Economy

Pending bills by State agencies top Sh450bn

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Julius Muia, the Treasury Principal Secretary. FILE PHOTO | NMG

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Summary

  • Treasury reports show that arrears rolled over to this financial year amounted to at least Sh448.05 billion, compounding cash flow challenges for some government suppliers and contractors.
  • Ministries, departments and agencies rolled over Sh334.2 billion that were due by end of the last financial year on June 30, a steep climb from the Sh64.7 billion disclosed a year earlier.
  • Business lobbies such as the Kenya Private Sector Alliance (Kepsa) and Kenya Association Manufacturers (KAM) had before the Covid-19 pandemic blamed the non-payment of bills by State entities for the cash flow woes in some of the companies.

Pending bills by State agencies nearly hit Sh450 billion in the year ended June 30, new data shows after the Treasury relaxed its push for clearance of supplier debts and statutory deductions.

Treasury reports show that arrears rolled over to this financial year amounted to at least Sh448.05 billion, compounding cash flow challenges for some government suppliers and contractors whose earnings were also hammered by the social distancing measures imposed to stem the spread of the coronavirus.

Ministries, departments and agencies rolled over Sh334.2 billion that were due by end of the last financial year on June 30, a steep climb from the Sh64.7 billion disclosed a year earlier.

Pending bills disclosed by 42 counties to the Controller of Budget, on the other hand, amounted to Sh113.85 billion, up from Sh34.5 billion for the year ended June 2019 – although this excluded claims from Nairobi.

Treasury Principal Secretary Julius Muia said they were forced to reconsider some of the stringent enforcement measures it had put in place to ensure timely payments after the pandemic ruined income streams for some of State entities.

“We have been using a lot of tools and arsenals that we have available to get them to pay. But sometimes you have a situation where even salaries have not been paid… and so we weigh a lot of things,” Dr Muia told the Business Daily on the phone.

“For us, the big thing that we have been considering in this Covid era is to ensure that we don’t compound the problem.”

Section 96 of the Public Finance Management (PFM) Act and Article 225 of the Constitution give the Treasury Cabinet Secretary (CS) powers to withhold cash transfers to counties that persistently breach financial commitments.

Treasury CS Ukur Yatani earlier last financial year withheld disbursements to some counties which had not submitted payment plans for verified pending bills.

He followed it up with a warning in June that the same measure will in future apply to ministries, departments and semi-autonomous State agencies.

Treasury statistics show 85.5 percent, or Sh285.8 billion, of the pending bills at the national government level were held by State corporations which are governed by independent boards with little legal control by the ministry.

Nearly Sh190 billion, or 66.2 percent, of the pending bills by the State-owned firms were owed to contractors of public projects and suppliers, with the remainder in form of unremitted statutory and other deductions such as Pay As You Earn taxes, medical cover and pension arrears.

“It’s a matter for the boards because State corporations have got a life of their own. They are corporate institutions with boards which are supposed to sort out their case,” Dr Muia said.

“Of course given that some of them are 100 percent owned by the government, the government is the one which bails them out especially where there are indications they will not have money in the near future.”

Business lobbies such as the Kenya Private Sector Alliance (Kepsa) and Kenya Association Manufacturers (KAM) had before the Covid-19 pandemic blamed the non-payment of bills by State entities for the cash flow woes in some of the companies.

This, they argued, had cut profitability and sometimes led to layoffs to help the afflicted firms stay afloat.

Dr Muia, however, said the bulk of Sh48.3 billion owed to firms by ministries, departments and agencies by end of June have been paid following a verification process by a Pending Bills Multi-Agency Team (PB-MAT), which included accounting officers such as principal secretaries.

The team also had representation from the Attorney-General’s office, the Public Procurement Regulatory Authority, the Ethics and Anti-Corruption Commission and the Directorate of Criminal Investigations.

This, Dr Muia said, led to payment of Sh5.7 billion of the Sh6.2 billion accruing from supplies to the Prisons Department.

There were a few items that were still being verified in regard to the Sh10.6 billion bills by the National Youth Service (NYS), he said.

The Covid shocks, he added, had hammered the cash flow positions of some of parastatals which were previously paying on time, citing the Kenya Wildlife Service (KWS) whose revenue from park-entry fees had been hit hard.

“We are literally looking at every sector and saying, ‘look let’s provide as much support as possible in this very unusual circumstances,’” he said. “We are committed to make sure that bills are paid as incurred because you can’t incur bills in government until you have a budget.”