The government will next month float a roads bond to clear the Sh100 billion debt that the State Department for Infrastructure owes various contractors in pending bills, the Nation has learnt.
The borrowing, which will further compound the debt situation, has already been approved by the National Treasury, Central Bank of Kenya and the Office of the Attorney-General.
Public debt stands at Sh7.7 trillion, short of the Sh9 trillion ceiling.
Infrastructure Principal Secretary Paul Maringa yesterday told the Public Accounts Committee that the Kenya Roads Board will float the bond.
He said the bond, which will attract interest at market rates, is necessary to retire the Sh100 billion debt to avoid the risk of attracting huge interests and penalties.
“We must borrow money. We started with Sh90 billion as pending bills before increasing to Sh100 as of June 30, 2019,” Prof Maringa told MPs.
The committee had summoned the PS over issues raised by Auditor-General Nancy Gathungu in the 2018/19 financial year.
Float the bond
“Unless we float the bond, we may not be able to say when we will be able to clear the pending bills,” said the PS.
It emerged that the pending bills may hit in excess of Sh200 billion for the 2018/19 and 2019/20 financial years. “If we were to approve all pending bills certificates, the bills will go up,” said Prof Maringa.
The PS said in the previous financial year, pending bills amounting to Sh70 billion led to the government paying Sh5 billion in interest and penalties.
The amount is a quarter of the annual budgetary allocation to the National Government-Constituency Development Fund. The PS also said the amount is enough to construct a good 50-kilometre road.
However, committee Chairman Opiyo Wandayi (Ugunja), members Aden Duale (Garissa Township) and Joseph Ngugi (Gatanga) queried the floating of the bond, saying it would put the country in a difficult situation.
“This move may not appear attractive given our current debt situation. Why would you initiate new projects while the old ones have not been completed?” Posed Mr Wandayi.
Mr Duale said failure to plan properly had led to the accumulation of pending bills. “This is poor planning, PS. You cannot keep on advertising for new roads when you already have Sh100 billion that you haven’t cleared,” he said.
Mr Ngugi said borrowing to pay has never been good economics. “Does it mean that you did procurement without a budget? If this is the case then it is contrary to the Public Finance Management (PFM) Act,” he said.
The PFM Act provides that before an entity of the government does any procurement, it must have a budget for it.
Prof Maringa, however, said the inadequate budgetary allocations and cutbacks are to blame for the accumulation of pending bills. The PS also accused banks of aggravating the situation by slashing government money held in accounts intended to pay contractors “just because the government has not cleared the bank loans”.
“The banks have clearly lost faith in the government. But we have to remind them that they have a stake in this economy. Whatever little we want to pay contractors is taken by banks. They should stop treating contractors as debtors,” he said.
Prof Maringa said only Sh50 billion against the budget requirement of Sh200 billion was allocated to infrastructure in the current financial year.