We have this week been taking through a gripping lesson on the extent to which indiscretions of the political elite at the national level- MPs and senators- can disrupt the financial operations of country governments, almost plunging them into deep cash flow problems.
Hardly days after the Division of Revenue Bill was enacted and given assent by President Uhuru Kenyatta, Treasury Cabinet Secretary, Umaro Yatani moved with speed to announced the release of sh50 billion to county governments.
However, what was not highlighted was the fact that the Sh 50 billion was money that was supposed to have been disbursed in July and August.
County government have been forced to wait for the money to be released for months on end even as senators and Mps wasted precious time haggling and engaging in unprincipled arguments over the Division Revenue Bill.
Clearly, there is a strong case for introduction of a system that can allow counties to access a proportion of the money they are entitled to even as they wait for these self-absorbed political elites persist in engaging in sterile and protracted disputes they are increasingly becoming famous for.
It may require amending the Public Financial Management Act and introducing provisions that can give county governments temporary legislative authority to allow them access money from the Consolidated Fund and make it possible for them to run and provide services to citizens as they wait for the political elite at the national level to agree and approve the Division of Revenue Bill.
When disbursement to counties delay as has happened, it leads to accumulation of payment arrears thus compounding the problem of problem of huge pending bills.
Large pending bills in the context of a dysfunctional accounting system still operating under a cash-based system is a recipe for fake bills and corruption.
And, since t the Public Financial Management Act demands that pending bills be cleared before any other payments are made, you risk a situation where money that is released end up being used to pay fake bills.
Clearly, the Sh 50 billion released to counties this week is but a drop in the ocean that will disappear without making an impact on the lives of the citizens.
As you examine the pending bills problem at the county level, the picture is depressing.
Consider the following facts based on a recent report by the Auditor-General.First, the stock of county pending bills were found to be in excess of sh.100 billion as at end of February this year, with Sh40.5 billion being found to be eligible for immediate payment.
Secondly, approximately 25 percent of the arrears were accounted for by unremitted taxes and other statutory deductions, a clear sign that counties are engaged in illegal activity.
Thirdly, a good proportion of pending bills in the books of county governments were found to relate to outstanding payments to the Kenya Medical Supplies Agency (KEMSA) – a sorry state of affairs indeed because this is money to pay for delivery of drugs and medicines. How can we claim to have capacity to implement the Universal Health Coverage (UHC) programme when counties are unable to pay for drugs?
Fourthly, the report revealed that the rest of the arrears and pending bills were accounted for by dues to contractors and suppliers of goods and services, including utilities, such as, electricity and water.
I sometimes get the feeling that our policymakers are yet to appreciate just how much the mountains of pending bills in both the books of the national and county governments are suffocating business activity and creating distortions and pressures on the macro economy.
When you accumulate billions of shillings of pending bills, the multiplier effects on the macro economy are neither felt nor experienced.
When you don’t pay local suppliers and contractors on time, the impact is felt by the commercial banking system that has lent and given credit facilities to the contractors.
Indeed, it is the mountains of pending bills due to local contractors that explain the sharp decline in liquidity-injecting financing and spending in the macro economy.
At the national level, pending bills and the problems we have with local suppliers is why our appetite for foreign loans that are given in kind especially by Exim banks and that come under the so- called government to government arrangements, has been increasing.
We would rather ignore local contractors and contractors funded by locals but continue supporting Chinese-funded projects since most of the money is paid from outside.
Yet these loans come with large leakages in multiplier effects, especially since most of the imported materials especially for the Chinese-funded projects are exempt from duties and taxes.