Heavily indebted parastatals paid a record Sh91.7 billion owed to suppliers in the last days of President Uhuru Kenyatta, as they raced to pacify his political base ahead of the 2022 General Election.
Quarterly budgetary disclosures by the Treasury show the arrears, which are largely historical, dropped to Sh356.9 billion in September from a record Sh448.6 billion in June, the lowest level in one and a quarter years.
The 20.44 per cent fall in pending bills linked to State corporations in the quarter was the sharpest since the Treasury started making regular disclosures in 2019.
The huge payment came amid a growing power struggle between Mr Kenyatta’s allies and those of his then-deputy and now President, William Ruto, who considered himself the heir apparent.
Mr Kenyatta supported veteran opposition leader Raila Odinga in the presidential duel and was keen to defuse public outrage as ordinary Kenyans expressed concerns over reduced cash flow, fewer employment opportunities and a rising cost of living.
Small and medium-sized businesses are feeling the financial pain that comes with years of late payments on everything from PR campaigns to supplies of construction materials.
The late payments are in turn hitting the financial sector, where non-performing loans have jumped this year to their highest level in more than a decade.
The delayed payments underline the cash flow crises in State-owned corporations beset with mismanagement and corruption.
Mounting supplier debt at the national and county levels has compounded cash flow challenges for firms, especially micro-and small-sized ones, forcing some of them out of business.
President Ruto, who took power on September 13, pledged to prioritise payment of pending bills that have left many small and medium-sized businesses at the mercy of auctioneers.
“I am aware that many individuals, families and their companies have been driven to ruin and forced to shut down over unpaid government bills,” Dr Ruto said during his inauguration.
“We shall give priority to the expeditious resolution of our pending bills so that the government can meet its obligations and facilitate better economic performance.”
The Treasury has since 2019 repeatedly issued circulars to ministries, departments and agencies as well as parastatals to make payment to government contractors and suppliers a priority in efforts to support economic growth and sustain jobs.
“The national government policy on clearance of pending bills continues to be in force,” the Treasury reiterated in the latest expenditure and budget review report for the first quarter of the current year ending June 2023.
“All MDAs [ministries, departments and agencies] are, therefore, expected to continue with prioritisation of payment of the pending bills by settling them as a first charge in the FY 2021/22 budget in line with the Treasury Circular No. 7/2019.”
Slightly more than two-thirds, or Sh241.26 billion, of parastatals’ arrears was owed to contractors of public projects and suppliers of goods and services at the end of September, a 17.89 per cent drop compared with that three months earlier.
The remaining Sh115.64 billion unpaid bills were in the form of unremitted statutory and other deductions, which dropped 25.28 per cent from Sh154.77 billion in June.
These include Pay As You Earn taxes to the Kenya Revenue Authority, pension contributions to National Social Security Fund and Local Authorities Pension Trust as well as medical cover arrears to the National Health Insurance Fund and other insurers.
The Treasury data show that MDAs, however, accumulated Sh26.2 billion more in bills to Sh82.3 billion in the review quarter.
This brought the overall unpaid bills at the national level to Sh439.2 billion from Sh504.7 billion in June.
“Accounting officers must ensure that pending bills and carryovers from the 2021/22 financial year are prioritised and paid within the budgetary provision of the current year,’’ Treasury Cabinet Secretary Njuguna Ndung’u wrote in the circular giving guidelines on the supplementary budget earlier this month.
The soaring pending bills have become a major economic challenge despite the directive for State entities to prioritise verified arrears in their expenditure plans.
Association of Public Sector General Suppliers said in July that 3,400 of its 4,100 members were owed cash dating back to 2014, and called for punishment of accounting officers for non-payment.
“The lack of clear penalties and personal liabilities on the part of the government staff handling procurement and payment is to blame,” the lobby’s secretary-general, Simon Gichuki, told the Business Daily.
The Treasury said earlier in the year it was considering drafting a legal framework that will penalise accounting officers for failure to honour verified bills for goods supplied or services rendered to State entities as a first charge.
“Government is exploring legal mechanisms to resolve the issue of pending bills,” Treasury officials wrote in the Budget Policy Statement (BPS) for 2022.
“The accounting officers will be compelled to clear pending bills and failing to do so, penalties will be charged against the accounting officers.”
Some State entities have in the sector budget proposal reports accused the Treasury of not allocating sufficient funds for clearing pending bills despite asking them to treat them as the first charge in the budget.
Roads, Transport and Public Works Cabinet Secretary Kipchumba Murkomen told lawmakers prior to his confirmation that he intended to float a roads bond to offset Sh140 billion owed to contractors.
The proposed bond will be guaranteed by billions of shillings collected from motorists through the road maintenance levy and transit tolls, he said.
The government collects Sh18 per litre of petrol and diesel under the Roads Maintenance Levy Fund (RMLF) Act for road construction and rehabilitation.