Verification Committee in June, to audit liabilities for the period between 2005 and 2022.

The Edward Ouko-led team constitutes the Attorney-General and State departments of roads, public works, housing, the Public Procurement Regulatory Authority, among other representations.

“To entrench fiscal discipline, Cabinet received and approved a Memorandum on the Establishment of a Multistakeholder Pending Bills Verification Committee. The Committee will carry out a thorough analysis of pending Bills that have accumulated from June, 2005 to June, 2022 with a view of advising the Government on resolution of the same,” the Cabinet stated on June 27.

The committee is expected to examine and submit a report to Treasury Cabinet Secretary, after which the government has committed to honour all obligations that will be verified.

“The move is aimed at establishing the integrity of all bills and cushioning small enterprises against liquidity inadequacies. It was agreed that the Committee will present its final report within a year,” read a statement from State House following the Cabinet decision .

Just last month, President William Ruto, as he presided over the inauguration of the Pending Bills Verification Committee, noted the importance to restore fiscal discipline and end the pending bills menace.

“We must restore confidence in the people who do business with the government by paying them in time,” the President said.

But even so, outstanding amounts in the national government increased by Sh191.4 billion from October 2022 to September 2023, his first year in office.

By end of September 2022, the central government owed local businesses Sh439.2 billion, which rose to Sh630.6 billion by end of September 2023.

The national government pending bills have increased by 89 percent from Sh334 billion in 2020.

Treasury has been insisting that the government continues to observe public finance management requirements to settle pending bills as a first charge on the budget, but in action, both national and county governments continue piling the debts year after year.

The Senate’s Public Accounts Committee had in August indicated it would meet the CoB, the Auditor-General, the Council of Governors (CoG), the National Treasury and the Ethics and Anti-Corruption Commission (EACC) to establish actionable measures to ensure the integrity and completeness of the pending bills across the counties.

While the committee had planned to hold the meeting between October and this month, it is yet to happen.

The World Bank six months ago warned that the spike in pending bills was pushing many businesses into defaulting on loans they had borrowed from lenders, by curtailing the flow of cash to the private sector, starving businesses of the much needed cash flows to meet their obligations.

“Pending bills in Kenya and non-performing loans have been trending in the same direction for the last two years. Arrears limit flow of funds to private sector, thereby constraining business activities, increasing unemployment, and reducing growth,” said the World Bank in an Economic Update report.

It further noted that around 70 percent of the pending bills were owed to contractors and suppliers, and were due to “challenges in cash management, and non-adherence to PFM (public finance management) systems, including delayed payments, lack of commitment controls, and unrealistic budgets.”

The multilateral lender noted that national government pending bills in particular increased rapidly over the past four years, from Sh64.7 billion in 2018/19.

They had shot up by 874 percent by end of September 2023, according to the latest Treasury data.